Treasury Department : : : Interna Revenue Servce

Interna Revenue uetn

Cumuatve uetn 1953-2
ULY-D C M R 1953
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INT RN L R NU
ULL TIN
CUMUL TI ULL TIN 19:3-2
uy-December 1953
n ths ssue Page
Fndng Lst III-I
Introducton 1
Ta Court of the Unted States, The 3-
Part I. Rungs and Decsons:
. Income Ta Under Reguatons 11 9-90
. Under Other Laws and Reguatons 91- 2
Part II. dmnstratve Matters 3- 71
Part III. Msceaneous 73-533
Inde 535-5 9
UNIT D ST T S
GO RNM NT IRINTING OFFIC
W S INGTON : 195
for sae by the Superntendent of Documents, U. S. Government Prntng Offce
Washngton 25, D. C. - Prce 1.50 (Paper)
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FINDING LIST
-
Page
Pago
Courtdecsons.
Revenue Rungs-Contnued
117
15
39
202
Revenue Rungs
119 .
1 6
2 9
05
130
291
292
120
209
29
121
226
303
122
235
352
123
327
117
125 .
329
193
2
126
331
19
12
127
332
169
12 .... . . ... .
30
17
97
197
220
130
99
221
131
112
199
225
132
150
200
233
133
155
201
251
13 ..
199
202
3
135 .
306
3 5
136
333
20
350
137
3 3
205
3 1
1
32
206
29
139
70
2
110
70
20 -
102
1 1
101
209
10
1 2
116
11
1 3
129
21
1
212
9
1 5
273
213
9
1 6 .
292
1 0
1 7
301
215
1 9
1
3 1
3
1 9
352
12
150 .
5
176
1 1 . .
222
1 1
152
1
220
22
153

221
1 2
15 .
173
1 3
153
1 0
329
15
253
2
157
2 6
67
15 .
259
500
159 :
297
177
1 0
11
26
161 . .
33
152
162
127
5
163 .
335
9
165 I
336
232
20
22
29
166
22
2
19
29
23
23
1
139
52
169 . .
1 1
19
170
22
63
172
226
79
173 . ..
227
S
17
299
233
175
327
2 3..
267
176
329
310
177
3 1
337
17
352
33
179
399
353
1 0.
23
2
1 1
111
37
120
3
1 3
251
69
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I
FINDING LIST Contnued
Revenue RuDgs Contnued
252
253
25 .
256.
257.
25 .
250.
260.
261.
262..
263..
26 ..
265..
266..
267..
270..
271..
272..
273..
27 ..
275..
276..
277.
27 ..
279..
2 0..
2 1..
2 ..
2 5..
291..
292.-
293..
29 ..
295..
296..
297..
299
300
Treasury Decsons:
601
6019
6020
6021
6022
602)
602
6025
6026
Page
1.7.5
3 2
51
11)
13
15
1 3
55
a
296
13
339
379
33
50
S3
12
It
35
M
M

M
265
2 .7
27 5
22
3
25
25
36
3
M

27
:r
1
2
2
257
317
322
325
371
1 :.
10
. |
17.3
132
.II
M
235
6027
6031
60T.2..
6033.
603
6035
6036
6037
603
6039
6010
60 1
60 2
60 3
60
60 5
60 6
60 7
60
0 9
6050
6051
6052
6053.
605 .
6055.
Department Crcuars:
922
931
Pubc Laws:
125 ( uy 16, 1953)
17 ( ug. 1, 1953)
196 ( U . , 1953)
212 ( m. 7, 1953)_
213 ( ug. 7, 1953)
219 ( ug. 7, 1953)_
221 ( ug. 7, 1953)
2T. ( ug. . 1953)
2 0 ( ug. , 1953)
2 3 ( ug. , 1953)
27 ( ug. 1 , 1953
2 3 ( ug. 15,
2 7 ( ug. 15,
Coramssouner t
ders:
Or-
1 ..
IS..
17.
20..
21..
23..
25.
Commttee Report :
6 5 (S. Rept.)-.
9 (II. Rept.).
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CIRCUL RS ND MIM OGR P S, CUMUL TI
ULL TINS 1953-1 ND 1953-2
Crcuars:
127
1
1 9
Mmeographs (IR)
73
9
9
97
100
106
125
126
12
129
Rev.
Ru.
No.
n
2S6

2
12
IS
10
25
37
36
22
3
uetn
. 19S3-2, 70
. 1U53-1,
. 1953-2, 500
. 1953-1, 300
. 1953-1,
. 1953-1, 290
. 1953-1, 29
. 1953-1,
. 1953-1, 31
. 1953-1,
. 1953-1, 2
. 1953-1,
. 1953-1, 171
Mmeosraphs (IR)
Contnued
133
135.
135 ( mdt. 1)..
1
173
1 1
1 3
19
209
2
260
Rev.
Ru.
No.
TO
27
102
52
If.
90
205
s
163
261
25
166
uetn
C. .
C. .
C. .
C. .
C. .
C. .
( . II.
C. .
C. .
1953-1, 95
1953-1, 5
1953-1, 6
t53-, 5
1953-2, 5
1153-2, 3 1
1953-1, 3
1953-2, 3 1
1953-1, 97
1953-2,
1953-2, 69
1953-2, 51
1953-2, 50

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INTRODUCTION
The Interna Revenue uetn s the authortatve nstrument of
the Commssoner of Interna Revenue for the announcement of
offca Interna Revenue rungs, and for the pubcaton of Treasury
Decsons, ecutve orders, egsaton, and court decsons pertanng
to Interna Revenue matters.
It s the pocy of the Servce to pubsh n the uetn a sub-
stantve and procedura rungs of mportance or genera nterest, the
pubcaton of whch s consdered necessary to promote a unform
appcaton of the aws admnstered by the Servce. It s aso the
pocy to pubsh a rungs whch revoke, modfy, amend, or affect
any pubshed rung. Rungs reatng soey to matters of nterna
management are not pubshed. The rungs are prepared n the
varous dvsons of the Natona Offce, ncudng the Offce of the
Chef Counse for the Interna Revenue Servce. pubshed
rungs have receved the consderaton and approva of the Chef
Counse.
Revenue Rungs reported n the uetn do not have the force and
effect of Treasury Department Reguatons (ncudng Treasury Dec-
sons), but are pubshed to provde precedents to be used n the ds-
poston of other cases, and may be cted and reed upon for ths
purpose. owever, snce each pubshed rung represents the con-
cuson of the Servce as to the appcaton of the aw to the entre
state of facts nvoved, Revenue offcers and others concerned are
cautoned aganst reachng the same concuson n other cases uness
the facts and crcumstances are substantay the same. In appyng
rungs pubshed n the uetn, personne of the Servce w, of
course, consder the effect of subsequent egsaton, reguatons, court
decsons, and rungs.
ach rung s desgnated as a Revenue Rung and shoud be
cted by reference to the uetn and page where reported. Thus,
Revenue Rung No. 119 shoud be cted as Rev. Ru. 119, C. .
1953-2, 95. Rungs are keyed to the appcabe sectons of the
Interna Revenue Code and reguatons.
Interna Revenue Cumuatve uetn 1953-2, contans a rungs,
decsons, and egsaton pertanng to Interna Revenue matters
pubshed n the bweeky Interna Revenue uetns 1 to 26, ncu-
sve, for the perod uy 1 to December 31, 1953. It aso contans a
cumuatve st of announcements reatng to decsons of The Ta
Court of the Unted States, pubshed n those uetns.
Ths Cumuatve uetn s prnted n three parts. The rungs
under the Interna Revenue Code are prnted as Part I ( . Income
ta under Reguatons 11 , . Under a other aws and reguatons),
rungs pertanng to admnstratve matters are prnted as Part II,
and msceaneous matters are prnted as Part III.
(1)
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2
R I TIONS
The foowng abbrevatons n current use and formery used w
appear n matera pubshed n the uetn:
, , C, etc. The names of ndvduas.
. T. coho and tobacco ta rung.
. T. . oard of Ta ppeas.
C. . Cumuatve uetn.
Ct. D. Court decson.
D. C. Treasury Department crcuar.
. O. ecutve Order.
. T. state and gft ta rung.
m. T. mpoyment ta rung.
G. C. M. Chef Counse s memorandum (formery Genera Coun-
se s memorandum).
I. R. . Interna Revenue uetn.
I. R. C. Interna Revenue Code.
IR-Mm. Pubshed IR-Mmcograph.
I. T. Income ta rung.
M, N, , Y, Z, etc. The names of corporatons, paces, or busnesses
accordng to conte t.
M. T. Msceaneous ta rung.
Mm. Pubshed Mmeograph.
P. L. Pubc Law.
Rev. Ru. Revenue Rung.
S. T. Saes ta rung.
T. C The 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.
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T T COURT OF T UNIT D ST T S
CUMUL TI LIST OF NNOUNC M NTS R L TING TO
D CISIONS OF T T COURT OF T UNIT D ST T S
PU LIS D IN T INT RN L R NU ULL TIN
FROM ULY 1, 1953, TO D C M R 31, 1953, INCLUSI
It s the pocy of the Interna Revenue Servce to announce n the
Interna Revenue uetn at the earest practcabe date the deter-
mnaton of the Commssoner to acquesce or not to acquesce n a
decson of the Ta Court of the Unted States whch dsaows a de-
fcency n ta determned by the Commssoner to be due. Notce
that the Commssoner has acquesced or nonacquesced n a decson
of the Ta Court reates ony to the ssue or ssues decded adversey
to the Government. Decsons so acquesced n shoud be reed upon
by offcers and empoyees of the Interna Revenue Servce as prece-
dents n the dsposton of other cases. (No announcements are made
n the uetn wth respect to memorandum opnons of the Ta
Court.)
The Commssoner acquesces n the foowng decsons:
Ta payer
Report
oume Page

dams, W. .-

en, . T. ., et u
ouchey, armon N
ouchey, one P
oyd, . ugene, et u
rown, Sam S
rown, Wam S., et u
C
Cage, Ouda Neson
Card, F.
Chase Natona ank, ancary e ecutor of estate of
rnod Resch -
Chase Natona ank of the Cty of New York, The,
Trust Dvson, et a., trustees (aeged transferees)
under the ast w and testament of . G. McDonad
Coke, gnes Pyne 1
Commonweath Trust Co., trustee of Royaty Partc-
paton Trust, et a
35 71
33 72
325 2
325 1
36 9
33 67
33 6
32015
35 70
26512
22506
25 22
3267
through
32697
20
20
11)
19
11)
20
20
19
20
20
19
17
20
620
9
107
107
360
73
73
575
620
171
C72
03
66
Nonacqueseence pubshed to Cumuatve uetn 1952-1, page , wthdrawn.
(3)
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cquescences Contnued
Report
oume Pate
Fak s Department Store, Inc., 0
Foster Wheeer Corporaton.
Frame, Robert G.
Frankn Pok Corporaton.
Fuer, G. ., et u
292
2697
27952
2 1 0
292 5
3 167
Gardner Trust, dna W. -
Garnett, . C. .
Garnett, etty . . - ---
Gsson, Courtney
Gobe Corporaton
Godwn, uth, e ecutr of estate of Wam oe
Godwn
Godwn, Wam oe, estate of
Goodrch, Marcus
Goodrch, Ova de avand
Gregory Run Coa Co.
GrR , Ruby G. . -
Guaranty Trust Co., et a., e ecutors of estate of
Louse DcWtt Ru ton
31739
2302
27950
320 1
27951
27951
31721
31720
356 2
ay, Nee Wood
utchnson, Forence ., et a., trustees and trans-
ferees of estate of Le G. utchnson t
utchnson, Le G., estate of s
I
Iev, . W
Iev, . W., et u .
ey, . S
Iev, . S., et u ..
Iey, G. R
Iev, G. R., et u ..
Iev, Sr., T. W__._
Iey, Sr., T. W., et
33 69
23 56
23 57
23 5
23 56
23 57
2 731
2 732
2 727
2 72
2 733
2 73
2 729
2S730
20
20
16
20
20
20
17
17
19
20
19
19
20
20
19
20
20
20
20
20
19
19
19
19
19
19
19
19 I
56
15
600
56
30
5
1 20
1 20
65
299
65
65
323
323
501
20
7
73
7 9
7 9
631
631
631
631
631
631
631
Nonacquescencc pubshed n Cumuatve uetn 1951-2, rare 5, wthdrawn.
cquescence reates ony to ssues of whether respondent rrorcry reconstructed rross rroft for 19 0 by
use of gross markup method, and whether pettoner s abe for fraud penaty for 1M9 under sec 29 (b) of
the Interna Revenue Code.
Not appcabe to transfers occurrng after the enactment of sec. S0 of the Revenue ct of 1932, T Stat.
2 0 (1932).
cquescence reate ony to whether casuaty osses and osses from sae of racehorses are ordnary osses
or capta osses.
cquescence reates ony to whether Gregory Run Coa Co. Is entted to deducton for overrdng
royates, and whether the bass for deprecaton of a tppe was ts cost or ts bass In the hands of the
transferor.
Oft ta decson.
1 state ta decson.
cquescence reates ony to whether certan transfers by decedent, pror to her death, were made In
contempaton o death.
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5
cquescences Contnued
Docket No.
oume Page
ohnson, se very.
uehner, Otte
L
Leuthesser, dward G., aeged transferee of Natona
Meta Products Corporaton 10 ...
Leuthesser, r., Fred W., aeged transferee of Na-
tona Meta Products Corporaton 10
M
Maths, r., Chares R., et u
McCready, . omer, et u
McDonad, D. G., estate of. - -
McDonad, D. G., estate of 11 -
McDonad, een une, e ecutr of estate of D. G.
McDonad
Mc amara, arey
Mer, Thomas, et u
Mnookn, Dora, e ecutr of estate of Samue Mnoo-
kn 11.
Mnookn, Samue, estate of 2.
N
Natona eas ess, Inc. .
Neson, Le L
eson, R.
O
Oestrecher, Car, soe survvng trustee of trust u/w
of Isaac Oestrecher
Oregon Lumber Co
Pacfc ffate, Inc. ..
Phadepha- atmore
Phadepha Stock :
Stock change (formery
279 9
35511
2 17
2S 1
315- 9
3 079
22506
22507
0556
22507
29 6
3 27
17210
17210
33036
3201
2013
36 56
1 60
12S36
32231
Nonacquescyce pubshed n Cumuatve uetn 1953-1, page 7, wthdrawn.
11 state ta decson.
Nonacqucscence pubshed In Cumuatve uetn 19 9-2, pace , wthdrawn.
11 cquescence reates ony to whether pettoner may deduct the far market vaue of capta stock ds-
trbuted to ts empoyees as compensaton for servces.
cquescence reates to a Issues e cept whether certan debts ncurred by pettoner n 19 3 and 19
re ncudbe as part of nvested capta wthn the meanng of sec. 719 of the Interna evenuc Code, and
whether respondent erred n determnng pettoner s nadmssbe assets.
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6
cquescences Contnued
Ta payer
Docket No.
Report
oume Pago
R
Rechert, Manson L
Reance Factorng Corporaton 11 -
Resch, rnod, estate of
Rosenberg, braham, et. u
Royaty Partcpaton Trust, et a.
Rupe, r., D. Gordon.
Rupe Son, Daas-.
Rupe, Ruby L
Ruston, Dorothy M_.
Ruston, . W
Ruston, . W., et u .
Ruston, ames..
(
1
Ruston, ame3, et u
Ru ton, Louse DeWtt, estate of
Saymaker Lock Co...
Staab, George
Staab, Mary D
Suvan, Georga . _
Suvan, ohn L.
Swtzer, Forence M_.
Swtzer, oward
Swtzer, Ida .
Swtzer, L. Genn
Thrd Natona ank and Trust Co., The, trustee of
dna W. Gardner trust 1
Thompson, een une McDonad, e ecutr of estate
of D. G. McDonad 19
Tcket Offce qupment Co., Inc
ncent, . .
ncent Co., Inc., . .M
ose, nna ., et a., e ecutors of estate of uen W.
ose 19
ose, uen W., estate of19
23 95
2992
20715
26512
37719
3267S
through
32697
356 9
356
35690
335
335 7
335 9
32576
32577
356 2
2 6
3S732
3 733
23027
23026
2 259
2 25
2 257
2S256
31739
30556
31072
27 77
27 7
27 79
30 35
10 7
10 7
19
15
20
20
20
20
20
20
19
19
19
19
19
20
(
2d
20
17
17
20
20
20
20
20
19
20
19
19
20
20
Nonacquescence pubshed In Cumuatve uetn 3651-2, page 5, wthdrawn.
1 state ta decson.
cquescence reates ony to whether casuaty osses and osses from sae of racehorses are ordnary osses
or capta osses.
Not appcabe to transfers occurrng after the enactment of sec. 0 of the Revenue ct of 1932, 7 Stat
2 0 (1 32).
state ts decson.
cquescence reates ony to whether Gregory Run Coa Co. Is entted to deducton for overrdn
royates, and whether the bass for deprecaton of a tppe was ts cost or ts bass In the bands of the
transferor.
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cquescences Contnued
Ta payer
w
Whttesey, Inc., . Newton
W co , estmore, et u
Wson and Sons Constructon Co., Inc., W. .
(formery Wson-Ingram Constructon Co.)
Wood, Gordon ar
Wood, Gordon ., testamentary trust, R. . Neson,
trustee
Docket No.
6 2
373 2
3601
32016
32017
oum Pages
pubshed In Cumuatve uetn 19 -1, page , wthdrawn.
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The Commssoner does NOT acquesce n the foowng decsons:

Ta payer
Docket No.
cces, Marrner S..
vans, ce umphreys.

a
Codman Theatres, Inc., Wam
Gonzaez, Guermo ., et a., e ecutors of estate of
Cotde Santago Rvera 1

nargs, F.
arrs, F. ., admnstrator of estate of . F. arrs.
args, F. ., admnstrator of estate of Mary M.
args
args, . F., estate of -. --
args, Mary M., estate of
args, Ruth
ome Tte Guaranty Co
utchnson, Forence ., et a., trustees and transferees
of estate of Le G. utchnson 1
utchnson, Le G., estate of 1 .
L
Luton, oe
Pacfc ffate, Inc. .
Rvera, Cotde Santago, estate of
32 23
35130
29150
36335
26 76
3169
26 7
20 75
26 7
26 75
31695
20631
23S56
23 57
23 5
23 56
23 57
23 5S
C 2(533
12 36
36335
Report
oume Page
19
19
19
f
19
19
19
19
15
20
20
1
1
19
state ta decson.
Nonacqucscence reates ony to whether face amounts of nsurance contracts whch decedent, durng her
fetme, assgned to her sons, are ncudbe n her estate as transfers to take effect at her death.
1 Nonacquescence reates to whether certan debts Incurred by pettoner n 19 3 and 1S are ncudbe
as part of nvested capta wthn the meanng of sec. 719 of the Interna Revenue Code, aod whether
respondent erred n determnng pettoner s nadmssbe assets.
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P RT I. RULINGS ND D CISIONS
. INCOM T UND R R GUL TIONS 11
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
Reguatons 11 , Secton 39.22(a)-1: What Rev. Ru. 231
ncuded n gross ncome.
INT RN L R NU COD
Where In accordance wth a prearranged pan a ta payer provdes
the means for a securty deaer to purchase a controng nterest
n the stock of a corporaton and transfer such nterest to the ta -
payer, a dvdend decared and pad at a tme when the deaer s the
record owner of the stock s ncudbe n the gross ncome of the
ta payer.
dvce s requested whether a securty deaer who acqures stock
of a corporaton pursuant to an agreement to se such stock to a
thrd party e -dvdend, shoud ncude n cross ncome the dvdends
whch are dstrbuted whe he s the record owner of such stock.
ta payer nterested n obtanng the physca propertes of a
corporaton, but deterred by the arge undstrbuted earned surpus
of such corporaton, entered nto an agreement wth a securty deaer
for the purchase of the stock thereof e -dvdend. Under the terms
of the agreement the ta payer agreed to nvest up to a certan amount
provded that (1) acquston of at east 5 percent of the stock coud
be obtaned and (2) the surpus coud be reduced pror to acquston.
It was aso agreed that the ta payer woud make funds avaabe to
the securty deaer to buy the stock and that the deaer woud decare
tsef a dvdend and transfer the stock to the ta payer-purchaser at
ts cost ess the dvdend receved, and pus a fee of 1 per share of
stock. Over 90 percent of the outstandng stock of the corporaton
was thus acqured. Whe the affars of the corporaton were n the
hands of the deaer, new drectors were apponted and a arge dvdend
was dstrbuted. The sae prce of the stock to the purchaser was
reduced by the amount of the dvdend receved by the deaer.
(9)
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Regs. 11 , 39.22(a)- .
10
It s a we estabshed fact that the substance rather than the form
of a transacton s to be regarded for Federa ncome ta purposes
and that ta aton s more concerned wth the actua command over
the property ta ed than over refnements of ownershp. Chares .
Corss v. Frank . owers, 2 1 U. S. 376, Ct. D. 1 , C. . I -1,25
(1930). In the nstant case, t appears that the purchaser made ava-
abe the funds wth whch the stock was acqured; that the broker
had no rea nterest n the dvdend but was bound by the terms of
the agreement to reduce the saes prce of the stock by the amount of
such dvdend; and that the ony benefts that coud nure to the
broker under the agreement was a f ed commsson per share of stock
transferred to the purchaser. ccordngy, t s hed that the dvdend
s ncudbe n the gross ncome of the ta payer under secton 22(a)
of the Interna Revenue Code.
Reguatons 11 , Secton 39.22(a)-: What Rev. Ru.255
ncuded n gross ncome.
( so Secton 39.22(a)-20; Secton 115(c),
Secton 39.115(c)- .)
INT RN L R NU COD
Commssons payabe to a corporaton n qudaton consttute
ta abe ncome to such corporaton where, pror to the date of fng
the certfcate of dssouton and pror to the date on whch the
r ht to receve the commssons was assgned to ts soe stockhoder,
the corporaton had performed a of the servces requred to earn
the commssons.
dvce s requested whether commssons payabe to a corporaton n
qudaton consttute ta abe ncome to such corporaton where pror
to the date of fng the certfcate of dssouton and pror to the date
on whch the rght to receve the commssons was assgned to ts soe
stockhoder, the corporaton had performed a the servces requred
to earn the commssons.
The ta payer corporaton was engaged n busness as a commsson
broker. Under estabshed procedure, the ta payer secured orders
from customers n ts terrtory. These orders were then commun-
cated to the seer for ts approva as to terms of payment and dev-
ery. Such approva was usuay prompt and preceded the forma
e ecuton of the order between the customer and the ta payer. fter
an order was e ecuted and submtted to the seer the ta payer had no
further dutes to perform n earnng ts commssons from the seer.
The acceptance of an order by the seer competed the corporaton s
servces. The actua payment of the commssons by the seer usuay
foowed soon after the goods were shpped by the seer. It had been
the consstent practce of the ta payer to accrue as ncome from com-
mssons at the cose of each year, the commssons due t on goods
shpped by the seers wthn the year, payment for whch had not
been receved wthn the year.
The corporaton, whch reported ts ncome on the accrua bass,
made a dstrbuton of certan of ts assets, ncudng accounts recev-
abe, pursuant to a stockhoder s resouton to qudate the corporaton
and dstrbute ts assets to ts soe stockhoder. t the tme of the
dstrbuton there were outstandng varous unfed orders, e ecuted
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11 Regs. 11 , 39.22(a)- .
by the corporaton and certan customers whch had been approved
and accepted by the seer but wth respect to whch the goods nvoved
had not been shpped. The rght to receve the commssons on these
orders was assgned to the soe stockhoder as part of the dstrbuton
n the qudaton of the corporaton under secton 115(c) of the
Interna Revenue Code and the soe stockhoder treated the proceeds
of the qudaton to the e tent that they e ceeded the bass of hs
stock as capta gan. No contenton was made that the rght to coect
these commssons was worth ess than fu vaue. It s contended,
however, that, snce these commssons recevabe were assgned to the
soe stockhoder before the goods were shpped by the seer, they were
not accrued pror to the assgnment n qudaton and therefore dd
not consttute corporate ncome and were not ta abe as such.
Notwthstandng the provsons of secton 39.22(a)-20 of Regua-
tons 11 , that a corporaton reazes no gan or oss from the mere
dstrbuton of ts assets n knd n parta or compete qudaton, a
corporaton s ta abe on ncome earned up to the tme of qudaton
athough such ncome has not been receved. (See /ud Pumbng and
eatng, Inc., et a. v. Commssoner, 5 T. C. 127, affrmed, 153 Fed.
(2d) C 1; Standard Pavng Co., et a. v. Commssoner, 13 T. C. 25;
Foyd et a. v. Scofed, 193 Fed. (2d) 59 .)
In dscussng ths ssue, the Unted States Court of ppeas for the
Ffth Crcut n the case of ud Pumbng and eatng, Inc., supra,
used the foowng anguage:
corporaton beng a separate ega entty, ts net earnngs, whether ascer-
taned or not, beong to t, and the ta upon une empt ncome n each ta abe
year s chargeabe to t, and ths abty cannot be dscharged by the
smpe e pedent of dssouton and turnng over of a ts assets, ncudng cur-
rent and unreported ncome, to ts soe stockhoder, even though such corporaton
receves no money consderaton for the transfer of such ncome. It s the
actuaty of ncome rather than ts dsposton tat s mportant n determnng
the ta consequence.
In Morrs Cohen v. Commssoner, 15 T. C. 261, acquescence, C. .
1951-1, 1, t was hed that compensaton derved from past persona
servces s ta abe to the one who performed the servces whether or
not he actuay receves the compensaton or transfers the rght to
receve t before t s pad. In the case of everng v. Pau R. G.
orst, 311 U. S. 112, Ct. D. 1 72, C. . 19 0-2,206, the Supreme Court
of the Unted States sad ut the rue that ncome s not ta abe unt
reazed has never been taken to mean that the ta payer, even on a
cash recepts bass, who has fuy en|oyed the beneft of the economc
gan represented by hs rght to receve ncome, can escape ta aton
ecause he has not hmsef receved payment of t from hs obgor.
Snce the acceptance by the seer competed the corporaton s serv-
ces n obtanng the orders, the commssons due the ta payer from
the seer had been earned by the corporaton pror to dssouton.
The rght to receve these commssons from the seer had been deter-
mned and ths ncome represented compensaton for servces actuay
rendered by the corporaton. It s mmatera that the recept of the
commssons had to awat the shpment of the goods. The assgnment
to ts soe stockhoder of the rght to receve ths earned ncome was
neffectua to reeve the corporaton from the ta thereon. The trans-
fer of assets n a corporate qudaton cannot dvert ta abty of
ncome aready earned any more than does an assgnment of such
2 670 5 2
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Regs. 11 , 39.22 (b)( )- .
12
ncome. Unted States v. Lynch, 192 F. (2d) 71 , certorar dened,
3 3 U. S. 93 .
In vew of the foregong, t s hed that commssons payabe to a
corporaton n qudaton consttute ta abe ncome to such corpora-
ton where, pror to the date of fng the certfcate of dssouton
and pror to the date on whch the rght to receve the commssons was
assgned to ts soe stockhoder, the corporaton had performed a of
the servces requred to earn the commssons.
Reguatons 11 , Secton 39.22(a)-5: Gross Rev. Ru. 217
ncome from busness.
( so Secton 117(k), Secton 39.117(k)-.)
INT RN L R NU COD
Trees marketed as Chrstmas trees do not consttute tmber wthn
the meanng of secton 117(k) of the Interna Revenue Code, and an
eecton may not be made to treat the cuttng of such trees as a sae
or e change of tmber n whch any gan reazed may be treated as
ong-term capta gan. The proceeds from the sae of Chrstmas trees
consttute ordnary ncome.
S CTION 22(b). GROSS INCOM : CLUSIONS
FROM GROSS INCOM
Reguatons 11 , Secton 39.22(b) (2)-2: n-
nutes.
INT RN L R NU COD
Payments under an annuty contract receved as consderaton for
the transfer of rea estate. (See Rev. Ru. 239, p. 53.)
Reguatons 11 , Secton 39.22(b) ( )- : Inter- Rev. Ru. 26
est upon Unted States obgatons.
INT RN L R NU COD
Interest receved by Unted States ctzens on obgatons ssued
by the Genera Suppes dmnstraton, a dvson of the Puerto
Rcan Department of grcuture and Commerce, s e empt from
Federa ncome ta .
dvce s requested whether nterest receved by ctzens of the
Unted States on obgatons ssued by the Genera Suppes dmn-
straton of Puerto Rco, a dvson of the Puerto Rcan Department
of grcuture and Commerce, s e empt from Federa ncome ta
under secton 22(b) ( ) of the Interna Revenue Code.
The Genera Suppes dmnstraton of Puerto Rco was created
as an agency of the e ecutve branch of the Government of Puerto
Rco by the Insuar Suppes ct of 19 2 ( ct No. 22 of the Legsa-
ture of Puerto Rco). The act entrusted to the dmnstraton var-
ous eoonomc stabzaton functons ncudng: (a) the provson of
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13
IRegs. 11 , 5 39.22(b)(5).
an adequate suppy of stape commodtes, (I) prce contros and
ratonng, and (c | varous reated and suppementary functons.
In 1950 the functons of the dmnstraton were transferred to the
Puerto Rcan Department of grcuture and Commerce n accordance
wth a reorganzaton pan promugated by the Governor of Puerto
Rco pursuant to the Reorganzaton ct of 19 9. The dmnstra-
ton ceased to e st as a separate agency and became a dvson of the
Department of grcuture and Commerce, under the drecton of the
Commssoner of grcuture and Commerce.
Secton 22(b) of the Interna Revenue Code provdes n part:
cusons From Gross Income. The foowng tems sha not be Incuded
In gross ncome and sha be e empt from ta aton under ths chapter:

( ) Ta -free nterest. Interest upon (C) the obgatons of
the Unted States or ts possessons.
For the purposes of secton 22(b) ( ) of the Code, Puerto Rco s a
possesson of the Unted States. Secton (a) of the Pubc Debt
ct of 19 1, C. . 19 1-1, 5 6, whch termnated the e empton fea-
ture of obgatons ssued by the Unted States and agences and n-
strumentates thereof, provded that for the purposes of such ter-
mnaton:
a possesson of the Unted States and any potca sub-
dvson thereof, and any agency or nstrumentaty of any one or more of the
foregong, sha not be consdered as an agency or nstrumentaty of the Unted
States.
The e empton provson of secton 22(b) ( ) (C) of the Code has re-
maned n effect wth respect to obgatons of possessons of the Unted
States. See secton 39.22(b) ( )- (b) of Reguatons 11 .
In vew of the foregong, t s hed that nterest receved by Unted
States ctzens from obgatons ssued by the Genera Suppes d-
mnstraton, a dvson of the Puerto Rcan Department of grcu-
ture and Commerce, s e empt from Federa ncome ta under secton
22(b)( ) of the Code.
Rev. Ru. 256
INT RN L R NU COD
The dsabty retrement pay of a member of the unformed serv-
ces who s retred under secton 02 of the Career Compensaton
ct of 19 9 ( 63 Stat. 02) and who s aso entted to the benefts
of the Pay Read|ustment ct of 19 2 (56 Stat. 359) because of serv-
ce n the mtary forces of the Unted States pror to November 12,
191 , Is e cudabe from the gross ncome of the recpent under sec-
ton 22(b) (5) of the Interna Revenue Code ony to the e tent of the
pay he woud have receved f such pay were computed on the bass
of percentage of dsabty. The amount receved n e cess thereof
s ncudbe n gross ncome and s sub|ect to wthhodng of ncome
ta at the source under secton 1622 of the Code.
dvce s requested reatve to the status for Federa ncome ta
purposes of dsabty retrement pay receved by members of the
unformed servces who eect under secton 02 of the Career Compen-
saton ct of 19 9 (63 Stat. 02) to have ther retrement pay com-
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Regs. 11 , 39.22(b)(5).
1
puted on the bass of percentage of dsabty and who are aso entted
to the benefts of the Pay Read|ustment ct of 19 2 (56 Stat. 359)
because of servce n the mtary forces of the Unted States pror
to November 12,191 .
In the case under consderaton an offcer of the Unted States
Navy was transferred to the Nava Reserve Retred Lst n Septem-
ber 1951. e receved gross monthy retrement pay of 2a doars
whch, snce t was computed on the bass of years of servce, was
ta abe. In February 1953 the records were corrected to show that
as of hs retrement date he was paced on the temporary dsabty
retred st wth a dsabty ratng of 30 percent n accordance wth
the Career Compensaton ct, supra. Pursuant to the provsons of
secton 02 of that act, he eected to receve retrement pay of 3a
doars per month based on percentage of dsabty rather than 2a
doars per month based on years of servce. In May 1953, snce
he had served n the Navy pror to November 12,191 , hs account was
further ad|usted, pursuant to the Pay Read|ustment ct of 19 2,
supra, retroactve to the retrement date, to a gross monthy rate of
5 doars, whch s 75 percent of the actve duty pay of an offcer of
hs rank and years of servce.
Secton 22(b) (5) of the Interna Revenue Code provdes n part as
foows:
(b) cusons from Gross Income. The foowng Items sha not be In-
cuded n gross ncome and sha be e empt from ta aton under ths chapter
Ich. 1 of the Code :

(5) Compensaton for n|ures or sckness. amounts re-
ceved as a penson, annuty, or smar aowance for persona n|ures or
sckness resutng from actve servce n the rmed Forces of any country;
Paragraph of secton 15 of the Pay Read|ustment ct of 19 2,
supra, provdes as foows:
The retred pay of any offcer of any of the servces mentoned n the tte of
ths ct who served n any capacty as a member of the mtary or nava forces
of the Unted States pror to November 12, 191 , hereafter retred under any
provson of aw, sha, uness such offcer s entted to retred pay of a hgher
grade, be 75 per centum of hs actve duty pay at the tme of hs retrement
Secton 02(h) of the Career Compensaton ct of 19 9, supra,
provdes as foows:
That part of the dsabty retrement pay computed on the bass of years of
actve servce whch s n e cess of the dsabty retrement pay that a member
woud receve f such dsabty pay were computed on the bass of percentage of
dsabty sha not be deemed to be a penson, annuty, or smar aowance for
persona n|ures or sckness resutng from actve servce In the armed servce a
the rmed Forces of any country wthn the meanng of secton 22(b) (5) of the
Interna Revenue Code, as amended.
In 31 Comp. Gen. 2 and 31 Comp. Gen. 213. the Comptroer Gen-
era hed that both reguar and reserve members of the unformed
forces paced on the temporary or permanent dsabty retred st on
and after October 1,19 9, n conformty wth the provsons of secton
02 of the Career Compensaton ct of 19 9 are entted to the bene-
fts of paragraph of secton 15 of the Pay Read|ustment ct of 19 2
so as to have ther retred pay computed at the rate of three-fourths
of the actve duty pay of the grade n whch they were servng at the
tme of retrement.
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15
Regs. 11 , 39.22(b)(5).
Secton 02(h) of the Career Compensaton ct, tupra, prescrbes
what porton of the payments under ths act w be e empt from Fed-
era ncome ta under secton 22(b) (5) of the Code. Under secton
02(h) the e empton s mted to that porton of the dsabty re-
trement pay that woud have been receved f such pay were computed
on the bass of percentage of dsabty. Thus the ta e empton Dene-
ft of secton 22(b) (5) of the Code does not appy to that part of the
dsabty retrement pay that a member receves whch s n e cess of
the pay that he woud have receved f t had been computed on the
bass of percentage of dsabty, whether such e cess payment s due
to the computaton of retrement pay on the bass of years of actve
servce, or by reason of some other provson of aw, such as, n the
nstant case, paragraph of secton 15 of the Pay Read|ustment ct
cf 19 2.
In vew of the foregong, t s hed that the retrement pay of mem-
bers of the unformed servces entted to the benefts of the Pay Read-
|ustment ct of 19 2, to the e tent t e ceeds the retrement pay com-
puted on a percentage of dsabty bass under the provsons of the
Career Compensaton ct of 19 9, consttutes ta abe ncome for
Federa ncome ta purposes, s ncudbe n the gross ncome of the
recpent n the year of recept, and s sub|ect to wthhodng of ncome
ta at the source under secton 1622 of the Code. In the nstant case,
the dfference between 5 doars and doars s not e empt from
Federa ncome ta under secton 22(b) (5) of the Interna Revenue
Code.
though ths rung hods certan portons of such retrement pay
are ta abe and sub|ect to the wthhodng of ncome ta at the source
under secton 1622 of the Code, under the authorty of secton 3791 (b)
of the Code, wthhodng of the ta sha not be requred wth respect
to any such payments made pror to anuary 1, 195 . owever, the
recpents are requred to report such ncome n ther returns for the
year of recept.
Rev. Ru. 257
INT RN L R NU COD
Nonoccupatona dsabty benefts pad under artce 9 of the
New York workmen s compensaton aw are not e cudabe from
the gross Income of the recpents as amounts receved under work-
men s compensaton acts wthn the purvew of secton 22(b) (5)
of the Interna Revenue Code.
dvce s requested whether nonoccupatona dsabty benefts
pad under artce 9 of the New York workmen s compensaton aw,
generay known as the dsabty benefts aw, are e cudabe from
the gross ncome of the recpents as amounts receved under work-
men s compensaton acts wthn the purvew of secton 22(b) (5) of
the Interna Revenue Code.
Secton 22 (b) (5) of the Code provdes n part:
(b) cusons From Gross Income. The foowng tems sha not be n-
cuded n gross ncome and sha be e empt from ta aton under ths chapter
ch. 1 of the Code :

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Regs. 11 , 39.22(b)(5).
16
(5) Compensaton fob n|ubeb ob sckness. cept In the ease of
amounts attrbutabe to (and not n e cess of) deductons aowed under
secton 23( ) n any pror ta abe year, amounts receved,
under workmen s compensaton acts, as compensaton for persona
n|ures or sckness .
Workmen s compensaton acts have not been understood to en-
compass anythng other than occupatona dsabty or n|ures.
The fact that New York for ts own reasons paced ts nonoccupa-
tona benefts provsons wthn the confnes of ts workmen s com-
pensaton aw s not determnatve of what s or s not workmen s
compensaton for purposes of secton 22(b) (5) of the Code. If such
nonoccupatona dsabty benefts were regarded as workmen s com-
pensaton wthn the ambt of secton 22(b)(5) of the Code, those
States whch requre the payment of smar benefts but whch do
not dentfy ther statutes as workmen s compensaton acts woud
be treated dfferenty than New York, athough there s no factua
dfference between the statutes or the benefts.
In vew of the foregong, t s hed that nonoccupatona dsabty
benefts pad pursuant to artce 9 of the New York workmen s com-
pensaton aw are not e cudabe from the gross ncome of the re-
cpents as amounts receved under workmen s compensaton acts
wthn the purvew of secton 22(b) (5) of the Code. Cf. Rev. Ru
20 , page 102, ths uetn, and Rev. Ru. 209, page 10 , ths uetn.
Rev. Ru. 269
INT RN L R NC COD
Permanent dsabty retrement benefts receved from the
Teachers Retrement System of the State of Inos consttute ac-
ceerated retrement pay for ength of servce and are not e cudabe
from gross ncome as accdent or heath nsurance under secton
22(b) (5) of the Interna Revenue Code. Thnt part of the System
whch provdes for temporary dsabty benefts consttutes a pan
of Insurance wthn the meanng of secton 22(b) (5) of the Code,
and payments receved thereunder are e cudabe from gross ncome.
The e cusons from gross ncome under secton 22(b) (5) s ava-
abe even though the system s a trust quafed under secton 105(a).
dvce s requested whether permanent dsabty retrement and
temporary dsabty benefts receved under the Teachers Retre-
ment System of the State of Inos are e cudabe from gross ncome
under secton 22 (b)(5 of the Interna Revenue Code.
The State of Inos has created by statute and paced under the
admnstraton of a board of trustees a teachers retrement system
whch provdes member pubc schoo teachers, who meet specfed re-
qurements, wth death, age retrement, permanent dsabty, and tem-
porary dsabty benefts n specfed amounts and for specfed perods
of tme. Inos Revsed Statutes (1951), chapter 122, artce 25
(Teachers Retrement System).
The statute provdes that upon the appcaton of a member or of hs
empoyer any member who has had 10 or more years of credtabe
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17
Regs. 11 , 5 39.22(b)(5).
servce and who s not entted to an age retrement aowance may be
retred for physca dsabty and receve a permanent dsabty re-
trement beneft (Sec. 25-5 .) Under the provsons of the statute the
permanent dsabty beneft s cosey attuned to age retrement.
Such beneft s prmary based on the actuara equvaent of the ac-
cumuated contrbutons of the retrng member at the tme of hs or
her retrement pus a stated percentage of the annuty the member
woud have been provded at the mnmum age at whch the mem-
ber woud have been egbe for age retrement. (Sec. 29-55.)
The statute provdes further that a member pubc schoo teacher
who s not entted to ether an age retrement or to a dsabty re-
trement beneft, who has been engaged n teachng or n other spec-
fed occupatons for at east 5 years, and who has been a contrbutor
to the system for at east 1 year after uy 1, 19 7, may, upon ap-
pcaton, be granted a temporary dsabty beneft. The amount of
the temporary dsabty beneft s equa to 0 percent of the member s
most recent saary at the tme dsabty occurred, payabe n monthy
nstaments at an annua rate of 0 percent of the most recent annua
contract saary of the member at the date of dsabty. In addton
to the temporary dsabty beneft, dsabed members receve credt
n eu of norma contrbutons whch they woud otherwse have
made. (Sec. 25-56.1.)
Member teachers hep to fnance the system by contrbutng a per-
centage of ther saares. The State of Inos annuay contrbutes
enough money to make the estmated credts to the varous funds n
the system equa the estmated charges. The funds of the system
are separate from norma State funds. The payment of the requred
State contrbutons, the creaton and mantenance of proper baances
n the varous funds, the credtng of reguar nterest, and the pay-
ment of a pensons, annutes, retrement aowances, death benefts,
refunds and other benefts granted under the provsons of, or assumed
by, ths retrement system n connecton wth the admnstraton and
operaton thereof are aso made obgatons of Inos by the statute.
If a member ceases to be a teacher for any cause other than death, he
s entted to a refund of hs contrbuton to the system, ess any re-
funds prevousy made, wthout nterest.
Secton 22(b)(5) of the Interna Revenue Code provdes n part
for the e cuson from gross ncome of amounts receved, through
accdent or heath nsurance or under workmen s compensaton acts,
as compensaton for persona n|ury or sckness, pus the amount of
any damages receved whether by sut or agreement on account of such
n|ury or sckness.
Retrement pay for ength of servce or age s not e cudabe from
gross ncome under secton 22(b) (5) of the Code. (See I. T. 3 2 ,
C. . 19 0-2, 60.) In the system under consderaton, there s a cose
reatonshp between the permanent dsabty retrement and the age
retrement benefts. The amount of the permanent dsabty beneft
s cosey attuned to that for age retrement Ony those members
who are negbe for norma age retrement can appy for the per-
manent dsabty retrement beneft. nd, as a genera rue, a mem-
ber must have at east 10 years of credtabe servce to receve the
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Regs. 11 , 39.22(b)(5).
1
permanent dsabty beneft. It s accordngy hed that the perma-
nent dsabty retrement provded by the Teachers Retrement Sys-
tem of the State of Inos s an acceerated retrement provson and
s not e empt from Federa ncome ta as heath or accdent nsur-
ance under secton 22(b) (5) of the Code.
Wth respect to that part of the system whch provdes for the
payment of temporary dsabty benefts, t s to be noted that the
mere e stence of a compusory benefts statute does not, n tsef,
transform ts benefts nto nsurance for purposes of secton 22(b) (5)
of the Code. (See I. T. 107, C. . 1952-2, 73.) owever, the tem-
porary dsabty benefts part of the system has other features that
combne to make t a pan of nsurance. genuney ndependent
fund admnstered by a board of trustees separate from the reguar
governmenta estabshment of Inos pays the benefts. The mones
necessary to provde the benefts are derved from member teachers
as we as from the State. Member teachers possess f ed rghts
aganst the system and the State. gbty for benefts does not
depend on age or a ong perod of servce but on a reatvey short
perod of servce and dsabty. nd the benefts, whch equa prede-
termned amounts are based not on empoyee or empoyer contrbu-
tons, ke the permanent dsabty retrement pensons, but on a
percentage of saary. It s accordngy hed that the part of the
Teachers Retrement System whch provdes for temporary dsabty
benefts consttutes a pan of nsurance wthn the meanng of secton
22(b) (5) of the Code, and payments receved thereunder are e cud-
abe from the gross ncome of the recpents. Cf. Rev. Ru. 209,
page 10 , ths uetn.
The system s a trust quafed under secton 165(a) of the Code
despte the fact that the temporary dsabty benefts are e cudabe
from gross ncome under secton 22(b)(5). beneft e cudabe
under secton 22(b)(5) may be provded by a trust wthout auto-
matcay preventng ts quafcaton under secton 165(a). -
though a pan otherwse quafyng under secton 165(a) may devote
so great a part of ts funds to the provson of sckness or n|ury
benefts as to prevent ts quafcaton under secton 165(a), the tem-
porary dsabty benefts n the nstant case are not that arge n
reaton to the other benefts provded. See Reguatons 11 , secton
39.23 (p)-. Therefore, the e cuson of secton 22(b)(5) super-
sedes the ta ng provson of 165(b) so far as the temporary ds-
abty benefts are concerned. owever, the permanent dsabty
retrement benefts w be ta ed as prescrbed by secton 165(b) of
the Code, whch requres that the penson be ta ed as f t were an
annuty under secton 22(b) (2) of the Code. Contrbutons by mem-
bers to the system w be treated under secton 22(b) (2) as the cost
of the annuty. Snce credts towards age and dsabty retrement
pensons made on behaf of an empoyee by the system durng a
perod of temporary dsabty are not ta abe as ncome, they w
not consttute a part of the cost of the annuty.
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19 (Regs. 11 , 5 39.23 (a)-.
S CTION 22(d). GROSS INCOM : IN NTORI S-
L CTI M T OD
Reguatons 11 , Secton 39.22(d)-: Last-n Rev. Ru. 23
frst-out nventores.
INT RN L R NU COD
Prce nde es for uy 1953 pubshed by the ureau of Labor
Statstcs on September 2, 1953. for use by department stores
empoyng the reta nventory and eectve nventory methods.
The foowng prce nde es for uy 1953 pubshed by the ureau
of Labor Statstcs on September 2,1953, for use by department stores
empoyng the reta nventory and eectve nventory methods, are
accepted by the Interna Revenue Servce pursuant to Treasury
Decson 5605, C. . 19 -1, 16, and Mmeograph 621 , C. . 19 -1.
21, for approprate appcaton to nventores for ta abe years of
12 months ended on une 30,1953, and uy 31,1953.
ureau of Labor Statstcs, department store nventory prce nde es, by
department groups
anuary 19 1 100
Percent
change from
uv 1952 to
uy 1953
Group
uy
1952
uy

L Pece good , domestcs and draperes .
1953
III. Lades underwear
20 .2
210.
17 .7
179. 5
203.
205.3
190.0
156.0
160.
170.6
203,3
212. 1
172.7
179.2
201.6
-0.
0.6
-1.1
I . Lades outerwear and grs wear
-a 2
. Men s and boys wear
-0.9
2.5
3.1
-0.
2.1
0
L Furnture and beddng. ..
2a
Ma|or appances and eectrca goods
195.
157.
163.
170.6
I . Notons and toet artces
Tota, Orotrps I, II, III, I , , I , and .
1 9. 5
1 6.6
1 .5
1 9.3
190.6
1 9.6
-0.1
Tota, Groups I, II, and III
Store tota
ae
Reguatons 11 , Secton 39.22(d)-7: Invo-
untary qudaton and repacement.
INT RN L R NU COD
Interm aowance n respect of overpayment of ta . (See Rev.
Ru. 2 1, p. 5.)
S CTION 23(a). D DUCTIONS FROM GROSS
INCOM : P NS S
Reguatons 11 , Secton 39.23(a)-: usness Rev. Ru. 16
e penses.
INT RN L R NU COD
penaty payment made by a ta payer to hs mortgagee to obtan
a reease from the mortgage on property used n hs trade or busness,
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Regs. 11 , 39.23(e)- .
20
n order to secure a new oan from another source, s deductbe by the
ta payer n the year of payment or accrua, dependng on the ta -
payers method of reportng ncome.
Reguatons 11 , Secton 39.23(a)-15: Nontrade
or nonbusness e penses.
INT RN L R NU COD
ecton wth respect to the treatment of certan admnstratve
e penses of an estate for Federa ncome ta purposes. (See Rev.
Ru. 2 0, p. 79.)
S CTION 23(e). D DUCTIONS FROM GROSS INCOM :
LOSS S Y INDI IDU LS
Reguatons 11 , Secton 39.23 (e)-: Losses Rev. Ru. 2 6
by ndvduas.
nterna revenue code
Ony that part of a oss resutng from the sae of property used
for both persona and ncome-producng purposes that can be aocated
to the ncome-producng porton of the property consttutes a oss
wthn the meanng of secton 23(e) of the Interna Revenue Code.
In determnng the gan or oss on the sae, there must be an actua
aocaton of the amounts whch represent cost, seng prce, depreca-
ton aowed or aowabe, and seng e penses to the respectve por-
tons of property n the same manner as f there were two separate
transactons. The e ampe set forth beow, assumng that 0 percent
of the property or 0 percent of ts use s aocabe to ncome-producng
purposes, w best serve to ustrate the method of computaton:
Income-producng Persona
Seng prce of property 36,000 9,000
Cost of property ,000 12,000
Less ad|ustment for deprecaton . 12,000
d|usted bass 36,000
Gan or (oss) O (3, 000)
Less e pense of sae 2, 00 600
Net Gan or (oss) (2, 00) (3,600)
s a resut of the foregong aocaton, the net oss of 2, 00 appcabe
to the ncome-producng porton of the property woud be deductbe
from the gross ncome of the ndvdua, sub|ect to the provsons of
secton 117 of the Interna Revenue Code, and the net oss of 3,600
appcabe to persona use, woud not be aowabe as a deducton under
secton 23(e) of the Code. See secton 39.23 (e) (1) of Reguatons 11 .
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21
Regs. 11 , 39.23 (q)-.
S CTION 23(k). D DUCTIONS FROM GROSS
INCOM : D D TS
Reguatons 11 , Secton 39.23(k)-5: Reserve Rev. Ru. 211
for bad debts.
INT RN L R NU COD
n eecton of ether the reserve for bad debts method or the specfc
chargeoff method of treatng bad debt osses sustaned by a mutua
savngs bank may be made n any ta abe year begnnng after De-
cember 31,1951, but not ater than the frst ta abe year n whch the
bank sustaned actua bad debts. Ths s true rrespectve of whether
a deducton for such bad debts was taken n a Federa ncome ta
return. See Secton 39.23 (k)- of Reguatons 11 wth resDect to
permsson for changng the method of treatng bad debts.
S CTION 23(m). D DUCTIONS FROM GROSS
INCOM : D PL TION
Reguatons 11 , Secton 39.23(m)-: Depeton
of mnes, o and gas wes, other natura de-
posts, and tmber; deprecaton of mprove-
ments.
INT RN L R NU COD
Processes ncuded n mnng wth respect to cacum carbonates and
shae mned for use n the manufacture of cement. (See Rev. Ru.
290, p. 1.)
S CTION 23 (q). D DUCTIONS FROM GROSS INCOM :
C RIT L ND OT R CONTRI UTIONS Y COR-
POR TIONS
Reguatons 11 , Secton 39.23(q)-: Contr- Rev. Ru. 2 7
butons or gfts by corporatons.
INT RN L R NU COD
Where a corporaton s net ncome for a ta abe year has been
reduced due to a net operatng oss carryback, ts chartabe deduc-
tons under secton 23(q) of the Interna Revenue Code must be
revsed to an amount whch does not e ceed 5 percent of the ta -
payer s net ncome after appcaton of the carryback.
dvce s requested as to the deducton for contrbutons aowabe
for Federa ncome ta purposes under secton 23 (q) of the Interna
Revenue Code, where the net ncome of a corporaton for the ta abe
vear has been subsequenty reduced due to a net operatng oss carry-
back under the provsons of secton 122 of the Code.
Secton 23(q) of the Code provdes that n computng net ncome,
n the case of a corporaton, there sha be aowed as deductons
contrbutons or gfts payment of whch s made wthn the ta abe
year to or for the use of the types of organzatons descrbed theren,
mted to an amount whch does not e ceed 5 percent of the ta -
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Regs. 11 , 39.25-2.
22
payer s net ncome as computed wthout the beneft of the deducton
for contrbutons.
Secton 23 (s) of the Code aso provdes that n computng net n-
come there sha be aowed as deductons for any ta abe year begn-
nng after December 31, 1939, the net operatng oss deducton under
secton 122 of the Code. Under secton 122 of the Code the beneft
of a net operatng oss s granted through the medum of a carryback
or a carryover to other ta abe years, n a specfed sequence.
Snce the percentage mtaton for contrbuton deductons s, n
the case of a corporaton, based on net ncome and the net operatng
oss deducton s one of the deductons to be taken n arrvng at net
ncome, t foows that n computng the ncome for a year to whch
a net operatng oss deducton s appcabe, the chartabe contrbuton
deducton must be revsed to meet the percentage mtaton of secton
23 (q) of the Code after the appcaton of the net operatng oss
deducton. Ths concuson s n accord wth the prncpes set forth
n I. T. 3733, C. . 19 5, 119, IR-Mm. 3, C. . 1952-2, 112 and
dward C. Thayer et u . v. Commssoner, 12 T. C. 795, acquescence
C. . 1950-1, 5.
ccordngy, t s hed that where a corporaton s net ncome for a
ta abe year has been reduced due to a net operatng oss carryback,
ts chartabe deductons under secton 23 (q) of the Interna Revenue
Code must be revsed to an amount whch does not e ceed 5 percent of
the ta payer s net ncome after appcaton of the carryback.
S CTION 23(aa). D DUCTIONS FROM GROSS INCOM :
OPTION L ST ND RD D DUCTION
Reguatons 11 , Secton 39.23(aa)-: Standard Rev.Ru. 2 0
deducton.
INT RN L R NU COD
Where a ta payer cams no temzed deductons and makes an eec-
ton under secton 23(aa) (1) of the Interna Revenue Code to take
the standard deducton n computng hs Federa ncome ta , and
where hs ad|usted gross ncome for the ta abe year s subsequenty
reduced by appcaton of a net operatng oss carryback, the camed
standard deducton for such year s aso sub|ect to revson and shoud
be corrected on the bass of the ad|usted gross ncome after aowance
of the net operatng oss carryback. (See Rev. Ru. 2 7, p. 21.)
S CTION 25. CR DITS OF INDI IDU L G INST
N T INCOM
Reguatons 11 , Secton 39.25-2: Credts Rev. Ru. 220
of ndvduas for purpose of norma ta
and surta .
nterna revenue code
Where a dvorced husband, n voaton of a court order, fas to
make payments of chd support for a caendar year, but pays the
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Regs. 11 , 39.25-2.
arrearage n a subsequent year, the amount thereof does not const-
tute support of the chd furnshed by the husband, ether for the year
n whch such payments were n arrears or for the year n whch the
arrearage was pad, but consttutes a rembursement to the dvorced
wfe for support of the chd furnshed by her durng the perod such
payments were n arrears. (See Thomas Lovett et u . v. Comms-
soner, 1 T. C. 77, acquescence, C. . 1952-2,2.)
Reguatons 11 , Secton 39.25-2: Credts R v. uL 235
of ndvduas for purpose of norma ta
and surta .
INT RN L R NU COD
In determnng who furnshed over haf of the support of a
dependent n a stuaton where severa members of a househod
contrbute to the support of the househod, consderaton shoud be
gven to the amount actuay used n supportng the varous members
of the househod. penses whch are equay appcabe to the
support of each member of the househod shoud be aocated equay
among a such members.
The actua e penses ncurred n connecton wth a house owned by
a ta payer n whch odgng s furnshed to hs parent, and not the
far renta vaue of such house, shoud be taken Into account n
determnng whether a ta payer furnshed over haf of the parent s
support.
dvce s requested reatve to the manner of determnng who
furnshed over haf of the support of a dependent n a stuaton
where severa members of a househod contrbute to the support of
such househod. dvce s aso requested whether the far renta vaue
of a house owned by a ta payer n whch odgng s furnshed to hs
| arent may be taken nto account n determnng whether the parent
quafes as a dependent of the ta payer for Federa ncome ta
purposes.
Secton 25(b) (3) of the Interna Revenue Code provdes that the
term dependent means any person wthn certan specfed reaton-
shps to the ta payer (ncudng the father or mother of the ta payer)
over haf of whose support, for the caendar year n whch the ta abe
year of the ta payer begns, was receved from the ta payer. Secton
39.25-2(e) of Reguatons 11 provdes that whether or not over haf of
a person s support, for the caendar year n whch the ta abe year of
the ta payer begns, was receved from the ta payer sha be deter-
mned by reference to the amount of e pense ncurred by the ta payer
for such support.
The Revenue Servce consders that the term support generay
ncudes such tems of e penses as the cost of board, odgng, cothng,
educaton, medca and denta care, and other smar e penses. ow-
ever, n determnng the amount of support furnshed n the form of
odgng to such a cosey reated person, reference must be made to the
actua e pense of furnshng the odgng nvoved and not to the vaue
of the odgng furnshed. ccordngy, t s hed that the far renta
vaue of a house owned by a ta payer n whch odgng s furnshed to
a dependent parent (whether or not the parent ves wth the ta -
payer) may not be taken nto account n determnng whether over
haf of that parent s support was furnshed by the ta payer. The
types of e penses whch may be ncuded n determnng the cost of
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Regs. 11 , 39.25-2.
2
furnshng odgng to a dependent are such tems as property ta es,
mortgage nterest, property nsurance, and ordnary repars. De-
precaton and e pendtures propery chargeabe to capta account,
ncudng payments on the prncpa amount of a mortgage, may not
be ncuded for the purpose of such determnaton.
y the same token, where the ta payer and hs dependent parent
ve n a house owned and furnshed by the parent, the far renta
vaue of the house s not to be taken nto account n determnng
whether the ta payer has furnshed more than haf of the parent s
support for purposes of the credt for a dependent under secton 25(b)
of the Code.
These cases are to be dstngushed from those where the ta payer
(or the dependent, as the case may be) furnshes odgng n a rented
home. In such a stuaton, snce t s an tem of actua e pense, the
rent pad fcr the vng accommodatons shoud be ncuded n deter-
mnng whether more than haf of the dependent s support was fur-
nshed by the ta payer.
In stuatons n whch a ta payer and one or more members of a
househod are contrbutng toward the support of the househod
|onty, consderaton shoud be gven to the amount actuay used n
supportng the varous members of the househod n determnng whch
member of the househod s entted to the credt for the dependents
nvoved. In the absence of an actua record of the e penses reatng
to the support of each member of the househod, a pro rata porton ot
the aggregate of such e penses may be aocated to each member.
Once the cost of supportng each member of the househod s deter-
mned, the amount used by the ta payer for hs own support shoud be
subtracted from the amount whch he contrbuted. The remander
w be the amount whch the ta payer actuay contrbuted toward
the support of other members of the househod, and uness he s abe
to show otherwse, t w be presumed that such remander was used
equay for the support and mantenance of each of the other members.
owever, f the ta payer can show that the amount contrbuted by
hm whch s not requred for hs own support s for the support of a
partcuar member of a famy group, hs rght to an e empton w
The foowng e ampes w serve to ustrate the appcaton of
the foregong:
(1) ta payer and hs parent ve n a house owned by the
ta payer. The e penses of the ta payer for such tems as prop-
erty ta , mortgage nterest, nsurance, etc., amount to 00 for
the year. The parent receves a nonta abe penson of 0 per
month. The annua food b amounts to 1,200 per year toward
the purchase of whch the parent contrbutes 0. Msce-
aneous househod e penses pad by the ta payer amount to 00.
The tota cost of mantanng the househod ncudng food, ta es,
nterest, etc., s 2,000, of whch 0 s furnshed by the parent
and the remanng 1,520 by the ta payer. In the absence of spe-
cfc records showng the actua use of these funds toward the
support of the ta payer and hs parent, haf of the 2,000 ( 1,000)
s aocated to the support of each person. Snce the ta payer
has contrbuted 1,520 to the support of the househod, 1,000 of
whch s aocabe to support of hmsef, there s a baance of 520
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25
IRegs. 11 , 39.25-2.
whch he has contrbuted toward the support of hs parent. The
support of the parent amounted to 1,000. Snce the ta payer
contrbuted 520 toward the support of the parent, he s en-
tted to cam the parent as a dependent for Federa ncome ta
purposes.
(2) The ta payer and hs parent ve n a house whch s owned
and furnshed by the parent. The parent had ta abe ncome of
00, the entre amount of whch was used to pay ta es, nterest
on mortgage, and nsurance on the house. The ta payer pad
a other e penses of mantanng the househod, ncudng the
cost of food, etc., whch totaed 1,300. There were no other
support e penses nvoved. The tota cost of mantanng the
househod was 1,700, haf of whch ( 50) s aocabe to the
support of each member of the househod. Deductng 50 for
the support of the ta payer from the 1,300 pad by hm eaves
a remander of 50 contrbuted by the ta payer to the support
of hs parent. Snce the 50 contrbuted bv the ta payer toward
the support of hs parent s more than haf of the 50 requred
for the parent s support, he s entted to cam the parent as a
dependent.
(3) The ta payer and hs mother and father ve n a house
owned by the ta payer s father. The father and mother have
no ta abe ncome but have a szabe savngs account. The ta -
payer contrbuted 1, 00 toward the e penses of the househod.
The father pad ta es, nsurance, and nterest on mortgage on
the house n the amount of 00. The mother empoyed a mad
and pad her 900 for the year. ssumng that there were no
other e penses, the aggregate cost of mantanng the househod
s 2,000, one-thrd of whch ( 900) s aocabe to the support
of each of the three ndvduas. The ta payer and hs mother
each have contrbuted 900 toward the support of themseves.
The ta payer has contrbuted 500 ( 1, 00- 900) toward the
support of the father. Snce the ta payer furnshed more than
haf of the support of hs father he s entted to cam hm as a
dependent.
( ) ta payer and hs sster ve wth ther mother n a house
owned and furnshed by ther mother. The mother pad ta es,
nsurance, etc., on the house n the amount of 00. The ta -
payer contrbuted 1,100 toward food and other househod
e penses. The sster pad the saary of the mad n the amount of
600 and the e penses of cothng, denta, and medca care
requred by her mother n the amount of 500. Tota cost of
mantanng the househod was 2,100, of whch the ta payer
contrbuted 1,100, hs sster 600_, and the mother 00. The
500 for cothng, denta, and medca care for the mother, pad
by the sster, s not ncudbe n the cost to be aocated equay
among the three ndvduas, snce t consttutes support for the
mother ony. Of the 2,100 spent, 700 s aocabe to the support
of the ta payer, hs sster, and the mother. Of the 1,100 con-
trbuted by the ta payer toward the househod e penses, 00
( ,100- 700) consttutes support for other members of the
househod. The ta payer s sster contrbuted ony 600 toward
househod e penses, therefore 100 ( 700- 600) of the ta payer s
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Regs. 11 , 39.26(h)- .)
26
contrbuton consttutes support of hs sster and 300 ( 700-
00) thereof consttutes support of hs mother. The tota sup-
port of the mother amounts to 1,200 ( 700 pro rata porton of
the househod e penses and 500 cothng, denta, and medca
e penses pad by the ta payer s sster) of whch the ta payer fur-
nshed 300, the sster furnshed 500, and the mother furnshed
00. Snce nether the ta payer nor hs sster furnshed over
haf of the support of ther mother, nether of them s entted to
cam her as a dependent. : .
S CTION 26(h). CR DITS OF CORPOR TIONS: CR DIT
FOR DI ID NDS P ID ON C RT IN PR F RR D STOC
Reguatons 11 , Secton 39.26(h)-: Credt Rev. Ru. 22
for dvdends pad on preferred stock of
pubc uttes. . . . .
INT RN L R NU COD
In the case of a pubc utty company whch has nonutty
Income, no apportonment of the dvdends pad credt aowed
under secton 26(h) of the Interna Revenue Code w be made
where the nonutty ncome s ess than 20 percent of tota ncome,
Irrespectve of the method used n determnng such tota ncome.
dvce s requested reatve to the determnaton of the credt for
dvdends pad on preferred stock of pubc uttes provded under
secton 26 (n) of the Interna Revenue Code n a case where the pubc
utty has ncome derved from utty and nonutty sources.
Secton 26(h) (1) of the Code provdes for a credt for dvdends
pad on certan preferred stock of pubc uttes. Secton 26(h) (2)
of the Code defnes a pubc utty as a corporaton engaged n
the furnshng of teephone servce or n the sae of eectrc energy,
gas, or water .
queston arses as to the computaton of the dvdends pad
credt n the case of a corporaton whch s engaged n one of the four
types of busnesses enumerated n secton 26(h) of the Code and s aso
engaged n some other busness that does not fa wthn any of the
enumerated categores. Snce the statute tsef s sent wth respect
to nonutty actvtes, the poston mght be taken that secton 26(h)
of the Code shoud be nterpreted to aow the credt ony n cases
where the corporaton s engaged soey n seng or furnshng the
specfed servces because there s no provson for aowance of the
credt to corporatons engaged n other than pubc utty busness.
owever, ths poston woud resut n denyng the credt where as
tte as 5 to 10 percent of the tota ncome was from nonutty ac-
tvtes. On the other hand, the poston mght be taken that the
credt shoud be aowed n fu to any corporaton athough ts n-
come from utty sources does not e ceed 1 percent of ts tota ncome.
owever, a constructon of the statute whch woud ead to unreason-
abe and e treme resuts shoud be avoded. mercan Truckng
ssocaton v. Unted States. (19 0) 310 U. S. 53 . ccordngy, an
apportonment formua whch aocates the dvdends pad credt upon
a bass of utty and nonutty ncome avods e treme resuts and
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Regs. 11 , 39. 3-2.
attans a reasonabe and practca nterpretaton of secton 2G(h) of
the Code.
In vew of the foregong, t s beeved approprate to aow a credt
for dvdends pad n an amount equa to the rato whch the tota
ncome from utty sources bears to tota ncome from a sources.
The aocaton may be made upon the bass of gross ncome or gross
recepts, whchever method resuts n the hgher credt. Where such
an aocaton reaches an nequtabe resut and the books of the com-
pany are so kept that the net ncome can be ready determned (par-
tcuary where they are requred by governmenta bodes for rate
makng or other purposes), the aocaton may be made upon the
bass of net ncome. owever, no apportonment of the dvdends
pad credt aowed under secton 20(h) of the Code w be made
where the nonutty ncome s ess than 20 percent of the tota ncome,
rrespectve of the method used n determnng such tota ncome.
(Compare secton S of the Code where a reguated pubc utty
s defned for e cess-profts ta purposes as a corporaton wth 0
percent or more of ts ncome derved from certan reguated servces.)
P RT I . CCOUNTING P RIODS ND M T ODS OF CCOUNTING
S CTION 3. P IOD FOR W IC D DUCTIONS
ND CR DITS T N
Reguatons 11 , Secton 39. 3-2: When Rev. Ru.2
charges deductbe.
( so Secton 131(d), Secton 39.131 (d)-.)
INT RN L R NU COD
Income ta es pad to a foregn country by a domestc corpo-
raton, whch reports ts ncome from a ong-term contract on the
competed contract bass for Unted States ncome ta purposes and
Is requred to report such ncome ou the percentage of competon
bass for foregn ncome ta purposes, may be taken nto account
by the corporaton for the year n whch the contract s competed
n determnng ts Unted States ncome ta abty.
dvce s requested reatve to the year n whch a deducton under
secton 23 (c) or a credt under secton 131 (a) of the Interna Revenue
Code may be taken by a ta payer for ncome ta es pad to a foregn
country under the facts and crcumstances outned beow.
The ta payer s a corporaton organzed under the aws of Deaware.
Its entre ncome for the ne t 3 years w be from the performance
of servces n a foregn country under a snge contract. Such ncome
consttutes ncome, from sources outsde of the Unted States. The
ta payer desres to report the ncome from the contract on the com-
peted contract bass for Unted States ncome ta purposes, but for
the purposes of the ncome ta es of the foregn country ncome from
the contract must be reported and the ncome ta thereon pad
annuay, measured by the ncome attrbutabe to the work performed
durng such year.
Wth respect to the treatment of the ncome ta pad to the foregn
country and for purposes of the Unted States ncome ta , the cor-
2 G70 C 3
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Regs. 11 , 39. 3-2.
2a
poraton has the opton of takng a deducton of the ta under secton
23(c) of the Code or of camng a credt aganst ts Unted States
ncome ta under secton 131(b) of the Code. Snce the ta payer
ntends to report the ncome from the contract n the year the contract
s competed, the queston arses whether the ncome ta es pad to the
foregn country on an annua bass may be carred as a deferred tem
and taken nto account n determnng ts Unted States ncome ta
abty for the year n whch the contract s competed.
Secton 3 of the Code provdes that deductons and credts sha be
taken for the ta abe year n whch pad or accrued or pad or
ncurred, dependng upon the method of accountng upon the bass of
whch the net ncome s computed, uness n order to ceary refect
the ncome the deductons or credts shoud be taken as of a dfferent
perod. Secton 39. 2- of Reguatons 11 permt makng returns
of ncome on the ong-term contract bass on the theory that ncome
can be determned ony when the pro|ect s competed. Where such
method of reportng s adopted, a e pendtures propery aocabe
to the contract are to be deducted from gross ncome at that tme.
Snce the ncome ta es to be pad to the foregn country are prop-
ery aocabe to the ncome to be derved from carryng out and
competng the ong-term contract, such ta es whch are pad to the
foregn country shoud be aocated to the contract and treated as a
part of the tota deferred e pendtures to be deducted from the gross
ncome derved from the contract. (Of. L T. 3 3 , C. . 19 0-2, 90,
and D. L. Wheeock v. Commssoner, 10 . T. . 5 0.) ccordngy,
on ts return for the year n whch the contract s competed, the
corporaton may ncude as a deducton under secton 23 (c) of the Code
the combned amounts of ncome ta es pad to the foregn country
wth respect to the ncome n queston.
In keepng wth the theory of secton 3 of the Code, secton
39.131 (d)- of Reguatons 11 provdes that f under the provsons
of secton 39. 3-1 of Reguatons 11 an amount otherwse consttut-
ng gross ncome for the ta abe year from sources wthout the Unted
States s, owng to monetary, e change, or other restrctons mposed
by a foregn country, not ncudbe m gross ncome of the ta payer
for such year, the credt for ncome ta es mposed by such foregn
country wth respect to such amount sha be taken proportonatey
n any subsequent ta abe year n whch such amount or porton
thereof s ncudbe n gross ncome. To the same effect s secton
39. 3-1 of Reguatons 11 .
The factua pattern prevang n the case of usng the competed
contract method of reportng ncome derved from foregn sources s
smar n a essenta respects to that prevang n the bocked ncome
ssue. Thus, n both cases, a ta payer may be requred to account an-
nuay and pay a ta to the foregn country on ncome earned theren.
In both cases the effect of the foregn operatons s not refected n
gross ncome for Federa ncome ta purposes and such operatons
reman ncompete unt the occurrence of that event resutng n the
reazaton of ncome. ocked ncome s consdered reazed n the
year the foregn currency restrctons are fted, whereas ncome de-
rved from the performance of a ong-term contract, and reported
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29
Regs. 11 , 39. -1.
on the competed contract method, s consdered reazed n the year
such contract s competed.
In order to gve fu effect to the underyng prncpe of the foregn
ta credt, namey, that a domestc ta payer s not to be sub|ected to
doube ta aton on ncome earned abroad, and n accordance wth the
concept set forth n secton 39.131 (d)- of Reguatons 11 , n report-
ng ncome on the competed contract bass, the foregn ta credt
provsons of secton 131(a) of the Code shoud foow the ncome
nto the ta abe year n whch t s reazed, that s, the year n whch
the contract s competed.
ccordngy, t s hed that f the ta payer eects to take the benefts
of secton 131(a) of the Code, the amount of ncome ta pad to the
foregn country durng each caendar year, measured by the work
performed durng each such caendar year, may be camed as a credt
aganst ts Unted States ncome ta , to the e tent provded by secton
131(b) of the Code, n the year n whch the contract s competed.
Ths rung does not appy where a corporaton eects to report ts
ncome from a ong-term contract on the percentage of competon
method.
d agreement between the ta payer and a pubsher for the
preparaton and devery of a terary composton at a specfed
future date consttutes an e ecutory contract to se a manuscrpt.
The sae w occur on the date the manuscrpt s devered and
assgned to the pubsher. Payment for the manuscrpt w be made
over a perod of years and such sae w quafy as a casua sae
of personaty on the nstament bass wthn the purvew of secton
(b) of the Interna Revenue Code.
dvce s requested regardng the Federa ncome ta consequences
of an agreement between a pubsher and a ta payer, who s not an
author by professon, for the preparaton and devery of a terary
composton by the ta payer under the condtons descrbed beow.
The agreement between the ta payer-author and the pubsher n
the nstant case provdes that the author w compete and dever
wthn a certan perod of tme a fna manuscrpt of a terary com-
oston, together wth sutabe matera from whch ustratons can
made. Smutaneousy wth the devery of such manuscrpt and
materas, the author has agreed to grant and assgn to the pubsher
a rghts of every knd n and to the composton, ncudng the rght
to obtan statutory copyrghts thereof and renewas or e tensons of
such copyrghts n the name of the pubsher. The agreement nd-
cates the mnmum and ma mum number of words desred for the
composton and the genera sub|ect to be covered thereby. The
author represents and warrants that he w be the author and soe
propretor of the composton, that the composton w not have been
prevousy pubshed, and that t w not contan beous or other-
wse unawfu matera.
S CTION -1. INST LLM NT SIS
Rev. Ru. 23
INT RN L R NU COD
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Regs. 11 , 39. -1.
30
The agreement aso provdes that the prce to be pad for the rghts
n and to the composton s 120a; doars. On the date the manuscrpt
s devered, the purchaser w pay 20 doars to the author and de-
ver to hm four nonnterest bearng promssory notes of 25a; doars
each, maturng n each of succeedng years. The agreement specf-
cay provdes that the author sha be an ndependent contractor
and sha not act as the agent of the pubsher. It aso ncudes certan
eectons whch permt the pubsher to termnate the agreement n the
event of a breach of contract by the author or hs nabty to com-
pete the composton because of death or other dsabty. The author
agreed not to make or permt the pubcaton of any matera, whch
may be consdered to be n any matera way n competton wth hs
composton, unt the e praton of a certan perod of tme after pub-
caton by the pubsher.
t the tme the contract was entered nto, the author receved a
oan of 10a; doars from the pubsher. Ths oan s to be repad to
the pubsher on or before a f ed date whch s pror to the date of
devery of the manuscrpt e cept that n the event of death or n-
capacty, repayment w be made ony under certan specfed cond-
tons reatng to the recept of proceeds by the author or hs estate
from the sub|ect matter of the terary composton.
The prmary queston to be determned s whether, under the terms
of the agreement between the pubsher and the author, the trans-
acton consttutes a casua sae of persona property whch may be
returned on the nstament bass under the provsons of secton (b)
of the Interna Revenue Code.
terary composton s recognzed as property n the Interna
Revenue Code. See secton 117(a) (1) of the Interna Revenue Code.
Such property s consdered to be persona property. G. C. M. 236,
C. . I-2, 27 (1927); I. T. 2735, C. . II-2,131 (1933).
Under the provsons of secton (b) of the Interna Revenue Code,
n the case of casua saes of persona property, f the seng prce e -
ceeds 1,000, and the nta payments receved n cash or other prop-
erty, other than evdence of ndebtedness of the purchaser, durng the
ta abe perod of the sae, do not e ceed 30 percent of the seng prce,
the gan reazed from such sae may be reported on the nstament
bass.
Under the nstament bass, there s reportabe as ncome n any
ta abe year ony that proporton of the nstament payments actuay
receved n that year whch the gross proft reazed or to be reazed
when payment s competed, bears to the tota contract prce.
Secton (d) of the Interna Revenue Code, reads n part as
foows:
(d) Gan on Loss Upon Dsposton of Instament Obgatons. If an In-
stament obgaton Is satsfed at other than ts face vaue or dstrbuted, trans-
mtted, sod, or otherwse dsposed of, gan or oss sha resut to the e tent of
the dfference between the bass of the obgaton and (1) n the case of satsfac-
ton at other than face vaue or a sae or e change the amount reazed, or (2)
n case of a dstrbuton, transmsson, or dsposton otherwse than by sae or
e change the far market vaue of the obgaton at the tme of such dstrbu-
ton, transmsson, or dsposton. ny gan or oss so resutng sha be con-
sdered as resutng from the sae or e change of the property n respect of
whch the nstament obgaton was receved. The bass of the obgaton
sha be the e cess of the face vaue of the obgaton over an amount equa to
the ncome whch woud be returnabe were the obgaton satsfed In fu.
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31
Regs. 11 , 39. -1.
Ths subsecton sha not appy to the transmsson at death of nstament obga-
ton f there s fed wth the Commssoner, at such tme as be may by regua-
ton prescrbe, a bout In such amount and wth such suretes as he may deem
necessary, condtoned upon the return as ncome, by the person recevng any
payment on such obgatons, of the same proporton of such payment as woud
be returnabe as ncome by the decedent f he bad ved and had receved such
payment.
n e ecutory contract to se s to be dstngushed from a sae of
property. In the case of Chares W. Uahnger v. Commssoner, 51
Fed. (2d) GG2, Ct. D. 1 , C. . -2, 337 (1931) certorar dened,
2 U. S. 673, nvovng the queston of the year n whch a sae was
consummated, the Unted States Crcut Court of ppeas for the Thrd
Crcut n affrmng the decson of the oard of Ta ppeas, 20
. T. . 17G, referred to the foowng statements apped by the
oard of Ta ppeas to show the dstncton between a contract to
se and a sae:
contract to se goods s a contract whereby the seer agrees to transfer
the property n goods to the buyer tor a consderaton caed the prce.
sae of goods s an agreement whereby the seer transfers the property
n goods to the buyer for a consderaton caed the prce. (W ston on Saes,
vo. 1, sec. 1.)
Wston proceeds as foows:
The dstncton s often e pressed by the terms e ecutory and e ecuted
saes. Whether a bargan between partes s a contract to se or an actua
sae depends upon whether the property n the goods s transferred. If t s
transfered, there s a sae, an e ecuted sae, even though the prce be not pad.
ased upon the above facts, t s hed, as foows:
(1) The agreement entered nto by and between the author and
the pubsher consttutes an e ecutory contract to se a manu-
scrpt at a future date. sae of the manuscrpt w occur on
the dato the manuscrpt s devered and assgned to the pubsher
by the author. Such sae w quafy as a casua sae of person-
aty cn the nstament bass wthn the purvew of secton (b)
of the Code.
(2) cept as provded n paragraph 3, beow, the oan of
doars receved by the author on the effectve date of the agree-
ment w not be sub|ect to Federa ncome ta .
(3) The oan receved by the author and not theretofore repad,
w be ncudbe n the author s gross ncome as ordnary ncome
n the ta abe year n whch the agreement s termnated f the
author fas to compete and dever the manuscrpt on or before
the agreed date by reason of hs death or dsabty, and f the
pubsher eects to termnate the agreement, e cept that f such
termnaton occurs after the death of the ta payer the amount of
the oan sha be ncudbe n the gross ncome of the ta payer s
estate as ordnary ncome.
( ) The payment of 20a; doars receved by the author pur-
suant to the agreement upon the devery and assgnment cf the
manuscrpt w be the nta payment referred to n secton
(b) of the Code. The ta abe porton of such payment, com-
puted n accordance wth the provsons of secton (a) of the
Code, w be ncudbe n gross ncome as ordnary ncome n the
ta abe year n whch the manuscrpt s devered and assgned
to the pubsher. The oan of IO| doars whch the pubsher
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Regs. 11 , 39. -5.1
32
made to the author s not consdered to be the nta payment
for the reason that, on the bass of the facts represented, t s
determned to consttute a oan rather than an advance. The
repayment thereof s ndependent of the devery of the manu-
scrpt, for whch a separate date was provded, and the oan s
requred to be repad whether or not the manuscrpt s devered.
The ony condton under whch repayment s not requred s the
death or other dsabty of the author pror to devery of the
manuscrpt, but even n such case the manuscrpt, or, f not com-
peted, the author s workng papers wth respect thereto, w
serve as securty for the oan snce the author or, n the event of
hs death, hs estate s requred to repay the porton of the oan
represented by any proceeds receved from the sub|ect matter of
the composton nvoved.
(5) The promssory notes devered to the author pursuant to
the agreement upon the devery of the manuscrpt w be n-
stament obgatons, wthn the meanng of secton of the
Code.
(6) The ta abe porton of payments receved by the author
n fu satsfacton of the promssory notes so devered to hm,
as computed n accordance wth the provsons of secton (a)
of the Code, w be ncudbe n gross ncome as ordnary ncome
n the ta abe year n whch such payments are receved.
(7) If any of such promssory notes so devered to the author
are satsfed at other than face vaue or are sod or e changed,
the e cess of the amount reazed over the bass of such note w
consttute ordnary ncome computabe under the provsons of
secton (d) of the Code, n the ta abe year n whch such
amounts are reazed.
( ) If any of such promssory notes so devered to the author
are dstrbuted, transmtted, or dsposed of otherwse than by
sae or e change, the e cess of the far market vaue of such note
as of the tme of such dstrbuton, transmsson, or dsposton,
over ts bass, w consttute ordnary ncome computabe under
the provsons of secton (d) of the Code, n the ta abe year n
whch such dstrbuton, transmsson, or dsposton occurs.
owever, f any of such promssory notes are transmtted at hs
death, no gan on account of such transmsson w be requred
to be reported as ncome n hs fna Federa ncome ta return,
provded there s fed wth the Commssoner the bond prescrbed
n secton (d) of the Code.
(9) The cost of producng the manuscrpt w consttute the
bass thereof for the purpose of computng the gan reazed
from the sae.
Reguatons 11 , Secton 39. -5: Gan or oss Rev. u. 267
upon dsposton of nstament obgatons.
INT RN L R NU COD
Instament obgatons receved as part of the seng prce of
property hed n |ont tenancy by a husband and wfe become the
pro erty of the survvng spouse when one tenant des and are not
transmtted at death wthn the meanng of secton (d) of the
Interna Revenue Code. owever, the provsons of secton (d)
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:
IRcgs. 11 , 39. -5.
of the Code are appcabe where property not hed In |ont tenancy
1s sod and the resutng proft s reported on a ont return or where
the property to whch the obgatons are attrbutabe s the com-
munty property Interest of the deceased spouse.
dvce s requested reatve to the appcaton of secton (d) of
the Interna Revenue Code to nstament obgatons hed by a ta -
payer after the death of hs or her spouse where the property to whch
the obgatons are attrbutabe was (1) hed n |ont tenancy, (2) not
hed n |ont tenancy but the sae and resutng profts of such property
were reported on |ont returns, and (3) communty property.
Secton (d) of the Interna Revenue Code, reatng to gan or
oss upon dsposton of nstament obgatons provdes, n part, as
foows:
If an nstament obgaton Is satsfed at other than Its face vaue or dstrb-
uted, transmtted, sod, or otherwse dsposed of, gan or oss sha resut to the
e tent of the dfference between the bass of the obgaton and (1) n the case of
satsfacton at other than face vaue or a sae or e change the amount reazed,
or (2) In the case of a dstrbuton, transmsson, or dsposton otherwse than
by sae or e change the far market vaue of the obgaton at the tme of such
dstrbuton, transmsson, or dsposton. Ths subsecton sha not
appy to the transmsson at death of nstament obgatons f there s fed wth
the Commssoner, at such tme as he may by reguaton prescrbe, a bond n such
amount and wth such suretes as he may deem necessary, condtoned upon the
return as ncome, by the person recevng any payment on such obgatons, of the
same proporton of such payment as woud be returnabe as ncome by the de-
cedent f he had ved and had receved such payment.
Where a capta asset s hed under State aw by a husband and wfe
n |ont tenancy, each s consdered as beng sezed of the entre estate
n hs own rght. When one |ont tenant des hs or her nterest does
not pass to the survvor but merey ceases and a rghts n such prop-
erty contnue n the survvng |ont tenant by rght of survvorshp.
See G. C. M. 6677, C. . III-2, 172; I. T. 1635, C. . II-, 19; I. T.
375 , C. . 19 5,1 3; I. T. 37 5, C. . 19 6-1, 9 ; Fanne . Lang v.
Commssoner, 2 9 U. S. 109, Ct. D. 662, C. . II-1,171; and een
G. Carpenter v. Commssoner, 27 . T. . 2 2. Inasmuch as the n-
stament obgaton was receved as part of the seng prce of a
capta asset hed n |ont tenancy by a husband and wfe, t foows
that such obgaton was hed by the husband and wfe as |ont tenants
n the same manner as the property sod and that upon the death of
one spouse the other takes the whoe nterest n the nstament obga-
ton by rght of survvorshp. ccordngy, t s hed that n such
case there s no transmsson at death of the nstament obgatons
wthn the meanng of secton (d) of the Interna Revenue Code
for the purpose of the fng of a bond. Therefore the survvng spouse
shoud report as capta gan for Federa ncome ta purposes the tota
outstandng baance of proft to be reazed on the sae as and when
reazed through payments on the nstament obgaton made by the
obgor.
Where property not hed n |ont tenancy s sod, the reportng of
such sae on a |ont return combnng the ncomes and deductons of
both husband and wfe has no effect on the ownershp of property.
The spouses athough fng a |ont return contnue to retan tte to
ther respectve propertes. ccordngy, on the assumpton that a
husband des possessed of an nstament obgaton, t s hed that any
gan resutng from the dsposton or satsfacton thereof, computed
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Regs. 11 , 39.112(b)(3)-5.1 3
n accordance wth secton (d) of the Code, woud be reportabe as
ncome n the return of the decedent for the year of hs death, uness
there s fed wth the Commssoner a bond, n such amount and wth
such securtes as he may deem necessary, condtoned upon the return
as ncome, by any person recevng any payment on such obgaton,
of the same proporton of such payment as woud have been reportabe
as ncome by the decedent f he had ved and receved such pavment.
Where a survvng spouse has one-haf nterest n an nstament
obgaton receved as part of the seng prce of communty property,
that part of the ncome attrbutabe to such nterest receved durng
the perod of admnstraton of the estate of the deceased spouse, who
ded whe domced n a communty property state, s ta abe to the
survvng spouse for Federa ncome ta purposes. See G. C. M.
2500 , C. . 19 6-2, 9. That part of the gan attrbutabe to the
nterest of the decedent spouse n the nstament obgaton woud be
reportabe n the fna return of the decedent. owever, f an eecton
s made by the admnstrator of the estate, egatee, or ne t of kn of
the decedent to receve the beneft of secton (d) of the Code, the
ncome attrbutabe to the nterest of the decedent woud be reportabe
by the recpent of such ncome n accordance wth the provsons of
such secton provded the requred bond s fed wth the Commssoner.
P RT . R TURNS ND P YM NT OF T
S CTION 5 (d). D CL TION OF STIM T D T Y
INDI IDU LS: TIM ND PL C FOR FILING
Reguatons 11 , Secton 39.5 (d)-: Tme and
pace for fng decaratons.
INT RN L R NU COD
Tme for fng decaraton and makng payment of estmated ta .
(See Rev. Ru. 292, p. 2.)
SU C PT R C SUPPL M NT L PRO ISIONS
SUPPL M NT COMPUT TION OF N T INCOM
S CTION 112(b). R COGNITION OF G IN OR LOSS:
C NG S SOL LY IN IND
Reguatons 11 , Secton 39.112(b) (3)-(5): Stat-
utory provsons; recognton of gan or oss;
e changes soey n knd; stock for stock on
reorganzaton; gan of corporaton; transfer
to corporaton controed by transferor.
INT RN L R NU COD
Spt-off form of reorganzaton. (See Rev. Ru. 2 9, p. 37.)
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(Regs. 11 , 39.112(b)()-.
Reguatons 11 , Secton 39.112(b) (6)-: Ds-
trbutons n qudaton of subsdary cor-
poraton.
INT RN L R NU COD
Transfer of apprecated assets to parent corporaton. (See Rev.
u. 259, p. 55.)
Reguatons US, Secton 39.112(b) ()-: Cer- ev. Ru. 270
tan dstrbutons of stock on reorganzaton.
( so Secton 112(g), Secton 39.112(g)-.)
INT RN L R NU COD
Ta consequences of a proposed spn-off reorganzaton of a bank
wheren the two branch ocus of the bank w be transferred to
new corporatons.
dvce s requested wth respect to the ta consequences of a pro-
posed reorganzaton of a Caforna bank under the crcumstances set
forth beow:
The Corporaton s an od Caforna bankng corporaton wth a
man bankng offce and two branch offces. It has ony common stock
outstandng. For mportant busness reasons s offcers and drectors
desre to ncorporate s two branch bankng offces as separate corpo-
ratons. Under Caforna aw woud not be permtted to transfer
the branch offces to new corporatons wthout decarng a dvdend.
proposes to decare a dvdend (as that term s used n Caforna
aw) to ts sharehoders of certan cash, rea estate, furnture, f tures,
bonds, and oans that are attrbutabe to the busness of the branch
offces. owever, w segregate the dvdend nto two funds and
w transfer such funds on behaf of ts stockhoders drecty to two
new corporatons, and no stockhoder w be entted to receve any
of the assets decared as a dvdend. The two new corporatons w
each have an authorzed capta of 50,000 shares of common stock,
and w ssue a of ther stock pro rata to s stockhoders. w
aso transfer drecty to the new corporatons assets equvaent to the
deposts and other abtes attrbutabe to the busness of ts branch
offces n consderaton of the assumpton of such abtes by the new
corporatons. s stockhoders represent that they have no present
ntenton of dsposng of any of the stock of the new or od corpora-
tons or of qudatng any of the corporatons.
Secton 112(b) (11) of the Interna Revenue Code provdes:
(11) Dstrbuton of stock not n qudaton . If there s dstrbuted,
n pursuance of a pan of reorganzaton, to a sharehoder of a corporaton
whch s a party to the reorganzaton, stock (other than preferred stock)
In another corporaton whch s a party to the reorganzaton, wthout the
surrender by such sharehoder of stock, no gan to the dstrbutee from the
recept of such stock sha be recognzed uness t appears that ( ) any cor-
poraton whch s a party to such reorganzaton was not ntended to contnue
the actve conduct of a trade or busness after such reorganzaton, or ( )
the corporaton whose stock s dstrbuted was used prncpay ns a devce
for the dstrbuton of earnngs and profts to the sharehoders of any cor-
poraton a party to the reorganzaton.
Secton 112(g) (1) (D) of the Code defnes a reorganzaton to n-
cude a transfer by a corporaton of a or a part of ts assets to an-
other corporaton f mmedatey after the transfer the transferor or
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Regs. 11 , 5 39.112(f)- .
36
ts sharehoders or both are n contro of the corporaton to whch the
assets are transferred, .
On the bass of the above facts t s hed that the proposed transac-
ton w consttute reorganzatons wthn the meanng of secton
112(g) (1) (D) of the Code, and that pursuant to secton 112(b) (11)
of the Code the stockhoders of Corporaton w reaze no gan or
oss on recept of the stock of the new corporatons. In accordance
wth secton 113(a) (23) of the Code the stockhoders w determne
ther bass n the stock of the three corporatons after the reorganza-
tons by aocatng ther ad|usted bass n the od stock at the tme of
the reorganzatons among the od and new stocks on the bass of the
far market vaue of the three stocks at such tme. The earnngs and
profts of the od corporaton w be aocated among the od and new
corporatons n accordance wth Reguatons 11 , secton 39.115 (a)-3.
Reguatons 11 , Secton 39.112(b) ()-: Cer-
tan dstrbutons of stock on reorganzaton.
INT RN L R NU COD
Spn-off form or reorganzaton. (See Rev. Ru. 2 9, p. 37.)
S CTION 112(f). R COGNITION OF G IN OR LOSS:
IN OLUNT RY CON RSION
Reguatons 11 , Secton 39.112(f)-: Invo- Rev.RuL271
untary converson where dsposton of the
converted property occurred after December
31 1950
( so Secton 117(|), Secton 39.117(|)-.)
INT RN L revenue code
Where a State turnpke bsects a ta payer s farmand In such
manner as to deny catte access to water, shade, and grazng area,
the e pendture of proceeds receved as severance damages to restore
the usabty of the farm (as n makng water and shade avaabe
to catte) w consttute the acquston of property smar or re-
ated n servce or use to the property nvountary converted wthn
the meanng of secton 112(f) of the Code. To the e tent that the
une pended porton of the severance damages e ceeds the bass of
the remanng property, gan w be recognzed sub|ect to the m-
tatons provded by secton 117(|) of the Interna Revenue Code.
dvce s requested whether, upon condemnaton by a State of a
strp of and through a ta payer s farm, the e pendture of proceeds
receved as severance damages for the purpose of pacng the farm n
the same operatng condton as t was pror to condemnaton w
consttute the acquston of property smar or reated n servce or
use to the property nvountary converted. dvce s aso requested
wth respect to the ta abty of any gan resutng from the recept of
such damages.
In the nstant case, a State turnpke commsson condemned a strp
of and through the ta payer s farm for the purpose of constructng a
turnpke. The turnpke w bsect the farm and separate the catte
barns from water and pasture and. To restore the farm to an effcent
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37 Regs. 11 , 5 39.112(g)-2.
operatng condton t w be necessary to dg wes for water pur-
poses, cear certan wooded areas, dran swampand, erect fences and
sheds, and pant shade trees. The State pad the ta payer certan
amounts n connecton wth the acquston of ts rght-of-way, among
whch were severance damages.
, Secton 112(f) of the Interna Revenue Code provdes, n part, and
sub|ect to condtons stated theren, that f property s compusory or
nvountary converted as a resut of ts condemnaton after December
31, 1950, and. the ta payer purchases other property smar or reated
n servce or use to the property so converted, at the eecton of the
ta payer the gan sha be recognzed ony to the e tent that the
amount reazed upon such converson e ceeds the cost of such other
property.
In the nstant case the severance damages are separate and apart
from other damages pad as a resut of the condemnaton, and repre-
sent compensaton for converson of the ta payer s rght to use hs
farm property7 n the manner and for the purpose for whch t was
acqured. Such damages are anaogous to the proceeds of property
nsurance; they represent compensaton for damage to the property.
It s hed that the e pendture of the severance damages n dggng
wes for water purposes, cearng certan wooded areas, dranng
swampands, erectng fences and sheds, and pantng shade trees to
restore the usabty of the farm consttutes the acquston of property
smar or reated n servce or use to the property nvountary con-
erted wthn the meanng of secton 112(f) of the Code, and that f
the condtons of secton 112 (f) are otherwse satsfed ony the porton
of such damages not so e pended shoud be apped n the reducton
of the bass of the retaned porton of the property. See G. C. M.
2369 , C. . 19 3, 3 0. To the e tent that the une pended porton of
such damages e ceeds the bass of the retaned property, gan w be
recognzed sub|ect, however, to the mtatons provded n secton
117 (|) of the Interna Revenue Code.
S CTION 112(g) .-R COGNITION OF G IN OR LOSS:
D FINITION OF R ORG NIZ TION
Reguatons 11 , Sf.cton 39.112(g)-: Purpose
and scope of e cepton of reorganzaton
e changes.
INT RN L R NU COD
Crcumstances whch consttute a reorganzaton. (See Rev. Ru.
270, p. 35.)
Reguatons 11 , Secton 39.112(g)-2: Defn- Rev. Ru. 2 9
ton of terms.
( so Secton 112(b), Sectons 39.112(b) (3)-(5),
39.112(b) ()-.)
INT RN L R NU COD
Under a pan of reorganzaton a gong corporaton transferred part
of ts assets to a new corporaton n e change for a the stock of the
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Regs. 11 , 39.113(b) (1)- . 3
new corporaton. Immedatey thereafter the stock of the new corpo-
raton was dstrbuted pro rata among the stockhoders of the od
corporaton n e change for a porton of ther stock n the od corpora-
ton (a transacton commony caed a spt-off ). ed, such a trans-
acton consttutes a reorganzaton as that term s defned by secton
112(g) (1) (D) of the Interna Revenue Code, wth respect to whch
no gan or oss w be recognzed to the sharehoders under secton
112(b) (3) of the Code, provded the requrements of contro, cont-
nuty of nterest, and busness purpose are satsfed. (Cf. Chester .
fcpanger et u . v. Commssoner, 1 T. C. 976, acquescence, C. .
1953-1, 6.)
The spt-off form of reorganzaton s to be dstngushed from
the spn-off type whch occurs when a part of the assets of a gong
corporaton are transferred to a new corporaton and the stock n the
atter s dstrbuted to the sharehoders of the od corporaton wthout
a surrender of stock by the stockhoders. Spn-off reorganzatons
are governed by the provsons of secton 112(b) (11) of the Code.
S CTION 113(a). D UST D SIS FOR D T RMINING
G IN OR LOSS: SIS UN D UST D OF PROP RTY
Reguatons 11 , Secton 39.113(a) (15)-1: ass
of property receved by a corporaton n com-
pete qudaton of another corporaton.
INT RN L R NU COD
ass of apprecated assets transferred to parent corporaton upon
qudaton of whoy-owned subsdary. (See Rev. Ru. 259, p. 55.)
S CTION 113(b). D UST D SIS FOR D T RMINING
G IN OR LOSS: D UST D SIS
Reguatons 11 , Secton 39.113(b) ()- : d- Rev. Ru. 216
|usted bass; mutua savngs banks, budng
and oan assocatons, and cooperatve banks.
INT RN L R NU COD
Mutua savngs banks, budng and oan assocatons, and co-
operatve banks sub|ect to Federa Income ta for ta abe years
begnnng after December 31, 1951, may amortze mortgage acqus-
ton costs on a composte bass by empoyng a composte rate based
on the reatonshp whch the aggregate credts to prncpa of an
nsttuton s mortgage oan account over a representatve perod of
years bears to the aggregate of the yeary baance of such mortgage
oan account over the same perod.
dvce s requested whether mutua savngs banks, budng and
oan assocatons, and cooperatve banks sub|ect to Federa ncome
ta for ta abe years begnnng after December 31 1951, may amor-
tze mortgage acquston costs on a composte bass by empoyng a
composte rate based on the reatonshp whch the aggregate credts
to prncpa of an nsttuton s mortgage oan account over a repre-
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39 (Regs. 11 , 39.113(b) ()- .
sentatve perod of years bears to the aggregate of the yeary baances
of such mortgage oan account over the same perod.
The nstant ta payer has proposed a method for the amortzaton
of mortgage acquston costs, referred to by the ta payer as the New
York Method, for use by mutua savngs banks, budng and oan
assocatons and cooperatve banks for ta abe years after December
31, 1951. It s contempated that the representatve perod of years
to be used under ths method w vary wth dfferent bankng nst-
tutons but that n each case t w be ascertaned n the ght of the
partcuar nsttuton s oan e perence, the compe on of ts oan
account and a other approprate and reevant factors; the am beng
to seect a perod suffcenty representatve to permt the nference
that the e perence of such perod s ndcatve of future oan
operatons.
Under the method proposed, the baance n the mortgage oan ac-
count of a gven bank for each of the years n the representatve
perod woud be ascertaned as of the begnnng of such year. To
that woud be added one-haf of the new mortgage oans made durng
such year, n order to propery refect and wegh the year s addton
to the oan account. Secondy, n respect of each of the years durng
the representatve perod, the tota credts to prncpa of the mort-
gage account durng such year woud be ascertaned. There tota
credts to prncpas ncude a payments of prncpa on mortgage
oans, credts arsng as a resut of forecosure, and credts arsng
from compromse payments and chargeoffs. The percentage whch
the aggregate credts to prncpa over the perod bears to the aggre-
gate of the yeary mortgage oan account baances woud then be
ascertaned and dvded nto 100 to obtan an e presson n years.
The e ampe set forth beow w best serve to ustrate the appca-
ton of ths method.
aance
mortgage
oan account
at bernnng
of year
Yew
One-haf of
aMtona
durng year
Coumn 2 pus
coumn 3
Tota credts
to prncpa
19 2
1100.000
2,000
102,000
f,000
19 3 -
99. M )
103. 001)
6, 000
10 , 000
6,000
19 -
.000
107. 000
6.000
10.), 000
9,000
11 ,000
11, ooo
19 6
112,000
110. 000
6.000
7,000
US. 000
117,000
1 .000
9,000
19 7
113. 000
10.00 )
123. (U )
,000
19 9
12.1,000
.000
133. 0W
15,000
1950
12f. 000
9.000
m ooo
16.000
1951
12S.OO0
,000
130, 000
1 ,000
Percentage .75 percent or 11. 3 years
.saooo
10 ,000
It s proposed that the composte rate thus obtaned coud be used
for the purpose of amortzng the bank s mortgage acquston costs
unt such tme as sgnfcant changes n ts oan operatons, oan e pe-
rence, or compe on of ts oan account ndcate that such rate s no
onger appcabe or approprate.
The foowng tabe, n whch the average perod of payment has
been rounded out to 11 nstead of 11. 3 years, shows the amount of
the unamortzed acquston costs on December 31, 1951, and the
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Rcf;s 113, 39.113(b) (1)- .
0
amount of the amortzaton of those costs to be taken as a deducton
for ncome ta purposes n 1952.
Year
19 1.
19 2.
19 3.
191 .
19 .
IMS.
19 7.
19 S.
19 9.
1 30.
1951.
Tota ac-
quston
costs
2,000
2,0 0
2,(1-11
2,1 0
2.2S0
2,360
2.S 0
2, 00
2,600
2,700
2,720
25,7 0
aue Doc. 31, 1951
Fracton
aue
90.91
27 .1
72,73
0 0.91
32.73
1,1 0.00
1,3 2. 72
1,677. 27
2,055. 5
2,331. 2
2, 5 0 36
13,679.09
Fracton
Secton 39.113(b) ()- of Reguatons 11 provdes n part as
foows:
The ad|ustments to the cost or other bass of property provded n secton
113(b) and secton 39.113(b) (1)-1 to secton 39.113(b) ()-3, ncusve, are
appcabe n the case of a mutua savngs bank not havng capta stock rep-
resented by shares, a domestc budng and oan assocaton, and a cooperatve
bank wthout capta stock organzed and operated for mutua purposes and
wthout proft, athough such nsttutons were e empt from ta for ta abe
years begnnng before anuary 1,1952.

In the case of a mortgage purchase, acqured, or orgnated at a premum,
where the prncpa of such mortgage s payabe n nstaments, ad|ustments to
the bass of the premum must be made for a ta abe years (whether or not
the nsttuton was e empt from ta durng such years) n whch nstament
payments are receved. Such ad|ustments may be made on an ndvdua
mortgage bass or on a composte bass by reference to the average perod of
payments of the mortgage oans of such nsttuton. For the purpose of ths
ad|ustment, the term premum ncudes the e cess of the acquston vaue of
the mortgage over ts maturty vaue. The acquston vaue of the mortgage
s the cost ncudng buyng commssons, attorneys fees, or brokerage fees,
but such vaue does not ncude amounts pad for accrued nterest.
The reguatons cted above make t cear that ad|ustment to the
bass of mortgage acquston costs may be made on a composte bass
by reference to the average payments of the mortgage oans. What
consttutes the average perod of payments s a queston of fact to be
determned n the case of the ndvdua ta payer. No partcuar
method for ad|ustng mortgage acquston costs on a composte bass
s prescrbed n the reguatons. The method outned above appears
to be one whch woud reasonaby determne the ad|usted bass of
mortgage acquston costs as of the begnnng of the frst ta abe year
begnnng after December 31, 1951, and the amount of yeary
amortzaton thereafter.
In vew of the foregong, t s hed that the method proposed n the
nstant case for the amortzaton of mortgage acquston costs by mu-
tua savngs banks, budng and oan assocatons, and cooperatve
banks s a permssbe method under secton 39.113(b) ()- of Reg-
uatons 11 .
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1
Regs. 11 , 39.115(c)- .
S CTION 11 . SIS FOR D PR CI TION
ND D PL TION
Reguatons 11 , Secton 39.11 -1: ass for Rev. Ru. 290
aowance of deprecaton and depeton.
( soSecton23(m),Secton 39.23 (m)-.)
INT RN L R NU COD
Determnaton of the processes propery ncuded In mnng under
secton 11 (b)( )(D) of the Interna Revenue Code, wth respect
to cacum carbonates and shae mned for use n the manufacture
of cement.
dvce s requested concernng the poston of the Interna Revenue
Servce on the determnaton of the processes propery ncuded n
mnng wth respect to cacum carbonates and shae mned for use n
the manufacture of cement.
It s the poston of the Interna Revenue Servce that cacum
carbonates and shae, mned for use n the cement ndustry, are not
customary sod n the form of the crude mnera product, and that,
therefore, under secton 39.23(m) (1) (f) of Reguatons 11 , crush-
ng and grndng are consdered ordnary treatment processes n
the computaton of gross ncome from the property for percentage de-
peton purposes. endng wth other matera after crushng and
grndng, such as that occurrng at the kn feed bns, s e cuded from
ordnary treatment processes, but where m ng of the cacum
carbonates and shae occurs before or durng crushng and grndng,
t w be consdered as ncdenta to such processes.
The gross ncome for percentage depeton purposes must of course
be computed separatey wth respect to each component mnera, not-
wthstandng any such m ng. The net ncome for purposes of the
mtaton on percentage depeton shoud aso be computed separatey
for each component mnera uness the mneras are produced from
the same property. See Revenue Rung 76, C. . 1953-1, 176.
In vew of the specfc detaed stng n secton 11 (b) ( ) ( ) of
the Interna Revenue Code, percentage depeton s not aowabe on
cay used n the manufacture of cement uness the cay so used def-
ntey comes wthn one of the specfc cassfcatons n that secton.
S CTION 115(c). DISTRI UTIONS Y CORPOR TIONS:
DISTRI UTIONS IN LI UID TION
Reguatons 11 , Secton 39.115(c)-: Dstrbutons
n qudaton.
INT RN L R NU COD
Commssons assgned by corporaton n qudaton. (See Rev.
Ru. 255, p. 10.)
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Regs. 11 , 39.116-1.
2
S CTION 116. CLUSIONS FROM GROSS INCOM
Reguatons 11 , Secton 39.116-1: arned Rev. Ru. 291
ncome from sources wthout the Unted
States.
INT RN L R NU COD
Income ta abty of Unted States ctzens resdent or physcay
present n foregn countres for ta abe years begnnng on or after
anuary 1, 1951.
Secton 1. Purpose.
The prmary purpose of ths Revenue Rung s to provde assstance
and gudance to Unted States ctzens, resdng or physcay present
n foregn countres, n the preparaton of ther Federa ncome ta
returns. The Revenue Rung reates ony to the ta probems pecuar
to such ctzens and s ntended to suppement nformaton ssued by
the Interna Revenue Servce for ta payers generay. Therefore, n
the preparaton of ther Federa ncome ta returns and other forms,
such ctzens shoud foow the nstructons ssued n connecton wth
the forms nsofar as they are appcabe.
Sec. 2. uthorty.
The rght of the Unted States to mpose ncome ta upon ts ct-
zens, wherever resdent, s based on ctzenshp. Generay speakng,
Unted States ctzens resdng or physcay present n foregn coun-
tres are ta abe n the same manner as those resdng wthn the
Unted States, uness they can satsfy the requrements of secton
116(a) of the Interna Revenue Code. If the ctzen meets ether the
foregn resdence test or the presence n a foregn country test
rovded by secton 116(a) of the Code, he may, for ta abe years
egnnng on or after anuary 1, 1951, e cude from gross ncome
amounts receved as earned ncome for persona servces rendered
wthout the Unted States.
Sec. 3. Scope.
Ths Revenue Rung appes to ta abe years begnnng on or after
anuary 1,1951. It does NOT appy to ta abe years begnnng pror
to anuary 1, 19511 nor to ctzens performng cvan or mtary
servces for the Unted States or for any agency or nstrumentaty
thereof. Compensaton for persona servces performed by a ctzen
as an empoyee of the Unted States, or any agency or nstrumentaty
thereof, s requred to be ncuded n gross ncome regardess of where
the servces are performed.
Sec. . cuson Under Secton 116(a) (1) ased Upon ona Fde
Resdence n Foregn Countres.
.01 Genera. Unted States ctzen may e cude from gross n-
come under secton 116(a) (1) of the Code, hs earned ncome (as
defned n sec. 7 of ths Rev. Ru.) f:
(a) e has been a bona fde resdent of a foregn country or
countres for an unnterrupted perod whch ncudes an entre
ta abe year; and
(b) Such earned ncome s:
(1) Receved on or after anuary 1,1951;
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3
Regs. 11 , 39.116-1.
(2) For persona servces rendered outsde the Unted
States;
(3) ttrbutabe to such unnterrupted perod; and
( ) Not pad by the Unted States or any agency or nstru-
mentaty thereof.
of these requrements must be met by the ctzen n order to cam
the e cuson from gross ncome. For e ampe, a prvatey empoyed
ctzen was a bona fde resdent of a foregn country for an unnter-
rupted perod begnnng uy 1,1950, and endng une 30, 1952, and
fes hs returns on the caendar year bass. e may e cude from
gross ncome the amount of compensaton receved on or after anu-
ary 1, 1951, for persona servces rendered abroad f such amount s
attrbutabe to the perod uy 1,1950, to une 30,1952. ( e may not
appy the e cuson to any compensaton receved n 1950, snce under
the aw n effect for that year an e cuson from gross ncome was
aowabe for 1950 ony f the ta payer was a bona fde resdent of the
foregn country durng the entre ta abe year. )
.02 Perod of resdence pror to anuary 1,1951. The perod dur-
ng whch the ctzen was a bona fde resdent of a foregn country or
countres pror to anuary 1,1951, may be taken nto account n deter-
mnng whether he had been a bona fde resdent of a foregn country
or countres for an unnterrupted perod of at east an entre ta abe
year. For nstance, a prvatey empoyed ctzen, who fes hs returns
on the caendar year bass, was a bona fde resdent of a foregn coun-
try for an unnterrupted perod begnnng uy 1, 19 9, and endng
October 31, 1951. Under secton 116(a) (1) of the Code, as amended
by the Revenue ct of 1951, the ta payer may e cude the earned n-
come attrbutabe to such perod and receved on or after anuary 1,
1951, snce hs perod of bona fde foregn resdence ncudes an entre
ta abe year (1950).
.03 ona fde foregn resdence. No specfc rue can be stated for
determnng whether a Unted States ctzen s a bona fde resdent of
a foregn country, snce t nvoves hs ntentons wth respect to the
ength and nature of hs stay. The ntenton of the ta payer to estab-
sh a bona fde resdence n a foregn country may be evdenced by
words and acts, but where they confct, more emphass w be paced
on the acts than on the words. Generay, a ctzen who goes to a
foregn country for a defnte purpose, whch s of a temporary nature,
and who returns to the Unted States after t has been accompshed,
s not a bona fde resdent of such foregn country. owever, f hs
urpose s of such a nature that an e tended and ndefnte stay may
e necessary for ts accompshment, and to that end he estabshes
resdence n the foregn country, he may be a bona fde resdent of such
foregn country for Federa ncome ta purposes. For e ampe,
mercan ctzens who go to foregn countres to work on constructon
pro|ects, whch are obvousy of a temporary nature, cannot be cass-
fed as bona fde resdents of such countres for the purposes of secton
116(a) (1) of the Code, even though they reman abroad for an entre
ta abe year or onger. (For nformaton as to whether the earned
ncome attrbutabe to such persona servces rendered abroad s
e cudabe under the presence n a foregn country e cuson, see
sec. 5 of ths Rev. Ru.) owever, ctzens of the Unted States who
are permanenty assgned to foregn dvsons of busness concerns
2 670 C 1
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Regs. 11 , 39.116-1.
1
and who estabsh and mantan ther resdence n a foregn country
or countres for a perod of ndefnte duraton may be cassfed as
bona fde resdents of a foregn country or countres for the purposes
of secton 116(a) (1) of the Code,
.0 Temporary absence from foregn country. Once bona fde res-
dence n a foregn country or countres has been estabshed, temporary
vsts to the Unted States or esewhere on vacaton or busness trps
w not necessary deprve the ctzen of hs status as a bona fde
resdent of a foregn country. Such absences must not be unreason-
abe n ength, there must be fu ntenton on the part of the nd-
vdua to return to hs foregn post, and there must be substanta
evdence that the foregn resdence has not been renqushed. Long
perods of tme spent n the Unted States or any possessons thereof
woud be consdered as evdence that the ctzen had renqushed bona
fde resdence n a foregn country.
Sec. 5. cuson Under Secton 116(a) (2) ased on Presence n a
Foregn Country.
.01 Genera. ctzen of the Unted States may e cude from gross
ncome under secton 116(a)(2) of the Code, amounts consttutng
earned ncome (as defned n sec. 7 of ths Rev. u.) f:
(a) e s present n a foregn country or countres durng a
tota of at east 510 fu days durng any perod of 1 consecutve
months and
(b) Such earned ncome s:
(1) Receved on or after anuary 1, 1951:
(2) For persona servces rendered outsde the Unted
States;
(3) ttrbutabe to such 1 -month perod; and
( ) Not pad by the Unted States or any agency or n-
strumentaty thereof.
of these requrements must be met n order for the ctzen to quafy
for the e cuson. The e cuded gross ncome may be attrbutabe to
any 1 consecutve-month perod durng whch the ctzen s n a
foregn country or countres for 510 fu days. For e ampe, a ctzen
of the Unted States, prvatey empoyed, arrves n a foregn country
on ugust 3, 1952, and remans there contnuousy unt hs departure
therefrom on December 27, 1953, a perod durng whch he s present
n the foregn country 510 fu days. The ctzen may e cude from
gross ncome the earned ncome from sources wthout the Unted
States that s attrbutabe to any 1 consecutve-month perod whch
ncudes the above 510 fu days, notwthstandng that the ctzen was
actuay present n the foregn country for a perod of ess than 1
months. For e ampe, the e cuson woud be appcabe but not
mted to the foowng 1 -month perods: n 1 -month perod whch
commences ugust , 1952, and ends February 3, 195 ; an 1 -month
perod whch commences une 2 ,1952, and ends December 27,1953;
or an 1 -month perod whch commences uy 1. 1952, and ends
December 31,1953.
.02 Lmtaton on amount e cudabe. There s no mtaton upon
the amount of earned ncome receved durng the perod anuary 1,
1951, through December 31, 1952, whch may be e cuded from gross
ncome under secton 116(a) (2) of the Code. owever, for ta abe
years endng after December 31,1952, but ony wth respect to amounts
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Regs. US, 30.116-1.
receved after such date, the amount e cuded from gross ncome under
the provsons of such secton sha not e ceed 20,000 n those cases n
whch the 1 -month perod ncudes the entre ta abe year. In those
cases n whch the 1 -month perod does not ncude the entre ta abe
year, the 20,000 annua mtaton sha be prorated n the foowng
manner: The amount e cuded from gross ncome under such secton
for such ta abe year sha not e ceed an amount whch bears the same
rato to 20,000 as the number of days n the part of the ta abe year
wthn the 1 -month perod bears to the tota number of days n such
year. For e ampe, a ta payer was present n a foregn country 510
fu days durng the 1 -month perod endng une 30, 1953, durng
whch the requrements of secton 116(a) (2) of the Code were sats-
fed. Durng the caendar year 1952 he receved 26,000 and durng
the perod anuary 1,1953, through une 30,1953, he receved 13,000
as saary. If the ta payer reported on a caendar year bass, the en-
tre 26,000 receved durng 1952 woud be e cudabe, but ony
9,917. 1 (1 1/365 of 20,000) woud be e cudabe n 1953. The
baance of 3,0 2.19 woud be ncudbe n the ta payer s gross ncome
for 1953. speca rue s appcabe to a fsca year begnnng n 1952
and endng n 1953. (There s no mtaton upon the amount of
earned ncome whch may be e cuded from gross ncome under
sec. 116(a)(1) of the Code.)
.03 Computaton of 510 fu days presence n foregn country. In
computng the mnmum of 510 fu days presence n a foregn country
or countres, a separate perods of such presence durng the 1 -month
perod are to be aggregated. For the purpose of secton 116(a) (2) of
the Code, f an ndvdua traves from one pace n a foregn country
to another pace n the same country, or to a pace n another foregn
country, and f such trave e tends over a perod of ess than 2 hours
and does not nvove trave wthn the Unted States or any possesson
thereof, such ndvdua sha not be deemed outsde a foregn country
durng the perod of such trave. The 510 fu days need not be con-
secutve, but may be nterrupted by perods durng whch the ctzen
s not present n a foregn country. Tme spent n a foregn country
n the empoyment of the Unted States Government w count toward
satsfacton of the 510 fu-day requrement, even though amounts pad
by such Government are not e cudabe from gross ncome. The perod
durng whch the ctzen was present n a foregn country, or countres,
pror to anuary 1, 1951, may be taken nto account n determnng
whether such ctzen s present n a foregn country or countres dur-
ng at east 510 fu days durng any 1 -month perod. owever, the
ncome attrbutabe to the perod pror to anuary 1, 1951, s not e -
cudabe from gross ncome under secton 116(a) (2) of the Code f
receved before such date, snce the e cuson s appcabe ony to
ta abe years begnnng on or after anuary 1, 1951.
.0 Computaton of 1 -month perod. The 1 consecutve-month
perod may be part or a onger perod of presence n a foregn country
and need not commence wth the ctzen s day of arrva theren or
termnate wth the day of hs departure therefrom. For e ampe, a
ctzen who arrves n a foregn country on anuary 1,1952, and fnay
departs therefrom on February 1 , 195 , may not be present n such
country for 510 fu days durng the 1 -month perod commencng
wth anuary 1, 1952, and endng wth the cose of une 30,1953, be-
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Regs. 11 , 39.116-1.
0
cause of hs vsts to the Unted States durng such perod. owever,
he may satsfy the 510 fu-day requrement durng the 1 -month
perod commencng wth February 15,1952, and endng wth the cose
of ugust 1 ,1953. In such event, the e cuson w appy to ncome
attrbutabe to the atter perod, but not to ncome attrbutabe to the
perod commencng wth anuary 1,1952, and endng wth the cose of
February 1 , 1952. The e cuson s appcabe as ong as there s a
contnung perod throughout whch the ctzen satsfes the requre-
ment of 510 fu days presence n a foregn country or countres durng
an 1 -month perod.
.05 Defnton. The term fu day means a contnuous perod of
2 hours commencng from mdnght and endng wth the foowng
mdnght. The term 1 consecutve months means any 1 -month
perod commencng wth the begnnng of any day of any month and
endng wth the cose of the day precedng the correspondng day n
the succeedng 1 th month; or f there s no s.ch correspondng day,
wth the cose of the ast day of the succeedng 1 th month. For e am-
pe, the perod uy 3,1951, through anuary 2, 1953, and the perod
uy 1, 1951, through December 31, 1952, woud both be perods of
IS consecutve months. The term foregn country ncudes ony
terrtory under the soveregnty of a government other than that of the
Unted States; t does not ncude the terrtores ( awa and aska)
or the possessons of the Unted States.
Sec. G. Income Recevf.h Wthn Possessons of the UNT n States.
Income derved from possessons of the Unted States may, under
certan crcumstances, be e cuded from gross ncome n accordance
wth the provsons of secton 110(1) and secton 251 and, n some rare
nstances, under secton 110(a) of the Interna Revenue Code. Gener-
ay, secton 116(a) of the Code has no appcaton to ctzens of the
Unted States performng persona servces or engaged n a trade or
busness wthn the possessons. owever, a ctzen who has quafed
for the foregn resdence or presence n a foregn country e cuson
under secton 110(a) of the Code may e cude earned ncome attrbu-
tabe to a perod he s temporary present n a possesson durng such
quafyng perod. For e ampe: prvatey empoyed ctzen arrved
n raz on December 31, 1950, and remaned there contnuousy unt
May 25, 1952, a perod durng whch he quafed for the presence n
a foregn country e cuson. (See sec. 5 of ths Rev. Ru.) On May
25, 1952, he eft raz for a temporary assgnment n the Panama
Cana Zone, a possesson of the Unted States, where he remaned unt
uy 15, 1952, when he returned to the Unted States for a permanent
assgnment. The ctzen may e cude from gross ncome under secton
116(a) (2) of the Code the earned ncome attrbutabe to the perod
begnnng anuary 1,1951, and endng une 30,1952, wthout mta-
ton as to amount f receved before anuary 1, 1953, snce he was
present n a foregn country for 510 fu days durng such 1 -month
perod and such ncome was for persona servces rendered outsde
the Unted States. e may not e cude the earned ncome attrbutabe
to the perod uy 1 to uy 15, 1952, snce he dd not quafy for the
presence n a foregn country e cuson for an 1 -month perod
whch ncuded such perod. For purposes of ths secton, some of
the more mportant possessons are the Panama Cana Zone, Guam,
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7
(Regs. 11 , 39.116-1.
mercan Samoa, Wake, Mdway Isands. Puerto co, and the rgn
Isands.
Sec. 7. akned Income.
.01 Compensaton for persona servces rendered. The term earned
ncome means wages, saares, professona fees, and other amounts
receved as compensaton for persona servces actuay rendered. It
does not ncude such ncome as dvdends, other dstrbutons of
corporate earnngs or profts, gambng gans, nterest, rents, or gans
or profts from deang n rea or persona property. For e ampe,
where a ctzen performs persona servces for a corporaton n whch
he owns stock, earned ncome means ony such porton of any ncome
receved from the corporaton whch represents a reasonabe aowance
as compensaton for the persona servces actuay rendered. The
entre amount receved as professona fees by a ctzen engaged n a
professona occupaton, such as a doctor or awyer, may be treated
as earned ncome even though he empoys assstants n the perform-
ance of the servces, f the patents or cents are those of the ctzen
and ook to hm as the person responsbe for the servces rendered, and
capta s not a matera ncome-producng factor.
.02 Proft from trade or busness. If a ctzen s engaged n a trade
or busness, ether as soe propretor or as a member of a partnershp,
n whch both persona servces and capta are matera ncome-pro-
ducng factors, a reasonabe aowance as compensaton for the per-
sona servces actuay rendered by hm sha be consdered to be
earned ncome, but the amount whch may be treated as earned
ncome from such trade or busness may not e ceed 20 percent of hs
share of the net profts therefrom. To ustrate: ctzen qua-
fyng for the foregn resdence e cuson operates a reta saes out-
et n a foregn country. Snce capta s a matera ncome-produc-
ng factor n the busness, not more than 20 percent of the net profts
from the busness may be treated as earned ncome and e cuded.
The baance of the profts must be ncuded n gross ncome for
Federa ncome ta purposes.
Sec. . Soukce of Income.
For the purpose of secton 110 (a) of the Code, the pace where
persona servces are performed s consdered to be the source of the
ncome for such servces, rrespectve of the pace where payment s
made. Therefore, f earned ncome s attrbutabe to a perod n
whch the ctzen satsfes ether the foregn resdence test or the
presence n a foregn country test, the amounts of such ncome re-
ceved for persona servces rendered outsde the Unted States may be
e cuded from gross ncome, sub|ect to the mtatons set forth n sec-
ton 5.02 of ths Revenue Rung, even though receved wthn the
Unted States. Compensaton for persona servces rendered wthn
the Unted States s ta abe and s not e cudabe from gross ncome,
regardess of the pace where payment s made. For e ampe, a Unted
States ctzen, who s a bona fde resdent of a foregn country, returns
to the Unted States on a busness trp. The compensaton for the
servces rendered whe n the Unted States s ta abe and ncudbe
n gross ncome, even though payment for such servces may be
receved by the ta payer after hs return to the foregn country.
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Regs. 11 , 39.116-1.)
S
Sec. 9. Income Receved n Foregn Currency.
The ncome reported on a Federa ncome ta return must be e -
pressed n terms of Unted States doars. Where ncome s actuay
or constructvey receved n foregn currency, the computaton n
terms of Unted States doars must be based on the rate of e change
at the tme of recept by the ctzen, or when credted to hs account
n the foregn country, even though not actuay converted nto Unted
States currency at that tme. (In the case of ocked Foregn
Income see sec. 10 of ths Rev. Ru.)
Sec. 10. ocked Forecn Income.
Generay, a ncome (other than that e cudabe by aw) of Unted
States ctzens from sources wthn a foregn country or countres,
whether n terms of Unted States doars or foregn currences, s
ncudbe n gross ncome for Federa ncome ta purposes, notwth-
standng the fact that under the aws or reguatons of the foregn
country or countres converson of such foregn ncome nto Unted
States doars, or nto other money or property whch s ready con-
vertbe nto Unted States currency, may be bocked. The ctzen
must ncude the bocked ncome n hs gross ncome when such
ncome s tther actuay or constructvey receved or s credted to
hs account n the foregn country, uness he takes affrmatve acton to
eect to defer the reportng of such ncome unt t ceases to be bocked.
If he wshes to make such eecton and defer the ncome ta es other-
wse due on such ncome, he must compy wth the procedura requre-
ments of the Interna Revenue Servce reatng to bocked foregn
ncome, ncudng the fng, wth hs reguar return, of a tentatve
return reecng such bocked ncome, but on whch no ta s com-
uted. Detas of the requrements are pubshed n the Interna
eveme uetns. See Mmeograph 6 75, C. . 1950-1, 50, as
amended by Mmeograph 6 9 , C. . 1950-1, 5 , and Mmeograph
65 , C. . 1951-1, 19. Income ceases to be bocked and s ncudbe
n gross ncome when t s convertbe, or has been converted, nto
Unted States doars or nto other money or property whch s con-
vertbe nto Unted States currency; or the ctzen uses the ncome for
bs persona e pendtures; or dsposes of t by way of gft, bequest,
devse or nhertance, or n some other manner.
Sec. 11. Fng or Income Ta Returns.
.01 Gross ncome. ctzen of the Unted States, wherever res-
dent, who has gross ncome of 600 or more (other than ncome e -
cuded by aw) durng the ta abe year must fe an ncome ta return,
regardess of hs marta status, the number of hs dependents, or the
amount of hs deductons. For e ampe, a ctzen who quafes for
the foregn resdence e cuson fes hs return on a caendar year
bass. For the year 1952 he receved a saary of 10,000 for servces
performed n a foregn country, dvdends of 500 from a foregn
corporaton, and nterest of 200 from nvestments n foregn coun-
tres. The ctzen must fe a return for such year snce he had gross
ncome of 600 or more e cusve of the saary of 10,000 e cudabe
under the provsons of secton 110(a)(1) of the Code. sef-em-
oyed ctzen not meetng the above requrements may nevertheess
e requred to fe a return for purposes of the sef-empoyment ta
f he s engaged n a trade or busness as defned n secton 1 of the
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9
Regs. 11 , f 39.116-1.
Code, and has net earnngs of 00 or more from sef-empoyment
(See sec. 12 of ths ev. u.)
.02 Deductons. ny e penses, osses, and other deductons whch
are attrbutabe to ncome propery e cuded under secton 116(a)
are not aowabe as deductons n a Federa ncome ta return. For
e ampe, a saesman resdng and traveng abroad, who propery
e cuded from gross ncome under secton 116(a) of the Code ncome
earned abroad, may not deduct n hs Federa ncome ta return
traveng and other e penses ncurred by hm n earnng such e cuded
ncome. penses, osses, and other deductons whch cannot be
dentfed as beng attrbutabe e cusvey to ether ncudbe or
e cudabe ncome but are attrbutabe to both must be aocated or
apportoned.
.03 Income ta es pad to foregn countres. If a ctzen s requred
to ncude n hs ncome ta return, Form 10 0, ncome from foregn
sources on whch ncome ta es to a foregn country or countres are
pad or accrued, he may cam credt for such foregn ncome ta es
aganst hs Unted States ncome ta n accordance wth the provsons
of secton 131 of the Interna Revenue Code, provded he does not
cam the standard deducton or compute hs ta by the use of the ta
tabe on page of the return. The foregn ta credt shoud be
camed on the ne provded therefor (ne 10 of the 1953 Form 10 0)
at the bottom of page 3 of the return. The method of computng the
foregn ta credt aowabe under secton 131 of the Code s e paned
on Form 1116, whch must be fed wth the ncome ta return by every
ta payer camng credt under that secton. If credt s camed
under secton 131 of the Code and a redetermnaton of the ta payer s
foregn ncome ta abty dscoses that he has overpad or under-
pad such ta , he shoud mmedatey notfy the Commssoner of
Interna Revenue n order that approprate ad|ustment may be made
of the foregn ta credt camed on hs Federa ncome ta return.
s an aternatve to camng the foregn ncome ta as a drect credt
aganst hs Unted States ncome ta , the ta payer may cam the
amount of ncome ta es pad to a foregn country or countres as a
deducton on page 3 of Form 10 0 n computng hs net ncome, pro-
vded he temzes hs deductons. In most cases, however, t w be
to the ta payer s advantage to cam foregn ncome ta es as a credt
aganst the Federa ta under secton 131 of the Code. Ta payers
who cam the foregn ncome ta es ether as a credt or as a deducton
may not aso have the beneft of the standard deducton.
.0 Where rght to e empton not yet estabshed. If a ctzen em-
poyed abroad has not been there ong enough to quafy for e empton
under ether the foregn resdence rue or the presence n a foregn
country rue at the tme hs ncome ta return s due to be fed, he
must ether ncude the compensaton n hs gross ncome and pay the
Federa ta due thereon, or obtan an e tenson of tme for the fng
of hs return. (See par. .06 of ths secton.) If he eects to ncude the
compensaton n hs gross ncome, he may, after he has met the statu-
tory requrements for e empton and wthn the statutory perod, fe
an amended return or a cam on Form 3 for refund or credt of any
ta thus overpad. For e ampe, a ctzen was a bona fde resdent of
a foregn country from November 1, 1952, through anuary 31, 195 ,
durng whch perod he performed persona servces abroad. e
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Regs. 11 , 39.116-1.
CO
woud be requred to ncude n hs 1052 return, fed on the caendar
year bass, a ncome for the year, ncudng the earned ncome
receved durng the perod November 1, 1952, through December 31,
1952, snce he had not met the requrements of secton G(a) (1) of
the Code as of the cue date for the fng of such return. owever,
snce the requrements of that secton woud be met as of December
31,1953, he woud then be entted to a refund or credt of any over-
payment of ta resutng from the e cuson of the earned ncome
receved durng the perod November 1, 1952, through December 31,
1952, and a cam on Form 3 or amended return shoud then be
fed.
.05 Due date for fng returns. Ctzens of the Unted States who,
on March 15, are resdng or traveng outsde of the Unted States,
and who fe ther returns on the caendar year bass, are automatcay
aowed an e tenson of tme unt une 15 for fng the return for
the precedng ta abe year. Smary, an e tenson of 3 months s
granted to fsca year ta payers. ta payer who takes advantage of
ths e tenson must attach to hs return a statement showng that he
was resdng or traveng outsde the Unted States on the due date
(March 15, for caendar year ta payers) and e must pay nterest at
the rate of 0 percent per annum on the unpad tu , f any, from the
due date unt pad.
.Of tensons of tme for fng returns. n e tenson of tme
for fng ncome ta returns may be granted for more than 6 months n
the case of ctzens of the Unted States who are abroad. ctzen
desrng an e tenson of tme, n addton to the 3 months automat-
cay granted, for fng hs return unt after the competon of the
quafyng perod under secton 116(a) of the Code shoud make ap-
pcaton therefor wth the dstrct drector of nterna revenue wth
whom the return s requred to be fed. The appcaton must be n
wrtng, propery sgned by the ta payer or hs duy authorzed agent,
and must be made before the due date for fng the return wth respect
to whch the e tenson s requested. The appcaton shoud set forth
the facts reed upon to |ustfy the e tenson of tme requested and
shoud ncude a statement as to the earest date the ta payer e pects
to be n a poston to determne whether he w be entted to the
e cuson provded by secton G(a) of the Code.
Sec. 12. Sef- mpoyment Ta .
ctzen of the Unted States, wherever resdent, who has net
earnngs from sef-empoyment of 00 or more from a trade or bus-
ness carred on by hm or from a partnershp of whch he s a member,
s sub|ect to the sef-empoyment ta . Such ctzen s requred to fe a
return on Form 1010 for the purpose of reportng the sef-empoyment
ta even though he has no ncome ta abty. schedue for the
computaton of the ta s provded on page 3 of separate Schedue C
(Form 1010) and nstructons for ts competon are shown on page
of the schedue. The term trade or busness as used heren ncudes
a sef-empoyment actvtes of the ctzen, e cept those specfcay
e cuded by aw. Some of the sef-empoyment actvtes specfcay
e cuded by aw are the practce of certan professons, such as the
medca, accountng and ega professons; or servces as a mnster or
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51
Regs. 11 , 39.116-1.
member of a regous order; or farmng; or rea estate rentas, e cept
rentas receved n the course of a trade or busness as a rea estate
deaer. For a compete st of the e cuded actvtes, see CLU-
SIONS on page of separate Schedue C (Form 10 0).
Sec. 13. Decaraton of stmated Ta .
.01 Who must fe. very ctzen of the Unted States must fe
a decaraton of estmated ta on Form 10 0- S for the ta abe year f
he e pects to receve durng such year (e cusve of ncome e empt
from ta ) ether (a) gross ncome n e cess of 100 not sub|ect to
wthhodng, provded hs tota gross ncome s e pected to amount to
SG00 or more; or (b) wages sub|ect to wthhodng n e cess of ,500
pus C00 for each e empton to whch he s entted. Specfc nstruc-
tons for the preparaton and fng of the decaraton are prnted on
the Form 10 0- S and, wth the e ceptons mentoned heren, shoud
be foowed by ctzens outsde the Unted States.
.02 Due date for fng decaratons. The decaraton s requred
to be fed on or before the 15th day of the thrd month of the ta abe
3 ear for whch t s made. owever, a ctzen traveng or resdng
n a foregn country on the due date for fng the decaraton s
aowed an e tenson of tme to and ncudng the 15th day of the s th
month of the ta abe year ( une 15, for the caendar year ta payers)
for fng the decaraton and payment, wthout nterest, of a nsta-
ments of estmated ta then due.
Sec. 1 . Where Returns and Decaratons Shoud e Fed.
Income ta returns and decaratons of estmated ta shoud be fed
wth the dstrct drector of nterna revenue for the dstrct n whch
the ta payer s ega resdence or prncpa pace of busness n the
Unted States s ocated, or f he has no ega resdence or pace of bus-
ness n the Unted States, wth the Dstrct Drector of Interna Reve-
nue, atmore 2, Maryand, U. S. .
Sec. 15. Penates.
Ctzens of the Unted States resdng or present n foregn countres
are abe, to the same e tent as ta payers wthn the Unted States,
for a the penates and addtons to the ta mposed by aw, ncudng
penates and addtons to the ta n respect of decaratons and pay-
ments of estmated ta .
Sec. 16. Where Forms May e Obtaned.
Necessary forms for the fng of returns, decaratons, and/or cams
may be obtaned from any dstrct drector of nterna revenue, or from
most Unted States mbasses and Consuates.
Sec. 17. Correspondence.
ny ta payer desrng addtona nformaton concernng ths
Revenue Rung, or nformaton reatng to the aw, reguatons, or
procedures appcabe to ta abe years begnnng on or before Decem-
ber 1, 1950, shoud address a communcaton to the Commssoner of
Interna Revenue, ttenton: ssstant Commssoner (Technca),
Washngton 25, D. C.
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Regs. 11 , 39.116- .
,r)2
Reguatons 11 , Secton 39.116- : cuson Rev. Ru. 237
of certan cost-of-vng aowances.
INT RN L R NU COD
Terrtora cost-of-vng aowances pad to certan cvan
empoyees of the Government of the Unted States statoned n
Terrtores and possessons of the Unted States, pursuant to secton
207 of the Independent Offces ppropraton ct of 19 9, as amended,
ft- Stat. 19 and 1205, are e cudabe from gross ncome and e empt
from Federa ncome ta under the provsons of secton G(|) of
the Interna Revenue Code.
dvce s requested whether terrtora cost-of-vng aowances
pad to certan cvan empoyees of the Government of the Unted
States statoned n Terrtores and possessons of the Unted States,
under the provsons of secton 207 of the Independent Offces ppro-
praton ct of 19 9, approved pr 20,19 ,62 Stat. 19 , as amended
by secton 10 of the Suppementa Independent Offces ppropraton
ct of 19 9, approved une 30,19 ,62 Stat. 1205, are e cudabe from
gross ncome and e empt from Federa ncome ta under the provsons
of secton 116 (|) of the Interna Revenue Code.
Secton 207 of the Independent Offces ppropraton ct of 19 9,
as amended, supra, provdes n pertnent part as foows:
ny appropratons or funds avaabe to the e ecutve departments. Inde-
pendent estabshments, and whoy owned Government corporatons for the
payment of saares and compensaton to persons statoned outsde the contnenta
Unted States or n aska whose rates of basc compensaton are f ed by statute,
sha be avaabe for the payment of addtona compensaton to such persons,
based on vng costs substantay hgher than In the Dstrct of Coumba, or
condtons of envronment whch dffer substantay from condtons of envron-
ment n the States and warrant addtona compensaton as a recrutment
Incentve, or both such factors: Provded, That such addtona compensaton,
e cept as otherwse specfcay authorzed by aw, sha be pad ony n accord-
ance wth reguatons prescrbed by the Presdent .
Pursuant to ths act, the Presdent on September 16, 19 , ssued
ecutve Order 10,000, 3 CFR, 19 Supp. page 202, promugatng
reguatons to whch the statute refers. mong other thngs, the
order provdes for payment of addtona compensaton to certan
empoyees of the Government who are statoned n Terrtores or
possessons of the Unted States. The payments are of two types,
(1) a terrtora post dfferenta, authorzed for servce at posts
havng condtons of envronment whch dffer substantay from
condtons of envronment n the States and warrant addtona
compensaton as a recrutment ncentve, and (2) a terrtora cost-of-
vng aowance, authorzed for servce at posts where vng costs
are substantay hgher than n the Dstrct of Coumba.
Secton 116(|) of the Interna Revenue Code e cudes from gross
ncome:
In the case of a cerk or empoyee n the Foregn Servce of the Unted States,
amounts receved as cost-of-vng aowances under authorty of secton 3, as
amended, of the ct of February 23, 1931; and In the case of an ambassador,
mnster, dpomatc, consuar, or Foregn Servce offcer, amounts receved as
post aowances under the authorty of secton 12, as amended and renumbered,
of the ct of Say 2 , 102 ; and n the case of other cvan offcers or empoyees
cf the Government of the Unted States statoned outsde contnenta Unted
States, amounts receved as cost-of-vng aowances n accordance wth regua-
tons approved by the Presdent.
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53
(Regs. 11 , 39.117(a)- .
From the foregong t s apparent that the cost-of-vng payments
provded for Government empoyees statoned n the Terrtores and
possessons by secton 207 of the Independent Offces ppropraton
ct of 19 9, as amended, supra, based on vng costs substantay
hgher than n the Dstrct of Coumba, are ceary dstngushabe
from the payments for envronmenta factors authorzed n that
statute. Furthermore, the Cv Servce Commsson reguatons
ssued under authorty of ecutve Order 10,000, supra, defne the
cost-of-vng payments here consdered as terrtora cost-of-vng
aowances. See 5 CFR 350.1(e). Such cassfcaton appears to
brng the nstant payments squarey wthn the purvew of secton
116(|) of the Code as amounts receved as cost-o-vng aowances
n accordance wth reguatons approved by the Presdent. The
recpents thereof are statoned outsde contnenta Unted States,
snce secton 39.116- of Reguatons 11 provdes that for purposes
of secton 116 (|) the term contnenta Unted States ncudes ony
the States of the Unon and the Dstrct of Coumba.
It s accordngy hed that terrtora cost-of-vng aowances pad
to certan cvan empoyees of the Government of the Unted States
statoned n Terrtores and possessons of the Unted States, pursuant
to secton 207 of the Independent Offces ppropraton ct of 19 9,
as amended, 62 Stat. 19 and 1205, are e cudabe from gross ncome
and e empt from Federa ncome ta under the provsons of secton
116 (|) of the Interna Revenue Code, Cf. I. T. 3 07, C. . 19 6-2,67,
and G. C. M. 2 162, C. . 19 ,266.
S CTION 117(a). C PIT L G INS ND LOSS S:
D FINITIONS
Reguatons 11 , Secton 39.117(a)-1: Meanng Rev. Ru. 239
of terms.
( so Secton 22(b), Secton 39.22(b) (2)-2.)
INT RN L R NU COD
The consderaton pad fcr an annuty contract e ecuted by
an ndvdua n e change for rea property s the far market vaue
of the rea property at the tme of the transfer. The annuty pay-
ments receved under the contract consttute ordnary ncome to the
e tent of 3 percent of the far market vaue of the rea property at
the tme of the transfer unt the aggregate of that porton of the
payments whch s not ta abe under secton 22(b)(2) of the
Interna Revenue Code equas the far market vaue of the property
transferred. fter such tme the payments are ta abe n fu as
ordnary ncome.
fter the tota of that part of the annuty payments whch s
not ta ed under secton 22(b) (2) of the Code equas the ad|usted
bass of the rea property, subsequent payments, to the e tent that
they e ceed 3 percent of the far market vaue of the property, are
ta abe as gan from the sae of such property unt the tota of the
payments so ta ed equas tte e cess of the far market vaue of the
rea property over the ad|usted bass thereof.
dvce s requested reatve to the treatment for Federa ncome ta
purposes of monthy payments receved by the ta payer under the
crcumstances outned beow.
In the nstant case, the ta payer transferred certan rea property
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Regs. 11 , 39.117(a)- .
5
vaued at 0,000 n consderaton of the agreement of the purchaser,
an ndvdua, to pay her 2,000 per year for the remander of her
fe and after her death to make smar payments to her daughter for
fe. The ad|usted bass of the property at the tme of the transfer
was 5,600. The evdence does not ndcate that any part of the
property was transferred as a gft.
In . Darse Loyd v. Commssoner, 33 . T. . 903, acquescence
C. . 1950-2, 3, and Commssoner v. state of ertha F. ann, 17
Fed. (2d) 357, t s hed that no ta abe gan s reazed at the tme
of the transfer of property to an ndvdua n e change for the promse
of such ndvdua to make annuty payments to the transferor. It
docs n t foow from the Loyd and ann cases that an annutant may
not be abe for a capta gans ta where the amount receved under
p.n annuty contract e ceeds the annutant s ad|usted bass for the
property transferred therefor. In state of C. . v. Mooney.
5 Fed. Supp. 16 , where the decedent had transferred shares of stock
to a syndcate organzed by hs sons n return for a down payment
and an annuty, t was hed that the payments receved to the e tent
of the cost of the shares to the decedent consttuted a return of capta,
but that the e cess of the amounts receved (up to the vaue of the
stock) over such cost was sub|ect to ta as capta gan. The court
further hed that the amounts receved n the form of annuty pay-
ments (the amounts receved after the down payment) were sub|ect
to ta pursuant to secton 22(b) (2) of the Revenue ct of 1936. The
court reasoned that what the decedent dd was the equvaent of seng
hs stock for cash and usng the proceeds to purchase an annuty
contract.
In the nstant case t s hed that the payments receved under the
contract consttute annuty payments under secton 22(b) (2) of the
Code, for whch the consderaton pad s the far market vaue of
the rea property at the tme of the transfer. ccordngy, the annua
payments of 2,000 consttute ordnary ncome to the e tent of 3 per-
cent of the far market vaue of the rea property (3 percent of
0,000 1,200) at the tme of the transfer unt the aggregate of that
porton of the payments whch s not ta ed under secton 22(b)(2)
of the Code ( 00 per annum) equas the far market vaue of the
property transferred. fter such tme the payments are ta abe n
fu as ordnary ncome. It s further hed that after the tota of
that part of the annuty payments whch s not ta ed under secton
22(b)(2) of the Code equas the ad|usted bass of the rea property
( 5,600), subsequent payments, to the e tent that they e ceed 3 percent
of the far market vaue of the property, are ta abe as gan from the
sae of such property unt the tota of the payments so ta ed equas
the e cess of the far market vaue of the property at the tme of the
transfer over the ad|usted bass thereof. Durng the frst 50 years
1,200 (3 percent of 0,000) of each annua payment of 2,000 s ta -
abe as ordnary ncome under secton 22(b)(2) of the Code. The
remanng 00 of each annua payment s e cudabe from gross
ncome durng the frst 7 years such payments are receved. In the
th to 50th years, ncusve, S00 of each annua payment s ncudbe
n gross ncome sub|ect to the capta gans provsons of secton 117
of the Code. fter the 50th year the fu annuty payment of 2,000
per year s ta abe as ordnary ncome.
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Regs. 11 , 39.117(|)-.
S CTION 117 (|). C PIT L G INS ND LOSS S: G INS
ND LOSS S FROM IN OLUNT RY CON RSION ND
FROM T S L OR C NG OF C RT IN PROP-
RTY US D IN T TR D OR USIN SS
Reguatons 11 , Secton 39.17(|)-: Gans Rev. Ru. 259
and osses from nvountary conversons and
from the sae or e change of certan prop-
erty used n the trade or busness.
( so Secton 112 (b), Secton 39.112 (b) (6)-1;
Secton 113(a), Secton 39.113(a) (15)-1;
Secton 3760, Secton 39.3760-1.)
INT RN L R NU COD
Where apprecated assets are dstrbuted to a parent corporaton
n compete qudaton of a whoy-owned subsdary whch s n-
debted to the parent, the Interna Revenue Servce w not take the
poston that the subsdary reazes gan by reason of the appreca-
ton of the assets apped n payment of the ndebtedness, provded
that the parent e ecutes a cosng agreement that s duy approved
under secton 37G0 of the Interna Revenue Code statng that the
bass of the subsdary s assets n the hands of the parent w be the
same as the subsdary s bass n such assets.
I. T. 109, C. . 1952-2, 13 , modfed.
dvce s requested whether gan must be recognzed, n accordance
wth I. T. 109, C. . 1952-2, 13 , to a whoy-owned subsdary cor-
poraton, whch s ndebted to ts parent, upon the dstrbuton of
apprecated assets to the parent n a compete qudaton wthn the
meanng of secton 112(b) (6) of the Interna Revenue Code, where
the parent agrees that the bass of the subsdary s assets n the hands
of the parent w be the same as the bass of such assets n the hands of
the subsdary mmedatey pror to the qudaton.
I. T. 109, supra, hods that assets dstrbuted to the parent corpo-
raton upon compete qudaton of a whoy-owned subsdary corpo-
raton whch s ndebted to the parent must frst be apped, at ther
far market vaue, aganst the ndebtedness to the parent, and f appre-
cated assets are so apped, the subsdary reazes ta abe gan to the
e tent of such apprecaton. The remanng assets, f any, of the sub-
sdary dstrbuted to the parent fa wthn the purvew of secton
112(b)(6) of the Code, provded the requrements of that secton
are met.
In vew of the admnstratve dffcutes ncdent to a strct appca-
ton of the rue set forth n I. T. 109, and n the nterest of an ordery
and effcent admnstraton of the nterna revenue aws, n cases to
whch I. T. 109 woud otherwse appy, the Interna Revenue Servce
w not take the poston that the subsdary reazes gan on the qu-
daton by reason of the appcaton of apprecated assets to ts ndebt-
edness, f the parent corporaton e ecutes a cosng agreement that s
duy approved under the provsons of secton 3760 of the Code statng
that the bass of the subsdary s assets n the hands of the parent w
be the same as the bass of such assets n the hands of the subsdary
mmedatey pror to the qudaton.
owever, n a cases where the parent s bass n the ndebtedness of
a sovent subsdary s ess than the face vaue thereof, t w be hed
that the parent reazes gan n the satsfacton of the ndebtedness n
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Regs. 11 , 39.131(a)- .
56
the qudaton measured by the dfference between the bass of the
ndebtedness and ts face vaue. (Cf. ouston Natura Gas Corpora-
ton v. Commssoner, 9 T. C. 570, affrmed 173 Fed. (2d) 61.)
L T. 109, C. . 1952-2, 13 , modfed.
Reguatons 11 , Secton 39.117(|)-1 : Gans
and osses from nvountary conversons and
from the sae or e change of certan property
used n the trade or busness.
INT RN L R NU COD
Severance damages receved upon condemnaton by a State of a
strp of and through a farm. (See Rev. u. 271, p. 36.)
S CTION 117(k). C PIT L G INS ND LOSS S:
G IN OR LOSS IN T C S OF TIM R OR CO L
Reguatons 11 , Secton 39.117(k)-: Gan or
oss upon the cuttng and dsposa of tmber
and the dsposa of coa.
INT RN L R NU COD
Cuttng and dsposa of Chrstmas trees. (See Rev. Ru. 217, p. 12.)
SUPPL M NT C CR DITS G INST T
S CTION 131(a). T S OF FOR IGN COUNTRI S ND
POSS SSIONS OF UNIT D ST T S: LLOW NC OF
CR DIT
Reguatons 11 , Secton 39.131 (a)-: nayss Rev. Ru. 272
of credt for ta es.
INT RN L revenue code
The ta mposed under the atan ta nw of September 19, 1951,
whether on the so-caed f ed rate bass or on the actua net
ncome determned under the provsons thereof, fas wthn the
Unted States concept of nn ncome ta and s aowabe as a credt
aranst Unted States ncome ta to the e tent provded by secton
131 of the Interna Ievenue Code. No ta s mposed by the aw of
October . 19 9, am thus, no bass e sts theren for a credt under
secton 131 of the Code.
dvce s requested whether ta es pad under the atan aws of
October , 19 9, and September 19, 1951, quafy as ncome ta es
wthn the purvew of secton 131 of the Interna Revenue Code.
The word ncome as defned n chapter I, artce 1 of the atan
aw of September 19, 1951, covers any earnngs, proft or ncome
resutng from work; any earnngs from persona property or rea
estate, any proft obtaned from trade, busness or ndustry, saares
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57 (Regs. 11 , 39.131(a)- .
(ncudng bonuses and gfts), profts obtaned from agrcuture,
rentas or ncome, nterest on capta, and any other perodca
earnngs.
ndvduas, assocatons, companes, and enterprses, -whether
partnershps or not, obtanng an ncome by one of the above means
are sub|ect to the payment of the ta . The ncome may be composed
of ndustra and commerca profts and the amounts consttutng
an ndvdua ncome, ta ed separatey or of one or the other. The
ta s payabe on the above-mentoned ncome earned n at re-
gardess of the ocaton of the estabshment and even though the payee
does not resde n that country.
In chapter III provson s made for certan ndvduas and enter-
prses to be ta ed on a f ed rate bass. The f ed rate ncome s
cacuated by mutpyng by 5 the yeary renta vaue of the budngs
and ands whch such ta payers occupy for ther trade or ndustres
or as otherwse provded n ths chapter.
Under chapter I , a ta s mposed on a stock corporatons, com-
panes and partnershps, or ndvdua enterprses conductng a trade
or ndustry n at upon the bass of ther net proft durng the
fnanca year as determned from the baance sheet. The net ta abe
proft s defned as the amount by whch the ncome derved by a ta -
payer durng the fnanca vear e ceeds the usua e penses and charges
n the admnstraton and operaton of the enterprse durng the
ta abe perod before deducton of reserves for amortzaton, repay-
ment, or repurchase of bonds, and other amounts to be pad from
the authorzed capta. The e penses consttutng the usua e penses
and charges whch are deductbe from the gross ncome n vew of
determnng the net ta abe proft are the professona dsbursements
whch are |ustfed, customary, and necessary and whch have a drect
connecton wth the partcuar trade or ndustry of the ta payer or
are nherent n ths trade or ndustry.
Chapter of the atan aw provdes that persons recevng
saares, those empoyed by busness frms, cv servants, and those who
e ercse a professon or have any ucratve noncommerca occupaton,
moneyenders, persons wth prvate ncome, and a those who have
an ncome not orgnatng from ndustra or commerca actvtes
are sub|ect to the ta on persona ncome. The estmated annua
renta of houses receved as gfts represents ta abe ncome. Dvdends
are sub|ected to a ta of 5 percent whch s wthhed at the source and
such dvdends are not ncuded n the persona ncome ta return.
so ncuded n persona ncome are gross gfts, bonuses, gross ncome
from nvestments, nterest, pensons, and gross rentas (ess one-thrd
n eu of deductons for deprecaton, ta es, nsurance, repars) and
any other ncome. Professona peope who are sef-empoyed and
who aso pay ther ta on a f ed rate bass w deduct ths ta
from ther persona ncome ta return.
Provson s made for the aowance of persona e emptons n the
case of unmarred ndvduas, marred coupes, and dependents; and
n eu of deductons from persona ncome of contrbutons, ta es and
mposts, nsurance, or osses from fre, a 10 percent genera deducton
not to e ceed a stated amount s aowed from the ndvdua s ad|usted
ncome as e paned n the aw. Interest, professona e penses, and
medca e penses to the e tent specfed are deductbe.
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Regs. 11 , 39.131(d)- . 5
Secton 131 of the Interna Revenue Code provdes n part as foows:
(a) owance of Credt. If the ta payer chooses to have the benefts of
ths secton, the ta Imposed by ths chapter chapter I of the Code
sha be credted wth :
(1) Ctzens and domestc corporatons. In the case of a ctzen of
the Unted States and of a domestc corporaton, the amount of any n-
come ta es pad or accrued durng the ta abe year to any
foregn country
In order for a ta pad or accrued to a foregn country to be aow-
abe as a credt aganst Unted States ncome ta under secton 131
of the Code, supra, t must be shown that the ta mposed by the for-
egn aw s an ncome ta wthn the Unted States concept of that
term, or s a ta n eu of an ncome ta .
It s hed that the ta mposed under the atan ta aw of Sep-
tember 19, 1951, whether on the so-caed f ed rate bass or on the
actua net ncome determned under the provsons thereof, fas
wthn the Unted States concept of an ncome ta and s aowabe
as a credt aganst Unted States ncome ta to the e tent provded by
secton 131 of the Interna Revenue Code. Cf. erbert Idc een v.
Commssoner, 15 . T. . 12 3, acquescence, C. 15. 1 -1, 2 (1930).
No ta s mposed by the aw of October , 19 9, and therefore, no
queston arses as to the credt under secton 131 wth respect to ths
aw,
Reguatons 11 , Secton 39.131 (a)-: nayss Rev. Ru. 273
of credt for ta es.
INT RN L R NU COD
The wthhodng ta on royates mposed by the Government of
apan, under the provsons of artce 1, paragraph 2, tem 6 of the
apanese ncome ta aw fas wthn the Unted States concept of an
ncome ta and s aowabe as a credt aganst Unted States ncome
ta to the e tent provded by secton 131 of the Interna Revenue
Code.
S CTION 131(d). T S OF FOR IGN COUNTRI S ND
POSS SSIONS OF UNIT D ST T S: Y R IN W IC
CR DIT T N
Rf |uatons 11 , Secton 39.131 (d)-: When
credt for ta es may be taken.
INT UN L R NU COD
Ferod n whch credt for foregn ta es may be taken by ta payer
reportng ncome from sources outsde the Unted States on the com-
peted contract bass, for Unted States ncome ta purposes, and on
the percentage of competon bass for the purposes of the foregn
ta es. (See Rev. Ru. 2S , p. 27.)
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59
Regs. 11 , 39.1 3-1.
SUPPL M NT D. R TURNS ND P YM NT OF T
S CTION 1 3. WIT OLDING OF T T SOURC
Reguatons 11 , Secton 39.1 3-1: T. D. 60 7
Wthhodng ta at source.
( so Secton 1 , Secton 39.1 -1.)
TITL 20 INT RN L R NU C PT R I. SU C PT R , P RT 7.
T TION PURSU NT TO TR TI S. SU P RT C N D
Reease or refund of e cess ta wthhed, and e empton from, or
reducton n rate of, wthhodng under sectons 1 3 and 1 of the
Interna Revenue Code n the case of resdents of Canada and of
corporatons organzed under the aws of Canada, as affected by the
ncome ta conventon and protoco between the Unted States and
Canada procamed by the Presdent of the Unted States of mer-
ca on une 17,19 2, and amended by the suppementary conventon
between such Governments procamed by the Presdent on Novem-
ber 29, 1951.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and
Others Concerned:
On ugust 6, 1953, there was pubshed n the Federa Regster
(1 F. R. 620) a notce of proposed ruemakng contanng wthhod-
ng reguatons wth respect to the ncome ta conventon between the
Ignted States and Canada, sgned March , 19 2, as modfed and
suppemented by the suppementary conventon between such Gov-
ernments, sgned une 12, 1950. No ob|ecton to the rues proposed
havng been receved, the reguatons set forth beow are hereby
adopted:
Tae of Conte ts
Secton
7. . . Introductory.
7. 0. Dvdends.
7. 7. Interest.
7. S. Copyrght royates.
7. 9. Natura resource royates, rea property rentas, saares, wages, emou-
ments, etc.
7.. 0. Pensons and fe annutes.
7.51. empt organzatons.
7.. 2. Reease of e cess ta wthhed at source.
7.53. ddressee not actua owner.
7. . eturn of ta wthhed and nformaton to be furnshed n ordnary course.
7. . ). enefcares of a domestc estate or trust.
7. G. Refund of e cess ta wthhed pror to 195 .
.07. Pror reguatons.
Sec. 7. 5. Introductory. The ncome ta conventon and protoco
between the Unted States and Canada, sgned March , 19 2, and
procamed by the Presdent of the Unted States on une 17,19 2, as
modfed and suppemented by the suppementary conventon between
such Governments, sgned une 12,1950, and procamed by the Pres-
dent on November 29, 1951, herenafter referred to as the conventon,
provdes n part as foows, effectve for ta abe years begnnng on
or after anuary 1,1951:

2S670 5 3
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Regs. 11 , 39.1 3-1.
60
btce I
Pensons (ncudng Government pensons) and fe annutes derved from
wthn one of the contractng States by a resdent of the other contractng State
sha be e empt from ta aton n the former State.

rtce
Income derved from sources wthn one of the contractng States by a regous,
scentfc, terary, educatona, or chartabe organzaton of the other contract-
ng State sha be e empt from ta aton n the State from whch the ncome s
derved f, wthn the meanng of the aws of both contractng States, such
organzaton woud have been e empt from ncome ta .
rtce I
1. The rate of ncome ta Imposed by one of the contractng States, n respect
of ncome derved from sources theren, upon ndvduas resdng n, or corpora-
tons organzed under the aws of, the other contractng State, and not havng a
permanent estabshment n the former State, sha not e ceed 15 percent for
each ta abe year.
2. Notwthstandng the provsons of paragraph 1 of ths rtce, Income ta
n e cess of 5 percent sha not be mposed by one of the contractng States n
respect of dvdends pad by a subsdary corporaton organzed under the aws
of such State, or of a potca subdvson thereof, to a parent corporaton or-
ganzed under the aws of the other contractng State, or of a potca sub-
dvson thereof: Provded, however, That ths paragraph sha not appy f
the competent authorty n the former State s satsfed that the corporate rea-
tonshp between the two corporatons has been arranged or s mantaned
prmary wth the Intenton of tacng advantage of ths paragraph.
3. Notwthstandng the provsons of rtce II of ths conventon, para-
graph 1 or paragraph 2, or both, of ths rtce, may be termnated wthout
notce on or after the termnaton of the three-year perod begnnng wth the
effectve date of ths conventon by cther of the contractng States mposng a
rate of ncome ta n e cess of the rate of 15 percent prescrbed n paragraph
1 or n e cess of the rate of 5 percent prescrbed n paragraph 2.

rtce II
1. Dvdends and nterest pad by a corporaton organzed under the aws of
Canada to a recpent, other than a ctzen or resdent of the Unted States of
merca or a corporaton organzed under the aws of the Unted States of
merca, sha be e empt from a ncome ta os mposed by the Unted States
of merca.
2. Dvdends and nterest pad by a corporaton organzed under the aws of
the Unted States of merca whose busness s not managed and controed In
Canada to a recpent, other than a resdent of Canada or a corporaton whose
busness s managed and controed In Canada, sha be e empt from a ta es
mposed by Canada.
rtce III
1. resdent or corporaton organzed under the aws of Canada dervng from
sources wthn the Unted States of merca rentas from rea property may
eect for any ta abe year to be sub|ect to the ta mposed by the Unted States
of merca on a net bass as f such resdent or corporaton were engaged n
trade or busness wthn the Unted States of merca through a permanent
estabshment theren durng such ta abe year.
2. Rentas from rea property derved from sources wthn Canada by an
Indvdua or corporaton resdent n the Unted States of merca sha receve
ta treatment by Canada not ess favorabe than that accorded under secton
) ). The Income Ta ct, as n effect on the date on whch ths rtce goes Into
effect.
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Regs. 11 , 39.1 3-1.
rtce III 0
Royates for the rght to use copyrghts or In respect of the rght to produce
or reproduce any terary, dramatc, musca, or artstc work (but not ncusve
of rents or royates n respect of moton pcture fms) derved from sources
wthn one of the contractng States by a resdent or corporaton or other entty
of the other contractng State not engaged n trade or busness n the former
State through a permanent estabshment sha be e empt from ta mposed
by such former State.

rtce III
The competent authortes of the two contractng States may prescrbe regu-
atons to carry nto effect the present conventon wthn the respectve States
and rues wth respect to the e change of nformaton.
The competent authortes of the two contractng States may communcate
wth each other drecty for the purpose of gvng effect to the provsons of the
present conventon.

rtce I
Wth a vew to the preventon of fsca evason, each of the contractng States
undertakes to furnsh to the other contractng State, as provded n the suc-
ceedng rtces of ths conventon, the nformaton whch ts competent author-
tes have at ther dsposa or are n a poston to obtan under ts revenue aws
nsofar as such nformaton may be of use to the authortes of the other con-
tractng State n the assessment of the ta es to whch ths conventon reates.
The Informaton to be furnshed under the frst paragraph of ths rtce,
whether n the ordnary course or on request, may be e changed drecty between
the competent authortes of the two contractng States.
rtce
1. Tbe competent authortes of the Unted States of merca sha forward
to the competent authortes of Canada as soon as practcabe after the cose
of each caendar year the foowng nformaton reatng to such caendar year:
The names and addresses of a persons whose addresses are wthn Canada
and who derve from sources wthn the Unted States of merca dvdends ,
nterest, rents, royates, saares, wages, pensons, annutes, or other f ed or
determnabe annua or perodca profts and ncome, showng the amount of
such profts and ncome n the case of each addressee.

rtce I
1. If the Mnster n the determnaton of the Income ta abty of any per-
son under any of the revenue aws of Canada deems t necessary to secure
tbe cooperaton of the Commssoner, the Commssoner may, upon request,
furnsh the Mnster such Informaton bearng upon tbe matter as the Com-
mssoner s entted to obtan under the revenue aws of the Unted States of
merca.

nTcr. II
Ths conventon and the accompanyng protoco whch sha be consdered
to be an ntegra part of the conventon sha be ratfed and the nstruments of
ratfcaton sha be e changed at Washngton as soon as possbe.
Ths conventon and protoco sha become effectve on the frst day of anu-
ary 19 1. They sha contnue effectve for a perod of three years from that
date and Indefntey after that perod, but may be termnated by ether of the
contractng States at the end of the three-year perod or at any tme thereafter
provded that, e cept as otherwse specfed n the case of rtce I, at east
s months pror notce of termnaton has been gven, the termnaton to become
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Regs. 11 , 39.1 3-1.
62
effectve on the frst day of anuary foowng the e praton of the s month
perod.

Pbotoco
t the moment of sgnng the conventon for the avodance of doube ta aton,
and the estabshment of rues of recproca admnstratve assstance n the
case of Income ta es, ths day concuded between the Unted States of merca
and Canada, tbe undersgned penpotentares have agreed upon the foowng
provsons and defntons:
1. The ta es referred to In ths conventon are:
(a) for the Unted States of merca: the Federa Income ta es, ncud-
ng surta es, and e cess-profts ta es.
(b) for Canada: the Domnon ncome ta es, ncudng surta es, and e -
cess-profts ta es.
2. In the event of apprecabe changes n the fsca aws of ether of the
contractng States, the Governments of the two contractng States w consut
together.
3. s used n ths conventon:
(a) the terms person, ndvdua, and corporaton, sha have the
same meanngs, respectvey, as they have under the revenue aws of the
ta ng State or the State furnshng the Informaton, as the case may be;
(b) the term enterprse ncudes every form of undertakng, whether
carred on by an ndvdua, partnershp, corporaton or any other entty;
(c) the term enterprse of one of the contractng States means, as
the case may be, Unted States enterprse or Canadan enterprse ;
(d) the term Unted States enterprse means an enterprse carred on
n the Unted States of merca by an ndvdua resdent n the Unted
States of merca, or by a corporaton, partnershp or other entty created
or organzed In or under the aws of the Unted States of merca, or of
any of the States or Terrtores of the Unted States of merca;
(e) the terra Canadan enterprse s defned n the same manner mutats
mutands as the term Unted States enterprse ;
(f) the term permanent estabshment ncudes branches, mnes and
o wes, farms, tmberands, pantatons, factores, workshops, ware-
houses, offces, agences and other f ed paces of busness of an enterprse,
but does not ncude a subsdary corporaton. The use of substanta
equpment or machnery wthn one of the contractng States at any tme
n any ta abe year by an enterprse of the other contractng State sha
consttute a permanent estabshment of such enterprse n the former State
for such ta abe year.
When an enterprse of one of the contractng States carres on busness n
the other contractng State through an empoyee or agent estabshed there,
who has genera authorty to contract for hs empoyer or prncpa or has
a stock of merchandse from whch he reguary fs orders whch he re-
ceves, such enterprse sha be deemed to have a permanent estabshment
In the atter State.
The fact that an enterprse of one of the contractng States has busness
deangs n the other contractng State through a commsson agent, broker,
or other ndependent agent or mantans theren an offce used soey for the
purchase of merchandse sha not be hed to meau that such enterprse has
a permanent estabshment n the atter State.
. The term Mnster, as used n ths conventon, means the Mnster of
Natona Revenue of Canada or hs duy authorzed representatve. The term
Commssoner, as used n ths conventon, means the Commssoner of Interna
Revenue of the Unted States of merca, or hs duy authorzed representatve.
The term competent authorty, as used In ths conventon, means the Comms-
soner and the Mnster and ther duy authorzed representatves.
5. The term Unted States of merca, when used n a geographca sense,
ncudes ony the States, the Terrtores of aska and awa, and the Dstrct
of Coumba. The term Canada when used n a geographca sense means the
Provnces, the Terrtores, and Sabe Isand.
6. The term subsdary corporaton as used n rtce I of ths conventon
means a corporaton 9.r percent of whose shares (other than Drectors quafyng
shares) havng fu votng rghts are benefcay owned by another corporaton,
provded that (e cept n the case of a corporaton the chef busness of whch s
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03
Regs. 11 , S 39.1-13-1.
the makng of oans) ordnary not more than one-quarter of the gross ncome
of such subsdary corporaton s derved from nterest and dvdends other than
nterest and dvdends receved from ts subsdary corporatons.
7. (a) The term rentas and royates referred to n rtce II of ths con-
venton sha ncude rentas or royates arsng from easng rea or mmovabe,
or persona or movabe property or from any nterest n such property, ncudng
rentas or royates for the use of, or for the prvege of usng, patents, copy-
rghts, secret processes and formuae, goodw, trade marks, trade brands, fran-
chses and other ke property;
(b) the term nterest, as used n ths conventon, sha ncude ncome ars-
ng from nterest-bearng securtes, pubc obgatons, mortgages, hypothecs,
corporate bonds, oans, deposts and current accounts;
(c) the term dvdends, as used n ths conventon, sha ncude a ds-
trbutons of the earnngs or profts of corporatons.
. The term pensons referred to In rtce I of ths conventon means
perodc payments made n consderaton for servces rendered or by way of
compensaton for n|ures receved.
9. The term fe annutes referred to n rtce I of ths conventon
means a stated sum payabe perodcay at stated tmes, durng fe, or durng
a specfed number of years, under an obgaton to make the payments n con-
sderaton of a gross sum or sums pad by the recpent or under a contrbutory
retrement pan.
10. The term permanent estabshment as used In rtce I of ths conven-
ton, sha not be deemed to ncude an offce used soey for the purchase of
merchandse.
11. The provsons of the present conventon sha not be construed to restrct
In any manner any e empton, deducton, credt or other aowance accorded by
the aws of one of the contractng States In the determnaton of the ta mposed
by such State.
12. The ctzens of one of the contractng States resdng wthn the other con-
tractng State sha not be sub|ected to the payment of more burdensome ta es
than the ctzens of such other State.

s used n ths Treasury Decson, any term defned n the conven-
ton sha have the meanng so assgned to t; any term not so defned
sha have the meanng whch such term has under the Interna
Revenue Code.
Sf . 7. 6. Dvdends. (a) Genera. The rate of Unted States
ncome ta upon dvdends derved from sources wthn the Unted
States and receved n ta abe years begnnng on or after anuary 1,
1951, by a nonresdent aen (ncudng a nonresdent aen ndvdua,
fducary, and partnershp) who s a resdent of Canada, or by a cor-
poraton organzed under the aws of Canada, sha not e ceed 15 per-
cent of the gross amount thereof for each ta abe year under the pro-
vsons of rtce I of the conventon f such aen or corporaton at
no tme durng the ta abe year n whch such dvdends are derved
has a permanent estabshment n the Unted States. s to what con-
sttutes a permanent estabshment, see paragraphs (3) (f) and (10)
of the protoco.
Thus, f a nonresdent aen ndvdua who s a resdent of Canada
performs persona servces wthn the Unted States durng the ta abe
year, but has at no tme durng such a year a permanent estabshment
wthn the Unted States, he s entted to the reduced rate of ta wth
respect to dvdends derved n that year from Unted States sources,
as provded n rtce I of the conventon, even though under the
provsons of secton 211(b) of the Interna Revenue Code he has
engaged n trade or busness wthn the Unted States durng such
year by reason of hs havng rendered persona servces theren.
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Regs. 11 , 39.1 3-1.
6
For provsons pertanng to dvdends derved from sources wthn
the Unted States oy e empt organzatons, see secton 7.51.
(6) Dvdends pad y reated corporaton. Under the provsons
of rtce I (2) of the conventon, dvdends derved from sources
wthn the Unted States and pad by a corporaton organzed under
the aws of the Unted States, or of a potca subdvson thereof, to
a parent corporaton organzed under the aws of Canada, or of a
potca subdvson thereof, whch benefcay owns at the tme the
dvdend s pad 95 percent or more of the shares (other than drectors
quafyng shares) of the payng corporaton whch have fu votng
rghts are, when receved n ta abe years begnnng on or after anu-
ary 1,1951, sub|ect to Unted States ncome ta at a rate not n e cess
of 5 percent f (1) ordnary not more than 25 percent of the gross
ncome of the payng corporaton for the 3-year perod mmedatey
recedng the ta abe year n whch the dvdend s pad conssts of
vdends and nterest (other than dvdends and nterest receved by
such payng corporaton from ts own subsdary corporatons, f any),
(2) the Commssoner of Interna Revenue s satsfed that the rea-
tonshp between the payng corporaton and the parent corporaton
has not been arranged or mantaned prmary wth the ntenton of
securng the reduced rate of 5 percent, and (3) the parent corporaton
at no tme durng the ta abe year n whch such dvdends are derved
has a permanent estabshment n the Unted States. The condton
set forth under (1) above (reatng to the character of the ncome)
sha not appy, however, n the case of a payng corporaton the chef
busness of whch s the makng of oans.
ny domestc corporaton whch cams or contempates camng
that dvdends pad or to be pad by t are sub|ect to such rate not n
e cess of 5 percent sha fe the foowng nformaton wth the Com-
mssoner of Interna Revenue as soon as practcabe: (1) the date and
pace of ts organzaton; (2) the number of outstandng shares of
stock of the domestc corporaton havng votng power and the votng
power thereof; (3) the person or persons benefcay ownng such
stock of the domestc comporaton and ther reatonshp to the Cana-
dan corporaton; ( ) the amount of the gross ncome by years of the
domestc corporaton for the 3-year perod mmedatey precedng the
ta abe year n whch the dvdend s pad; (5) the amount of nterest
and dvdends by years ncuded n the gross ncome of the domestc
corporaton, and the amount of nterest and dvdends by years re-
ceved by such corporaton from ts own subsdary corporatons, f
any; and (6) the reatonshp between the domestc corporaton and
the Canadan corporaton dervng the dvdend from sources wthn
the Unted States.
s soon as practcabe after such nformaton s fed, the Comms-
soner w determne whether the dvdends concerned fa wthn the
scope of the provsons of rtce I (2) of the conventon and may
authorze the reease or refund of e cess ta wthhed wth respect to
dvdends whch come wthn such provsons. For addtona requre-
ments respectng the refund of e cess ta wthhed pror to 195 , see
secton 7.56.
In any case n whch the Commssoner has notfed the domestc
corporaton that the dvdends fa wthn the scope of the provsons
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63
Regs. 11 30.1 3-1.
of rtce I (2) of the conventon, the reduced wthhodng rate of
5 percent, to the e tent wthhodng of Unted States ncome ta s
requred, sha appy to any dvdends subsequenty pad by such cor-
poraton to the Canadan corporaton, uness the stock ownershp of
the domestc corporaton, or the character of ts ncome, materay
changes; or uness the Commssoner determnes that the reatonshp
between the two corporatons concerned s beng mantaned prmary
wth the ntenton of securng the reduced rate of ta . In such n-
stance, f such change n stock ownershp or character of ncome occurs,
the domestc corporaton sha prompty notfy the Commssoner of
the then e stng facts wth respect thereto. The contnued appca-
ton of the rate not n e cess of 5 percent s aso dependent upon the
contnued fufment of condton (3) of the frst paragraph of (6)
of ths secton.
(c) ffect of address n Canada on wthhodng n the case of
dvdends.- For the purpose of wthhodng of Unted States ncome
ta n the case of dvdends every nonresdent aen (ncudng a non-
resdent aen ndvdua, fducary, and partnershp) whose address
s n Canada sha be deemed by Unted States wthhodng agents to
be a nonresdent aen who s a resdent of Canada not havng a per-
manent estabshment n the Unted States; and every foregn corpora-
ton whose address s n Canada sha be deemed by such wthhodng
agents to be a corporaton organzed under the aws of Canada and
not havng a permanent estabshment n the Unted States.
(d) ate of wthhodng. Wthhodng at source n the case of
dvdends derved from sources wthn the Unted States and pad on
or after anuary 1, 195 , to nonresdent aens (ncudng a nonres-
dent aen ndvdua, fducary, and partnershp) and to foregn cor-
poratons, whose addresses are n Canada, sha be at the rate of 15
percent n every case e cept that n whch, pror to the date of payment
of such dvdends, (1) the Commssoner of Interna Revenue has not-
fed () the domestc corporaton (pursuant to paragraph (b) of ths
secton) that such dvdends fa wthn the scope of the provsons of
rtce I (2) of the conventon or () the wthhodng agent that
the reduced rate of wthhodng sha not appy, or (2) the wthhod-
ng agent has receved the etter of notfcaton prescrbed n secton
7.51(6).
The precedng provsons respectng the appcaton of the reduced
wthhodng rate n the case of dvdends pad to nonresdent aens
and foregn corporatons wth addresses n Canada are based upon the
assumpton that the payee of the dvdend s the actua owner of the
capta stock from whch the dvdend s derved and consequenty s
the person abe to Unted States ncome ta upon such dvdend. s
to acton by the recpent who s not the owner of the dvdend, see
secton 7.53.
The rate at whch Unted States ta has been wthhed from any
dvdend pad at any tme after the e praton of the thrteth day
after the date on whch ths Treasury Decson s pubshed n the
Federa Regster to any person whose address s n Canada at the tme
the dvdend s pad sha be shown ether n wrtng or by approprate
stamp on the check, draft, or other evdence of payment, or on an ac-
companyng statement.
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Regs. 11 , 39.1 3-1.
66
In the case of dvdends pad on or after anuary 1,1951, by a cor-
poraton organzed under the aws of Canada no wthhodng of Unted
States ncome ta s requred. See rtce II (1) of the conventon.
(e) Defnton of dvdend. Under paragraph 7(c) of the protoco,
the term dvdends, as used n the conventon, ncudes a dstrbu-
tons of the earnngs or profts of corporatons.
Sec. 7. 7. Interest. (a) Genera. The rate of Unted States n-
come ta upon nterest on bonds, securtes, notes, debentures, or on
any other form of ndebtedness, ncudng nterest on obgatons of
the Unted States, obgatons of nstrumentates of the Unted
States, and mortgages and bonds secured by rea property, whch s
derved from sources wthn the Unted States and receved n ta abe
| ears begnnng on or after anuary 1, 1951, by a nonresdent aen
(ncudng a nonresdent aen ndvdua, fducary, and partnershp)
who s a resdent of Canada, or by a corporaton organzed under the
aws of Canada, sha not e ceed 15 percent of the gross amount
thereof for each ta abe year under the provsons of rtce I of the
conventon f such aen or corporaton at no tme durng the ta abe
year n whch such nterest s derved has a permanent estabshment
n the Unted States. s to what consttutes a permanent estabsh-
ment, see paragraphs 3(f) and 10 of the protoco.
For provsons pertanng to nterest derved from sources wthn
the Unted States by e empt organzatons, see secton 7.51.
(b) ppcaton of reduced rate at source. To secure the reduced
rate of Unted States ncome ta at source n the case of coupon bond
nterest, the nonresdent aen who s a resdent of Canada or the cor-
oraton organzed under the aws of Canada sha for each ssue of
Dnds fe Form 1001-C n dupcate when presentng the nterest
coupons for payment. Ths form sha be sgned by the owner of the
nterest, trustee, or agent and sha show the name and address of the
obgor, the name and address of the owner of the nterest, and the
amount of the nterest. It sha contan a statement that the owner
(1) s a resdent of Canada, or s a corporaton organzed under the
aws of Canada, and (2) has no permanent estabshment n the Unted
States.
The reducton n the rate of Unted States ncome ta contempated
by rtce I of the conventon, nsofar as t concerns coupon bond
nterest, s appcabe ony to the owner of the nterest. The person
presentng the coupon or on whose behaf t s presented sha, for the
purpose of the reducton n ta , be deemed to be the owner of the
nterest ony f he s, at the tme the coupon s presented for payment,
the owner of the bond from whch the coupon has been detached.
If the person presentng the coupon or on whose behaf t s presented
s not the owner of the t ond, Form 1001, and not Form 1001-C, sha
be e ecuted.
The orgna and dupcate of Form 1001-C sha be forwarded by
the wthhodng agent to the Dstrct Drector of Interna Revenue,
udt Dvson, en Returns Secton, atmore 2, Maryand, wth
the quartery return on Form 1012. See secton 39.1 3-7 of ths
chapter Reguatons 11 . Form 1001-C sha be sted on Form
1012.
For genera provsons pertanng to the use, wthout reference to
the provsons of the conventon, of ownershp certfcate, Form 1001,
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G7
Regs. 11 , 33.1 3-1.
by nonresdent aens and nonresdent foregn corporatons, see
secton 39.1 3- and secton 39.1 3-6 of ths chapter.
To secure the reduced rate of Unted States ncome ta at source n
the case of nterest, other than coupon bond nterest, the nonresdent
aen who s a resdent of Canada or the corporaton organzed under
the aws of Canada sha fe Form OO -C n dupcate wth the
wthhodng agent n the Unted States. Ths form sha be sgned
by the owner of the nterest, trustee, or agent and sha show the name
and address of the obgor and the name and address of the owner
of the nterest. It sha contan a statement that the owner (1) s
a resdent of Canada, or s a corporaton organzed under the aws
of Canada, and (2) has no permanent estabshment n the Unted
States.
Form 1001 -C sha be fed wth the wthhodng agent for each
successve 3-caendar-year perod durng whch such nterest s pad.
For ths purpose, the frst such perod sha commence wth the begn-
nng of the caendar year n whch such ncome s frst pad on or after
anuary 1, 195 . ach such form fed wth any wthhodng agent
sha be fed not ater than 20 days precedng the date of the frst
ayment wthn each successve perod, or, f that s not possbe
ecause of speca crcumstances, as soon as possbe after such frst
payment. Once such a form has been fed n respect of any 3-caen-
dar-year perod, no addtona Form 1001 -C need be fed n respect
thereto uness the Commssoner of Interna Revenue notfes the
wthhodng agent that another such form sha be fed by the ta -
payer. If, after fng such form, the ta payer ceases to be egbe
for the beneft of rtce I of the conventon, he sha prompty
notfy the wthhodng agent by etter n dupcate. When any
change occurs n the ownershp of the nterest as recorded on the books
of the payer, the reducton n rate of wthhodng of Unted States
ncome ta sha no onger appy uness a Form 1001 -C s duy
e ecuted and fed wth the wthhodng agent by the new owner of
record of such nterest.
The dupcate of each Form 1001 -C (and etter) sha be mmed-
atey forwarded by the wthhodng agent to the Dstrct Drector
of Interna Revenue, udt Dvson, en Returns Secton, at-
more 2, Maryand.
In the case of nterest pad on or after anuary 1, 1951, by a cor-
poraton organzed under the aws of Canada no wthhodng of
Unted States ncome ta s requred. See rtce II() of the
conventon.
(c) Defnton of nterest. Under paragraph 7(b) of the protoco,
the term nterest, as used n the conventon, ncudes ncome arsng
from nterest-bearng securtes, pubc obgatons, mortgages, hypo-
thecs, corporate bonds, oans, deposts, and current accounts.
Sec. 7. . Copyrght Royates. (a) Genera. Royates for the
rght to use copyrghts or n respect of the rght to produce or repro-
duce any terary, dramatc, musca, or artstc work whch are derved
from sources wthn the Unted States and receved n ta abe years
begnnng on or after anuary 1,1951, by a nonresdent aen (ncud-
ng a nonresdent aen ndvdua, fducary, and partnershp) who s
a resdent of Canada, or by a Canadan corporaton or other entty,
are e empt from Unted States ta under the provsons of rtce
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Regs. 11 . 39.1 3-.
GS
III C of the conventon f such aen, corporaton, or other entty
at no tme durng the ta abe year n whch such royates are derved
s engaged n trade or busness wthn the Unted States through a
permanent estabshment stuated theren. Such royates are, there-
fore, not sub|ect to the wthhodng of Unted States ta at source.
s to what consttutes a permanent estabshment, see paragraph 3(f)
of the protoco.
The provsons of ths secton sha have no appcaton to rents
or royates n respect of moton pcture fms, or provsons per-
tanng to royates derved from sources wthn the Unted States
by e empt organzatons, see secton 7.51.
(b) ppcaton of e empton from wthhodng. To avod wth-
hodng of Unted States ta at the source n the case of the royates
to whch paragraph (a) s appcabe, the nonresdent aen who s
a resdent of Canada, or the Canadan corporaton or other entty,
sha fe Form 1001 -C n dupcate wth the wthhodng agent n
the Unted States. The provsons of secton 7. 7( ) reatng to the
e ecuton, fng, and effectve perod of such form wth respect to
nterest are equay appcabe wth respect to the ncome fang
wthn the scope of ths secton.
The dupcate of each Form 1001 -C (and etter) sha be mme-
datey forwarded by the wthhodng agent to the Dstrct Drector
of Interna evenue, udt Dvson, en Returns Secton, at-
more 2, Maryand.
Sec. 7. 9. Natura Resource Royates, Rea Property Rentas,
Saares, Wages, mouments, etc. (a) Genera. Under rtce
I of the conventon the rate of Unted States ncome ta mposed
upon natura resource royates, rea property rentas, saares, wages,
emouments, premums, compensatons, remuneratons, and other
gans, profts, and ncome (other than gans, profts, and ncome other-
wse e empt from Unted States ncome ta under the conventon)
whch are derved from sources wthn the Unted States and receved
n ta abe years begnnng on or after anuary 1,1951, by a nonres-
dent aen (ncudng a nonresdent aen ndvdua, fducary, and
partnershp) who s a resdent of Canada, or by a corporaton organ-
zed under the aws of Canada, sha not e ceed 15 percent of the
gross amount of such tems for each ta abe year f such aen or
corporaton at no tme durng the ta abe year n whch such tems are
derved has a permanent estabshment n the Unted States. s to
what consttutes a permanent estabshment, see paragraphs 3(f) and
10 of the protoco.
For the appcaton of the reduced rate of Unted States ncome ta
at source wth respect to dvdends and nterest, see sectons 7. 6 and
7. 7, respectvey. For the appcaton of the e empton from Unted
States ta at source wth respect to copyrght royates, pensons, and
fe annutes, see sectons 7. and 7.50, respectvey. For provsons
pertanng to ncome derved from sources wthn the Unted States by
e empt organzatons, see secton 7.51.
(b) ppcaton of reduced rate at source. To secure the reduced
rate of Unted States ncome ta at source n the case of the tems of
ncome to whch paragraph (a) s appcabe, the nonresdent aen
who s a resdent of Canada or the corporaton organzed under the
aws of Canada sha fe Form 1001 -C n dupcate wth the wth-
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69
Regs. 11 . 39.1 3-1.
hodng agent n the Unted States. The provsons of secton 7. 7(b)
reatng to the e ecuton, fng, and effectve perod of such form
wth respect to nterest are equay appcabe wth respect to the
ncome fang wthn the scope of ths secton.
The provsons of ths paragraph sha have no appcaton n the
case of wages pad to nonresdent aens who are resdents of Canada
and who enter and eave the Unted States at frequent ntervas. See
secton 05.102(g) of ths chapter Reguatons 116 . The provsons
of secton 39.1 3-3 of ths chapter Reguatons 11 reatng to the
aowance of the e emptons under secton 25(b) on a prorated bass,
when determnng the ta to be wthhed at source wth respect to
remuneraton for abor or persona servces performed wthn the
Unted States by a nonresdent aen, sha have no appcaton when
a Form 1001 -C has been fed wth the wthhodng agent pursuant
to ths paragraph wth respect to such remuneraton.
The dupcate of each Form 1001 -C (and etter) sha be mmed-
atey forwarded by the wthhodng agent to the Dstrct Drector of
Interna Revenue, udt Dvson, en Returns Secton, atmore
2, Maryand.
Sec. 7.50. Pensons and Lfe nnutes. (a) Genera. Prvate
and Government pensons, and fe annutes, derved from sources
wthn the Unted States and receved n ta abe years begnnng on or
after anuary 1,1951, by a nonresdent aen ndvdua who s a res-
dent of Canada are e empt from Unted States ta under he prov-
sons of rtce I of the conventon. Such tems of ncome are,
therefore, not sub|ect to the wthhodng of Unted States ta at
source.
() ppcaton of e empton from wthhodng. To avod wth-
hodng of Unted States ta at source n the case of the tems of
ncome to whch paragraph (a) s appcabe, the nonresdent aen
ndvdua who s a resdent of Canada sha notfy the wthhodng
agent by etter n dupcate that such ncome s e empt from Unted
States ta under the provsons of rtce I of the conventon.
The etter of notfcaton sha be sgned by the owner of the ncome,
sha show the name and address of both the payer and the owner of
the ncome, and sha contan a statement that the owner, an nd-
vdua, s nether a ctzen nor a resdent of the Unted States but s a
resdent of Canada.
If such etter s aso to be used as authorzaton for the reease,
pursuant to secton 7.52(a), of e cess ta wthhed from such tems
of ncome, t sha aso contan a statement that the owner was, at
the tme when the ncome was receved from whch the e cess ta was
wthhed, nether a ctzen nor a resdent of the Unted States but was
a resdent of Canada.
Ths etter sha consttute authorzaton for the payment of such
tems of ncome wthout wthhodng a Unted States ta at source
uness the Commssoner of Interna Revenue subsequenty notfes
the wthhodng agent that the ta sha be wthhed wth respect to
payments of such tems of ncome made after recept of such notce.
If, after fng a etter of notfcaton, the owner of the ncome ceases to
be egbe for the e empton from Unted States ta provded by the
conventon n respect to such ncome, he sha prompty notfy the wth-
hodng agent by etter n dupcate. When any change occurs n the
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Regs. 11 . 39.1 3-1
70
ownershp of such ncome as recorded on the books of the payer, the
e empton from wthhodng of Unted States ta sha no onger
appy uness a etter of notfcaton s duy e ecuted and fed wth the
wthhodng agent by the new owner of record of such ncome.
ach etter of notfcaton, or the dupcate thereof, sha be mme-
datey forwarded by the wthhodng agent to the Dstrct Drector
of Interna Revenue, udt Dvson, en Returns Secton, at-
more 2, Maryand.
(c) Defnton of pensons and fe annutes. Under paragraph
of the protoco, the term pensons, as used n rtce I of the
conventon, means perodc payments made n consderaton for serv-
ces rendered or by way of compensaton for n|ures receved.
Under paragraph 9 of the protoco, the term fe annutes, as
used n rtce I of the conventon, means a stated sum payabe
perodcay at stated tmes, durng fe, or durng a specfed number
of years, under an obgaton to make the payments n consderaton
of a gross sum or sums pad by the recpent or under a contrbutory
retrement pan.
Sec. 7.51. empt Organzatons. (a) Genera. Income derved
from sources wthn the Unted States and receved n ta abe years
begnnng on or after anuary 1,1951, by a regous, scentfc, ter-
ary, educatona, or chartabe organzaton of Canada s e empt from
Unted States ta under the provsons of rtce of the conventon
f, wthn the meanng of the aws of both the Unted States and
Canada, such organzaton woud have been e empt from ncome ta .
Paragraph 11 of the protoco provdes that the provsons of the
conventon sha not be construed to restrct n any manner any e emp-
ton, deducton, credt, or other aowance accorded by the aws of one
of the contractng States n the determnaton of the ta mposed by
such State. In vew of the provsons of such paragraph, the prov-
sons of secton 101 of the Interna Revenue Code, reatng to e emp-
tons from ta on corporatons, appy to every Canadan organzaton
comng wthn the scope of that secton and otherwse quafyng for
the e empton granted by rtce of the conventon, regardess of
whether Canada recognzes such organzaton as e empt from ncome
ta es mposed by ts own aws.
In vew of the above, f ed or determnabe annua or perodca n-
come derved from sources wthn the Unted States by a nonresdent
Canadan organzaton whch quafes for the e empton granted by
rtce of the conventon s not sub|ect to the wthhodng of Unted
States ta at source.
(5) ppcaton of e empton from wthhodng. To avod wth-
hodng of Unted States ta at source n the case of f ed or deter-
mnabe annua or perodca ncome derved from sources wthn the
Unted States, other than coupon bond nterest, the nonresdent Cana-
dan organzaton whch quafes for the e empton from Unted
States ta sha notfy the wthhodng agent by etter n dupcate
that such ncome s e empt from Unted btates ta under the prov-
sons of rtce of the conventon. The etter of notfcaton sha
be sgned by the owner of the ncome, trustee, or agent and sha show
the name and address of the obgor and the name and address of the
owner of the ncome. It sha contan a copy of the determnaton of
the Commssoner of Interna Revenue that such organzaton s
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71
Regs. 11 , S 39.1 3-1.
e empt from ta aton under chapter 1, reatng to the ncome ta , of
the Interna Revenue Code and a statement that the owner of the
ncome (1) s a Canadan organzaton and (2) has at no tme durng
the current ta abe year been engaged n trade or busness wthn the
Unted States. Ths etter sha consttute authorzaton for the pay-
ment of such ncome to such organzaton wthout wthhodng of
Unted States ta at source.
The provsons of secton 7. 7(h) reatng to the fng and effectve
perod of Form 1001 -C prescrbed theren wth respect to nterest
are equay appcabe wth respect to the etter of notfcaton pre-
scrbed heren.
ach etter of notfcaton, or the dupcate thereof, sha be mme-
datey forwarded by the wthhodng agent to the Dstrct Drector
of Interna Revenue, udt Dvson, en Returns Secton, at-
more 2, Maryand.
To avod wthhodng of Unted States ta at source n the case of
coupon bond nterest, the nonresdent Canadan organzaton whch
quafes for the e empton from Unted States ta granted by rtce
of the conventon sha nscrbe on each copy of the Form 1001-C
requred by secton 7. 7(6) a notaton substantay as foows: s
ths organzaton, whch s not engaged n trade or busness wthn
the Unted States, has been hed to be e empt from ta aton under
chapter 1 of the Interna Revenue Code by the Commssoner of
Interna Revenue under date of , 19 , the nterest
on ths certfcate s not sub|ect to wthhodng of Unted States ta .
The organzaton sha gve therewth the date of the offca etter
n whch the organzaton was hed to be so e empt.
Form 1001-C, when so used to substantate an e empton from
wthhodng of Unted States ta , need not be sted on Form 1012
when forwarded to the dstrct drector pursuant to secton 7. 7().
To the e tent not nconsstent herewth, the provsons of secton
7. 7( ) reatng to Form 1001 and Form 1001-C are equay appcabe
under ths paragraph.
Sec. 7.52. Reease or cess Ta Wthhed at Source. (a)
Genera. In order to gve the conventon effectve appcaton at the
earest practcabe date, the e emptons from, and reductons n the
rate of, wthhodng of Unted States ta at source granted by ths
Treasury Decson are hereby made effectve begnnng anuary 1,
195 , contngent upon compance wth the appcabe provsons of
secton 7. 6 through secton 7.51.
In the case of dvdends derved from sources wthn the Unted
States and pad to a nonresdent aen (ncudng a nonresdent aen
ndvdua, fducary, and partnershp) or to a foregn corporaton,
whose address at the tme of payment w as n Canada, f Unted States
ncome ta at the statutory rate (30 percent as of the date of approva
of ths Treasury Decson) has been wthhed from such dvdends on
or after anuary 1,195 , there sha be reeased (e cept as provded n
paragraphs (b) and (c)) by the wthhodng agent and pad over to
the person from whom t was wthhed an amount whch s equa to the
amount obtaned by subtractng 15 percent of such dvdends from
the ta so wthhed.
In the case of every ta payer whose address at the tme of payment
was n Canada and who furnshes to the wthhodng agent Form
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Regs. 11 , 39.1 3-1.
72
1001 -C n accordance wth secton 7. 7(6), secton 7. (6), and sec-
ton 7. 9(6), f Unted States ncome ta at the statutory rate (30 per-
cent as of the date of approva of ths Treasury Decson) or at 15
percent has been wthhea on or after anuary 1,195 , from the tems
of ncome n respect of whch such form s prescrbed n such sectons,
there sha be reeased by the wthhodng agent and pad over to the
person from whom t was wthhed
(1) n the case of copyrght royates and the ke, an amount
equa to the ta so wthhed from such tems; and
(2) n the case of other tems of ncome (other than dvdends,
pensons, fe annutes, and coupon bond nterest), an amount
whch s equa to the amount obtaned by subtractng 15 percent of
such tems n the aggregate from the ta so wthhed from such
tems.
In the case of every ta payer whose address at the tme of payment
was n Canada and who furnshes to the wthhodng agent Form
1001-C ceary marked SU STITUT and e ecuted n accordance
wth secton 7. 7(6), f Unted States ncome ta at the statutory rate
(2 percent or 30 percent, as the case may be, as of the date of approva
of ths Treasury Decson) has been wthhed from coupon bond
nterest on or after anuary 1,195 , there sha be reeased (e cept as
provded n paragraph (6)) by the wthhodng agent and pad over
to the person from whom t was wthhed an amount whch s equa
to the dfference between the amount of such nterest mutped by
the hgher of such statutory rates (30 percent as of the date of ap-
prova of ths Treasury Decson) and 15 percent of such nterest
One such substtute form sha be fed n dupcate wth respect to
each ssue of bonds and w serve wth respect to that ssue to re-
pace a Forms 1001 prevousy fed by the ta payer n the caendar
year n whch the e cess ta was wthhed and wth respect to whch
such e cess s reeased.
The orgna and dupcate of such substtute Form 1001-C sha
be forwarded by the wthhodng agent to the Dstrct Drector of
Interna Revenue, udt Dvson, en Returns Secton, atmore
2, Maryand, wth the quartery return on Form 1012. See secton
39.1 3-7 of ths chapter. Such substtute Form 1001-C sha be sted
on Form 1012.
In the case of every ta payer whose address at the tme of payment
was n Canada and who furnshes to the wthhodng agent the etter
of notfcaton prescrbed n secton 7.50(6) as authorzaton for the
reease of e cess ta wthhed, f Unted States ta at the statutory rate
(30 percent as of the date of approva of ths Treasury Decson) or
at 15 percent has been wthhed on or after anuary 1, 195 , from
Government pensons, prvate pensons, or fe annutes, there sha
be reeased by the wthhodng agent and pad over to the person from
whom t was wthhed an amount equa to the ta so wthhed from
such tems.
The provsons of ths secton (other than paragraph (d)) sha
have no appcaton to e cess ta wthhed at source whch has been
pad by the wthhodng agent to the dstrct drector of nterna
revenue pursuant to secton 39.1 3-7 of ths chapter.
(6) empt organzatons. In the case of every e empt organza-
ton whose address at the tme of payment was n Canada and whch
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73
egs. 11 , 39.1 3-1
furnshes to the wthhodng agent a etter of notfcaton n accordance
wth secton 7.51 (6), f Unted States ta at the statutory rate (30 per-
cent as of the date of approva of ths Treasury Decson) or at 15 per-
cent has been wthhed on or after anuary 1,195 , from f ed or deter-
mnabe annua or perodca ncome derved from sources wthn the
Unted States, there sha be reeased (e cept n the case of coupon
bond nterest) by the wthhodng agent and pad over to the organza-
ton from whch t was wthhed an amount equa to the ta so wth-
hed, f the date on whch the Commssoner of Interna Revenue has
hed such organzaton to be e empt from ta aton under chapter 1 s
not subsequent to the date on whch payment of such ncome was made.
In the case of every e empt organzaton whose address at the tme
of payment was n Canada and whch furnshes to the wthhodng
agent Form 1001-C ceary marked SU STITUT and e ecuted
n accordance wth secton 7. 7(6) and secton 7.51(6), f Unted
States ta has been wthhed from coupon bond nterest on or after
anuary 1, 195 , there sha be reeased oy the wthhodng agent and
pad over to the organzaton from whch t was wthhed an amount
equa to the ta so wthhed, f the date on whch the Commssoner
of Interna Revenue has hed such organzaton to be e empt from
ta aton under chapter 1 s not subsequent to the date on whch pay-
ment of such nterest was made. One such substtute form sha be
fed n dupcate wth respect to each ssue of bonds and w serve
wth respect to that ssue to repace a Forms 1001 prevousy fed
by the ta payer n the caendar year n whch the e cess ta was wth-
hed and wth respect to whch such e cess s reeased.
The orgna and dupcate of such substtute Form 1001-C sha be
forwarded by the wthhodng agent to the Dstrct Drector of Inter-
na Revenue, udt Dvson, en Returns Secton, atmore 2,
Maryand, wth the quartery return on Form 1012. See secton
39.1 3-7 of ths chapter. Such substtute Form 1001-C need not be
sted on Form 1012.
(c) Dvdends pad by reated corporaton. In the case of every
domestc corporaton recevng notfcaton from the Commssoner of
Interna Revenue under the provsons of secton 7. 6(6) that dv-
dends pad or to be pad by t fa wthn the scope of the provsons
of rtce I(2) or the conventon, f Unted States ncome ta n
e cess of the appcabe rate of 5 percent has been wthhed on or after
anuary 1, 195 , from dvdends whch come wthn the scope of such
provsons, the wthhodng agent sha, f so authorzed n such not-
fcaton, reease and pay over to the corporaton from whch t was
wthhed the e cess ta wthhed wth respect to such dvdends.
(d) mounts wthhed before 195 . For provsons respectng the
refund of e cess ta wthhed durng caendar years pror to 195 , see
secton 7.56.
Sec. 7.53. ddressee Not ctua Owner. (a) Genera. If the
recpent n Canada of any dvdend from sources wthn the Unted
States, wth respect to whch Unted States ncome ta at the reduced
rate of 15 percent has been wthhed at source pursuant to secton
7. 6(d), s a nomnee or representatve through whom such dvdend
fows to a person other than one descrbed n secton 7. 6(a) as beng
entted to such reduced rate, such recpent n Canada sha wthhod
an addtona amount of Unted States ncome ta equvaent to the
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Regs. 11S, 39.1 3-1.
7
Unted States ncome ta whch woud have been wthhed f the
conventon had not been n effect (30 percent of such dvdend as of
the date of approva of ths Treasury Decson) mnus the 15 percent
whch has been wthhed at the source.
In any case n whch a fducary or partnershp wth an address n
Canada receves, otherwse than as a nomnee or representatve, a
dvdend from sources wthn the Unted States wth respect to whch
Unted States ncome ta at the reduced rate of 15 percent has been
wthhed at source pursuant to secton 7. 6(d), f a benefcary of such
fducary or a partner n such partnershp s not entted to the re-
duced rate of ta granted by rtce I of the conventon, the fdu-
cary or partnershp sha wthhod an addtona amount of Unted
States ncome ta wth respect to the porton of such dvdend n-
cuded n such benefcary s share of the dstrbuted or dstrbutabe
ncome, or n such partner s dstrbutve share of the ncome, of such
fducary or partnershp, as the case may be. The amount of the
addtona ta s to be cacuated n the same manner as under the
mmedatey precedng paragraph of ths secton.
If any amount of Unted States ncome ta s reeased pursuant to
secton 7.52(a) by the wthhodng agent n the Unted States wth
respect to a dvdend pad to such a person (nomnee, representatve,
fducary, or partnershp) wth an address n Canada, the atter sha
aso wthhod from such reeased amount any addtona amount of
Unted States ncome ta , otherwse requred to be wthhed by the
precedng provsons of ths secton n respect of such dvdend, n the
same manner as f at the tme of payment of such dvdend Unted
States ncome ta at the rate of ony 15 percent had been wthhed at
source therefrom.
Nothng n ths Treasury Decson sha be deemed to prevent the
appcaton of secton 7.511, reatng to Canadan wthhodng agents,
of Treasury Decson 5532 C. . 19 6-2, 73 , approved ugust 23,
10 6 26 CFR 7.511 .
(b) Returns fed by Canadan wthhodng agents. The amounts
o wthhed by such wthhodng agents n Canada durng the year
195 and each subsequent caendar year durng whch the conventon
s n effect sha be forwarded, after beng converted nto Unted
States doars, to the Dstrct Drector of Interna Revenue, at-
more 2, Maryand, U. S. ., on or before March 15 of the foowng
year, together wth Unted States return Form 10 2 on whch sha
be sted the names, addresses, and other nformaton requred on
such form n respect to the persons from whom such addtona
amounts have been wthhed by such agents n Canada.
Sec. 7.5 . Return op Ta Wthhed and Informaton To e
Furnshed n Ordnary Course. (a) Return of ta wthhed. In
addton to makng the annua return on Form 10 2 prescrbed by
secton 39.1 3-7 of ths chapter, every Unted States wthhodng
agent sha make and fe n dupcate wth the dstrct drector of
nterna revenue an nformaton return on Form 10 2 Suppement,
wth respect to Canadan addresses, for the caendar year 195 and
each subsequent caendar year durng whch the conventon s n
effect.
There sha be reported on such Form 10 2 Suppement a tems
of f ed or determnabe annua or perodca ncome derved from
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75
Regs. 11 , 39.1 3-1.
sources -wthn the Unted States and pad to nonresdent aens (n-
cudng nonresdent aen ndvduas, fducares, and partnershps)
and to nonresdent foregn corporatons (ncudng e empt organza-
tons), whose addresses at the tme of payment were n Canada, n-
cudng (1) such tems of ncome as are requred to be sted on Form
10 2, (2) such tems of ncome as consttute nterest requred to be
sted on Form 1012, and (3) such tems of ncome upon whch, n
accordance wth ths Treasury Decson, no wthhodng of Unted
States ta s requred; e cept that any of such tems whch consttute
wages sub|ect to wthhodng of Unted States ta pursuant to secton
1622, Interna Revenue Code, and nterest n respect of whch Form
1001-C or substtute Form 1001-C has been fed n dupcate wth the
wthhodng agent are not requred to be reported on such Form 10 2
Suppement.
(6) Informaton to be furnshed n ordnary course. In compance
wth the provsons of rtces I and of the conventon the
Commssoner of Interna Revenue w transmt to the Mnster of
Natona Revenue of Canada, as soon as practcabe after the cose
of the caendar year 195 and of each subsequent caendar year dur-
ng whch the conventon s n effect, the foowng nformaton re-
atng to such precedng caendar year:
(1) The dupcate copy of each avaabe Form 10 2 Suppe-
ment fed pursuant to paragraph (a) of ths secton; and
(2) The dupcate copy of each avaabe ownershp certfcate,
Form 1001-C, fed pursuant to secton 7. 7(6) or secton 7.51(6),
and substtute Form 1001-C, fed pursuant to secton 7.52(a) or
secton 7.52(6), n connecton wth coupon bond nterest.
Sec. 7.55. enefcares of a Domestc state or Trust. non-
resdent aen who s a resdent of Canada and who s a benefcary of
a domestc estate or trust sha be entted to the e empton from, or
reducton n the rate of, Unted States ta granted by rtces I, II,
and III C of the conventon wth respect to dvdends, nterest,
copyrght royates, and other gans, profts, and ncome, to the e -
tent such tem or tems are ncuded n hs share of the dstrbuted
or dstrbutabe ncome of such estate or trust, provded that he other-
wse satsfes the requrements of these respectve artces. In order
to be entted n such nstance to the e empton from, or reducton
n the rate of, wthhodng of Unted States ta such benefcary must
otherwse satsfy such requrements and sha, where appcabe,
e ecute and submt to the fducary of such estate or trust n the Unted
States the Form 1001 -C prescrbed n secton 7. 7(6), secton
7. (6), and secton 7. 9(6).
Sec. 7.5G. Refund of cess Ta Wthhed Pror to 195 . If
Unted States ncome ta wthhed at the source pror to 195 from
dvdends, nterest, copyrght royates and the ke, natura resource
royates, rea property rentas, saares, wages, pensons, fe annu-
tes, or other gans, profts, and ncome, s n e cess of the ta m-
posed by chapter 1 (reatng to the ncome ta ) of the Interna
evenue Code, as modfed by the conventon, a cam by the ta payer
for the refund of any overpayment resutng therefrom sha be
made under secton 322 of the Interna Revenue Code by fng Form
3 together wth Form 10 0N , Form 10 0 , Form 1120, Form
2 670 5 6
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Regs. 11 , 39.1 3-1.
76
1120N , or other approprate return, whchever s appcabe, or
wth an amended return.
The ta payer s tota gross ncome from sources wthn the Unted
States sha be dscosed on the return. In the event that securtes
are hed n the name of a person other than the actua or benefca
owner, the name and address of such person sha be furnshed wth
the cam. There sha aso be ncuded n such cam for refund:
(a) statement that, at the tme when the tem or tems of
ncome were derved from whch the e cess ta was wthhed, (1)
the ta payer was nether a ctzen nor a resdent of the Unted
States but was a resdent of Canada, or, n the case of a corpora-
ton, (2) the ta payer was a corporaton organzed under the
aws of Canada; and
(b) statement that the ta payer at no tme durng the ta -
abe year n whch such ncome was derved had a permanent
estabshment n the Unted States.
If, however, the ta payer s an ndvdua who durng the ta abe
year derved from sources wthn the Unted States ncome whch
conssts e cusvey of pensons or fe annutes entted to the beneft
of rtce I of the conventon, the statement specfed n (b) above
sha not be requred.
If the ta payer s an e empt organzaton camng the beneft of
rtce of the conventon, the statement specfed n (b) above sha
not be requred, but such organzaton sha ncude wth such cam
a copy of the Commssoner s determnaton referred to n secton
7.51(6) and sha ndcate whether t was engaged n trade or busness
wthn the Unted States at any tme durng the ta abe year n whch
the ncome concerned was derved.
s to addtona nformaton requred n the case of a Canadan
corporaton camng the beneft of the 5 percent rate on dvdends
pad by a domestc corporaton, see secton 7. 6(6).
Sec. 7.57. Pror Reguatons. cept to the e tent necessary for
the appcaton of secton 7.511 of Treasury Decson 5532 26 CFR
7.511 , the provsons of Treasury Decson 5157 C. . 19 2-2,137 ,
approved une 27,19 2 26 CFR 7.10 through 7.17 , are hereby super-
seded as the respectve provsons of ths Treasury Decson become
effectve.
(Ths Treasury Decson s ssued under the authorty contaned n
sees. 62 and 3791 of the Interna e venue Code (53 Stat. 32, 67; 26
U. S. C. 62, 3791) and rtce III of the ncome ta conventon
and protoco between the Unted States and Canada, sgned March ,
19 2, and procamed by the Presdent of the Unted States on une
17,19 2.)
ustn F. Wnke,
ctng Commssoner of Interna Revenw.
pproved November 5, 1953.
M. . Fosom,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster November 10, 1003, : 52 a. m.)
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77
Regs. 11 , 39.1 3-7.
Reguatons 11 , Secton 39.1 3-7: Return T. D. 6055
and payment of ta wthhed.
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 7.
T TION PURSU NT TO TR TI S
change of nformaton under ncome ta conventons
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
Sec. 7.1. change of Informaton. (a) Form Of Suppe-
ment. For the caendar year 1953 and subsequent caendar years
every Unted States wthhodng agent sha make and te wth the
dstrct drector of nterna revenue for the dstrct n whch the wth-
hodng agent s ocated an nformaton return on Form 10 2 Suppe-
ment wth respect to each foregn country whch has, or w have, en-
tered nto an ncome ta conventon wth the Unted States, f such
conventon provdes for the mutua e change of nformaton and f the
Commssoner of Interna Revenue determnes that such return s
requred n the case of such country.
Form 10 2 Suppement sha be fed smutaneousy wth the Form
10 2 prescrbed by secton 39.1 3-7 of ths chapter. separate return
sha Tbe made on Form 10 2 Suppement n dupcate wth respect to
each such country as the Commssoner of Interna Revenue sha
desgnate, and there sha be reported thereon a tems of f ed or
determnabe annua or perodca ncome derved from sources wthn
the Unted States and pad to nonresdent aens (ncudng nonres-
dent aen ndvduas, fducares, and partnershps) and to nonres-
dent foregn corporatons, whose addresses at the tme of payment
were n such country, ncudng such tems of ncome upon whch
Unted States ta has not been wthhed at source because of the n-
come ta conventon wth such country; e cept that any of such tems
whch consttute wages sub|ect to wthhodng of Unted States ta
pursuant to secton 1622, Interna Revenue Code, and nterest n
respect of whch an ownershp certfcate other than Form 1001, such
as Form 1001-D, Form 1001-IR, or Form 1001-U , or the substtute
thereof, has been fed n dupcate wth the wthhodng agent s not
requred to be reported on such Form 10 2 Suppement.
s soon as practcabe after the cose of the caendar year 1953 and
subsequent caendar years durng whch the ncome ta conventon
between the Unted States and such country s n effect, the Comms-
soner of Interna Revenue w transmt to the approprate authorty
desgnated n the conventon wth such country the dupcate copy of
each avaabe Form 10 2 Suppement fed pursuant to ths secton
n respect to such country for such precedng caendar year.
Form 10 2 , Form 10 2C, Form 10 2D, Form 10 2 , and Form
10 2F, whch are currenty prescrbed under ths part as nformaton
returns for use under the ncome ta conventon between the Unted
States and Canada, France, the Unted ngdom, the Netherands,
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Regs. 11 , 39.1 -1.
7
and Swtzerand, respectvey, w not be requred for 1953 and
subsequent years.
(b) Form 101 . For the caendar year 1953 and subsequent ca-
endar years every Unted States wthhodng agent sha report on
Form 10 2 a such tems of ncome, otherwse requred to be reported
thereon pursuant to secton 39.1 3-7 of ths chapter, upon whch
Unted States ta has not been wthhed at source because of any
ncome ta conventon whch s n effect between the Unted States
and a foregn country. There sha aso be reported on such form
nterest on regstered bonds wth respect to whch an e empton cert-
fcate, such as Form 1001 -D, or an e empton or reduced rate cer-
tfcate, such as Form 1001 -S, has been fed wth the wthhodng
agent.
(c) Pror reguatons. The provsons of ths secton sha appy
notwthstandng any reguaton to the contrary whch has been ap-
proved pror to the date on whch ths Treasury Decson s pubshed
n the Federa Regster.
ecause ths Treasury Decson s bascay n accordance wth pro-
cedures now beng foowed by wthhodng agents, 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 that act.
(Ths Treasury Decson s ssued under the authorty contaned n
sees. 62 and 3791 (53 Stat. 32, 67; 26 U. S. C. 62,3791) of the Interna
Revenue Code and n the provsons reatng to e change of nforma-
ton whch are found n the respectve ncome ta conventons between
the Unted States and the foregn countres here concerned.)
T. Coeman ndrews,
Commssoner of Interna Revenue.
pproved December 1,1953.
M. . Fosom,
ctng Secretary of the Treasury.
(Fad wth the Dvson of the Federa Regster December 7, 1953, : a. m.)
S CTION 1 .-P YM NT OF CORPOR TION INCOM
T T SOURC
Reguatons 11 , Secton 39.1 -1: Wthodng
n the case of nonresdent foregn corporaton.
INT UN L NU COD
Reease or refund of e cess ta wthhed, and e empton from, or
reducton n rate of, wthhodng n the case of resdents of Canada
and of corporatons organzed under the aws of Canada, as affected
bv the ncome ta conventon and protoco between the Unted States
and Canada. (See T. D. 60 7, p. 59.)
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79
Regs. 11 , 39.162-1.
Reguatons 11 , Secton 39.1 -1: Wthhodng
n the case of nonresdent foregn corporaton.
INT RN L R NU COD
Interest derved from earnngs of shps under a foregn fag. (See
ev. u. 27 , p. 1.)
SUPPL M NT . ST T S ND TRUSTS
S CTION 162. N T INCOM
Reguatons 11 , Secton 39.162-1: Income of Rev. Ru. 2 0
estates and trusts.
( so Secton 23(a), Secton 39.23(a)-15; Sec-
ton 12(b), Secton 1.29, Reguatons 105.)
nterna revenue code
Treatment of the deducton for e ecutor s commssons and attor-
ney s fees for Federa estate ta and ncome ta purposes n vew
of the provsons of secton 162(e) of the Interna Revenue Code.
dvce s requested reatve to the treatment for Federa estate ta
and ncome ta purposes of the deducton for e ecutor s commssons
and attorney s fees n vew of the provsons of secton 162(e) of the
Code under the crcumstances herenafter descrbed.
In the frst case the decedent ded on October 1, 19 , and on the
estate ta return for hs estate fed on November 10,19 9, deductons
were camed under Schedue of the return for e ecutor s comms-
sons and attorney s fees n the amount of 100a; doars. Of ths
amount 50a doars had been pad at the tme of the nterna revenue
agent s e amnaton of the estate ta return. The amounts pad n
19 9, totang 5a doars, were not camed as deductons n the
fducary ncome ta return orgnay fed for that year. In ugust
of 1951, the representatves of the estate fed a statement wth the
nterna revenue agent wavng the rght to deductons n the estate
ta return for the e ecutor s commssons and attorney s fees whch
were pad n 19 9 and eected to cam the deductons for such amounts
n the fducary ncome ta return for that year.
Secton 162 of the Interna Revenue Code, reatng to the computa-
ton of net ncome of estates and trusts, provdes n part as foows:
S C. 162. N T INCOM .
The net ncome of the estate or trust sha be computed n 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 n 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
Is fed, wthn the tme and In the manner and form prescrbed by the Comms-
soner, a statement that the tems have not been camed or aowed as deduc-
tons under secton 12(b) and a waver of the rght to have such tems aowed
at any tme as deductons under secton 12(b).
Ths secton was added by the Revenue ct of 19 2 and ts purpose
was the preventon of a doube deducton. Under a strct nterpreta-
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Regs. 11 , 39.162-1.)
0
ton of the statute the words camed or aowed mght be construed
to mean that an tem coud not be aowed as a deducton n computng
the net ncome of an estate f the tem had been camed as a deduc-
ton n computng gross estate. Such an nterpretaton woud not
gve proper effect to the phrase as a whoe or to the ntent of Congress.
It woud make the need for the word aowed questonabe, snce,
e cept n unusua crcumstances, a deducton woud not be aowed
uness t has n some way been camed, ether on the orgna return
or by nformaton presented pror to audt of the return. It s not
beeved that t was ntended that the ta payer s prvege of eecton
shoud be restrcted to the e tent of makng a mere cam for deduc-
ton rrevocabe n a crcumstances. proper nterpretaton of the
statute does not requre a concuson that a mere cam of deducton
for estate ta purposes, or a cam pus the fact that the payment has
been made, consttutes a bndng eecton. The purpose and an-
guage of the statute w be served f an estate s permtted such eeway
n the ad|ustment of aowabe deductons between the estate ta
return and the fducary return as s compatbe wth effcent admn-
straton and the preventon of a doube deducton.
ccordngy, notwthstandng that deductons were camed on the
estate ta return of the decedent as fed and that some of the amounts
had been pad, the estate s not precuded from deductng such amounts
for ncome ta purposes provded, at the tme the requred statement
and waver are fed, such amounts have not been aowed as deduc-
tons for estate ta purposes, and provded the ta payer takes such
acton as s necessary to make t cear that the same amounts are not
currenty beng camed as deductons on the estate ta return.
In the second case the testator ded on anuary , 19 9, and on the
estate ta return fed on March 1, 1950, no deducton was taken for
e ecutors commssons and attorney s fees, t beng stated n Schedue
of the return that these deductons were to be taken for ncome ta
purposes. Thereafter, a fducary ncome ta return was fed, n
whch ncome of 5 doars was reported and admnstrator s com-
mssons and attorney s fees totang 15a doars were camed as de-
ductons, showng net ncome as mnus W doars. statement was
fed wth ths fducary return and any rght to cam them as estate
ta deductons was waved. The benefcares of the estate n ther
ndvdua ncome ta returns reported no dstrbuton of ncome of
the decedent and were advsed that they coud not cam the e cess
of the admnstraton costs over the ncome of the estate as ndvdua
deductons.
The statement on Schedue of the estate ta return that the de-
ductons w be taken on the ncome ta return and the mere cam
of the deductons on the fducary ncome ta return are not rrevo-
cabe. The deducton coud not be aowed under secton 23 of the
Code n computng net ncome of the estate unt the statement and
waver are fed. Under secton 39.162-1, Reguatons 11 , such state-
ment and waver are not requred to be fed wth the ncome ta
return, but may be fed at any tme pror to the e praton of the
statutory perod of mtaton appcabe to the ncome ta return
n whch the deducton s sought. owever, after the statement and
waver are fed wth respect to a partcuar tem of admnstraton
e pense, the deducton cannot be transferred and aowed under secton
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Regs. 11 , 39.231-3.
12(b) of the Code n computng the net estate, because under the
terms of secton 162(e) of the Code the waver operates as a renqush-
ment of the rght to have the tems aowed at any tme as deductons
under secton 12(b) of the Code.
In the event that admnstratve e penses are such that they woud
be aowabe for ether ncome or estate ta purposes, the ta payer
may aocate the e penses to ether the estate ta return or the ncome
ta return for the year n whch payment s made, or to both n such
proportons as he desres, provded there s no dupcaton of deducton
and provded the terms of secton 162(e) of the Code are comped
wth. Cf. I. T. 0 , C. . 1951-1, 39.
SUPPL M NT I FOR IGN CORPOR TIONS
S CTION 231. T ON FOR IGN CORPOR TIONS
Reguatons 11 , Secton 39.231-3: cuson Rev. Ru. 27
of earnngs of foregn shps or arcraft from
gross ncome.
( so Secton 1 , Secton 39.1 -1.)
INT RN L R NU COD
Interest on temporary short-term nvestments purchased wh
surpus cash by a foregn corporaton engaged n the shppng bus-
ness, and bod n a Unted States bank, does not consttute earnngs
derved from the operaton of a shp or shps documented under
the aws of a foregn country wthn the meanng of secton 231(d)
of the Interna evenue Code, and wthhodng of ta from such
nterest ncome s requred under secton 1 of the Code.
dvce s requested whether nterest receved on short-term nvest-
ments of surpus cash hed n a Unted States bank for the account of
a foregn corporaton engaged n the busness of operatng shps
represents earnngs derved from the operaton of a shp or shps
documented under the aws of a foregn country wthn the meanng
of secton 231(d) of the Interna Revenue Code and, accordngy, not
sub|ect to wthhodng of ta under secton 1 of the Code.
G. C. M. 59, C. . I1-2, 73 (192 ), hods that nterest receved
by a rtsh corporaton on moneys hed temporary n Unted States
banks, whch represent surpus workng cash arsng and coected n
the Unted States from the busness of shppng, s regarded as beng
ncuded n the term earnngs derved from the operaton of a shp
or shps wthn the meanng of the revenue acts n effect at that tme
and consequenty e empt from Unted States ncome ta .
The e empton provsons of such acts wth respect to the earnngs
of shps of a foregn corporaton are now emboded n secton 231(d)
of the Interna Revenue Code whch reads as foows:
(d) cusons. The foowng tems sha not be ncuded In gross ncome
of a foregn-corporaton and sha be e empt from ta aton under ths chapter:
(1) Shps under foregn fag. arnngs derved from the operaton
of a shp or shps documented under the aws of a foregn country whch
grants an equvaent e empton to ctzens of the Unted States and to
corporatons organzed n the Unted States;
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Regs. 11 , 5 39.29 -1.
S2
Under the ratonae of G. C. M. 59, supra, nterest s e empt under
secton 231(d) of the Code f t s derved from current assets used
n the operaton of the shppng busness and hed on current account
for mmedate dsbursement or pendng remttance to the foregn
country.
s dstngushed from the foregong, nterest earned n the Unted
States by a foregn shppng corporaton on temporary short-term
nvestments such as Unted States Treasury notes and certfcates pur-
chased wth surpus workng cash, s not consdered as nterest receved
from current assets used n the operaton of a shppng busness and
therefore such nterest does not represent earnngs derved from the
operaton of shps.
ccordngy, t s hed that nterest on temporary short-term nvest-
ments purchased wth surpus cash by a foregn corporaton engaged
n the shppng busness, and hed n a Unted States bank, does not
consttute earnngs derved from the operaton of a shp or shps docu-
mented under the aws of a foregn country wthn the meanng of sec-
ton 231(d) of the Interna Revenue Code, and wthhodng of ta
from such nterest ncome s requred under secton 1 of the Code.
SUPPL M NT M. INT R ST ND DDITIONS TO T T
S CTION 20 . DDITIONS TO T T IN
C S OF NONP YM NT
Reguatons 11 , Secton 39.29 -1: ddtons Rev. Ru. 2t 2
to the ta .
( so Secton 5 (d), Secton 39.5 (d)-.)
INT N L R NU COD
Where a ta payer on a caendar year bass faed to fe a dec-
araton of estmated ta whch he was requred to fe on or before
March 15, une 15, or September 15 of the ta abe year, but on or
before the foowng anuary 15 he fes a fna return for the ta abe
year and at the tme of such tng pays n fu the amount of ta
shown to be due thereon, and the tota ta reported on that return
(wth certan e ceptons) s not ess than 0 percent of hs correct
ta abty, he s abe for the addtons to the ta mposed by
secton 29 (d)(1)( ) of the Code for faure to fe a tmey dec-
araton (uness such faure s shown to the satsfacton of the
Commssoner to be due to reasonabe cause and not to wfu
negect), but s not abe for the addton to the ta provded n
secton 29 (d)(2) of the Code for substanta underestmate of
estmated ta .
owever, sectons 3S09 and 1 5 of the Code provde for crmna
penates n the case of any person who wfuy makes and sub-
scrbes to a fase return, statement, or other document; or who w-
fuy fas to make a return or decaraton, or to pay any estmated
ta or ta at the tme requred by aw or reguatons.
dvce s requested reatve to the appcaton of the addtons to
the ta provded n secton 29 (d) of the Interna Revenue Code where
a ta payer on a caendar year bass faed to fe a decaraton of est-
mated ta whch he was requred to fe on or before March 15, une
15, or September 15 of the ta abe year, but on or before anuary 15
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Regs. 11 , 39.29 -1.
of the succeedng year he fes a fna return and pays n fu the
amount of ta shown to be due on that return.
Secton 5 of the Code provdes n part as foows:
(a) Reqctbement of Decaraton. very Indvdua (other than an estate
or trust and other than a nonresdent aen wth res|ect to whose wages, as
defned n secton 1621(a), wthhodng under subchapter D of chapter 0 s not
made appcabe, but ncudng every aen ndvdua who s a resdent of
Puerto Rco durng the entre ta abe year) sha, at the tme prescrbed n
subsecton (d), make a decaraton of hs estmated ta for the ta abe year f
(1) hs gross ncome from wages (as defned n secton 1(521) can rea-
sonaby be e pected to e ceed the sum of ,500 pus 000 wth respect to
each e empton provded n secton 25(b); or
(2) hs gross Income from sources other than wages (as defned n secton
1621) can reasonaby be e pected to e ceed 100 for the ta abe year and
bs gross ncome to be G00 or more.

(d) Tme and Pace fob Fng.
(1) In genera. The decaraton requred under subsecton (a) sha be
fed on or before March IS of the ta abe year, e cept that f the requre-
ments of secton 5 (a) are frst met,
( ) after March 1 and before une 2 of the ta abe year, the decara-
ton sha be fed on or before une 15 of the ta abe year, or
( ) after une 1 and before September 2 of the ta abe year, the
decaraton sha be ted on or before September 15 of the ta abe
year, or
(C) after September 1 of the ta abe year, the decaraton sha be
fed on or before anuary 15 of the succeedng ta abe year.
(2) mendment of decaraton. n ndvdua me.y make amendments
of a decaraton fed durng the ta abe year under ths subsecton, under
reguatons prescrbed by the Commssoner wth the approva of the Secre-
tary. If go made, such amendments may be fed on or before the ffteenth
day of the ast month of any quarter of the ta abe year subsequent to that
In whch the decaraton was fed and n whch no prevous amendment has
been fed, e cept that n the case of an amendment fed after September 15
of the ta abe year, t may be fed on or before anuary 15 of the succeed-
ng ta abe year. Decaratons and amendments thereof sha be fed wth
the coector specfed n secton 53(b) (1).
(3) Return as decaraton or amendment. If on or before anuary 15
of the succeedng ta abe year the ta payer fes a return, for the ta abe
year for whch the decaraton s requred, and pays n fu the amount
computed on the return as payabe, then, under reguatons prescrbed by
the Commssoner wth the approva of the Secretary
( ) If the decaraton s not requred to be fed dnrng the ta abe
year, but s requred to be fed on or before such anuary 15, such
return sha, for the purposes of ths chapter, be consdered as such
decaraton; and
( ) If the ta shown on the return (reduced by the credts under
sectons 32 and 35) s greater than the estmated ta shown n a dec-
araton prevousy made, or n the ast amendment thereof, such return
sha, for the purposes of ths chapter, be consdered as the amendment
of the decaraton permtted by paragraph (2) to be fed on or before
such anuary 15.
Secton 60(c) of the Code provdes that n the case of a ta abe
year begnnng on any date other than anuary 1, there sha be subst-
tuted, for the months specfed n secton 5 , the months whch corre-
spond thereto. The ta payer n the nstant stuaton s on a caendar
year bass, but the concusons reached herenafter are equay appca-
be to ta payers on a fsca year bass, wth approprate substtuton
of months.
Secton 29 (d) (1) of the Code provdes for addtons to the ta for
faure ( ) to fe a tmey decaraton of estmated ta or ( ) to
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Regs. 11 , 39.29 -1.1
SI
pay wthn the tme prescrbed nstaments of estmated ta decared,
uness such faure s shown to the satsfacton of the Commssoner
to be due to reasonabe cause and not to wfu negect.
The purpose of such egsaton s to requre ndvduas (whose
wages or other ncome e ceed the amounts specfed n secton 5 (a)
of the Code, supra) to fe tmey and reasonaby accurate decara-
tons of estmated ta , and to pay nstaments of such decared est-
mated ta wthn the tme prescrbed n secton 59(a) of the Code
wth provsons for addtons to the ta for faure to fe tmey
decaratons or to pay tmey nstaments of decared estmated ta .
It s hed that where a ta payer on a caendar year bass faed to
fe a decaraton of estmated ta whch he was requred to fe on or
before March 15, une 15, or September 15 of the ta abe year, but
on or before anuary 15 of the succeedng year he fes a fna return
for the ta abe year and at the tme of such fng pays n fu the
amount of ta shown to be due thereon, and the tota ta reported
on that return (wth certan e ceptons) s not ess than 0 percent
of the ta mposed for that year, the ta payer s abe for the add-
tons to the ta for denquency n fng a decaraton of estmated
ta provded n secton 29 (d) (1) ( ) of the Code (uness such den-
quency s shown to the satsfacton of the Commssoner to be due to
reasonabe cause and not to wfu negect), but he s not abe for
the addton to the ta for substanta underestmate of estmated ta
provded n secton 29 (d) (2) of the Code. Whe there s no pro-
vson n the Code (e cept n the case of farmers, as to whom see
secton 60(a) of the Code), for fng a tmey decaraton of estmated
ta on or before anuary 15 foowng a caendar ta abe year for
whch fng of such a decaraton durng the year was requred under
Code secton 5 (d)(1), supra, and, hence, no provson theren for
consderng a fna return fed for that ta abe year on or before
anuary 15 of the succeedng year to be a tmey decaraton, t was
obvousy contempated by Congress that denquent decaratons
woud be fed, snce addtons to the ta are provded for such den-
quences n secton 29 (d)(1)( ) of the Code. ven though the
Code does not provde that such a fna return sha be consdered as
a denquent decaraton of estmated ta , t woud be unreastc not
to consder t as such, snce t satsfes on or before anuary 15 of the
succeedng ta abe year a further requrement whch obvates the
necessty for fng a denquent decaraton. Under such crcum-
stances, to whch the nstant rue w be strcty confned, a fna
return fed on or before such date w aso be consdered as a den-
quent decaraton of estmated ta .
owever, attenton s nvted to secton 3 09 of the Code whch
provdes for penates of fne or mprsonment, or both, n the case of
any person who wfuy makes and subscrbes any return, statement,
or other document, whch contans or s verfed by a wrtten decara-
ton that t s made under the penates of per|ury, and whch he does
not beeve to be true and correct as to every matera matter, and to
secton 1 5 of the Code whch provdes for penates of fne or m-
prsonment, or both, n the case of any person requred to pay any
estmated ta or ta , or to make a return or decaraton, who w-
fuy fas to pay such estmated ta or ta , or to make such return or
decaraton, at the tme or tmes requred by aw or reguatons.
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5 Regs. 11 , 39.322-3.
SUPPL M NT O. O RP YM NTS
S CTION 322 R FUNDS ND CR DITS
Reguatons 11 , Secton 39.322-5: Cams for Rev. Ru. 230
refund by ta payers.
INT RN L R NU COD
Where an offer submtted by the husband and wfe n compromse
of unpad ncome ta es, for whch they were |onty and severay
abe, s re|ected, the check for the rembursement of the amount ten-
dered shoud be drawn n ther |ont names, even though payment on
the offer was made wth funds personay borrowed by the husband
and the ta payers were ater dvorced. ny dsagreement between
the copayees as to the endorsement of the check s a matter that shoud
be setted between themseves.
Reguatons 11 . Secton 39.322-3: Cams for Rev. Ru. 211
refund by ta payers.
( so Secton 22(d), Secton 39.22(d)-7.)
INT RN L R NU COD
Interm aowance n respect of overpayment of ta under secton
22(d) (6) of the Interna Revenue Code.
1. Com.-Mm. Co. No. 6361 dated February 7, 19 9, C. . 19 9-1,
126, estabshed a program n respect of nterm aowances of 75 per-
cent of camed overpayments or ta under secton 22(d) (6) of the
Interna Revenue Code, reatng to nvountary qudaton of LIFO
nventores n ta abe years begnnng after December 31, 19 0, and
pror to anuary 1,19 , and repacement of such nventores pror to
anuary 1, 1951.
2. Pubc Law 919 approved anuary 11, 1951, C. . 1951-1, 179,
e tended the repacement perod provded for n secton 22(d) (6) of
the Code wth respect to nvountary qudatons occurrng n years
begnnng after December 31, 19 0, and pror to anuary 1, 19 , to
anuary 1, 1953, and added subparagraph (F) to that secton.
3. Under subparagraph (F) thus added to secton 22(d)(6) of
the Code, treatment smar to that provded n that secton for ta abe
years begnnng after December 31, 19 0, and pror to anuary 1,
19 , s provded wth respect to nvountary qudatons occurrng
n ta abe years endng after une 30, 1950, and pror to anuary 1,
195 , and repacement of such qudatons n years endng pror to
anuary 1,1956. Subparagraph (F) of secton 22(d) (6) of the Code
as added by Pubc Law 919 was aso amended by secton 306 of the
Revenue ct of 1951 to permt repacements to whch that subpara-
graph woud otherwse be appcabe to be frst treated as repacements
of nvountary qudatons occurrng n ta abe years begnnng after
December 31,19 0, and pror to anuary 1,19 .
. The admnstratve provsons set forth n Com.-Mm. Co. No.
6301 estabshng an nterm or acceerated refund program of 75
Orgnay Issued as I -Mmeograph 2S2, dated September 16,1953.
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Regs. 11 , 39. 1-2.)
6
percent of the net reducton n ta es attrbutabe to ad|ustments n
connecton wth nvountary qudatons of LIFO nventores durng
ta abe years begnnng after December 31,19 0, and pror to anuary
1,19 , and to repacements of such nventores n ta abe years endng
pror to anuary 1,1951 (aso appcabe, foowng the enactment of
Pubc Law 919, supra, to repacements n ta abe years endng pror
to anuary 1, 1953), are hereby e tended to appy to cases sub|ect to
the provsons of secton 22(d) (6) of the Code, as amended, n whch
nvountary qudatons occurred n ta abe years endng after une
30,1950, and pror to anuary 1,195 , and n whch the repacements
were made n a subsequent ta abe year endng pror to anuary
1, 1956.
5. Ta payers entted to the benefts of secton 22(d)(6) of the
Code and who desre an nterm aowance n respect to any over-
payment of ta under the provsons of such secton must fe an
ppcaton for Interm owance n Respect of Overpayment of
Ta es under Secton 22(d) (6) of the Interna Revenue Code, Form
7013. Such appcaton shoud set forth fuy and ceary a of the
nformaton and data substantatng the ta payers representatons
that an nterm aowance n respect of an overpayment of ta shoud
be made as a resut of nvountary qudatons and repacements.
ppcatons must be fed, under oath, wth the dstrct drector of
nterna revenue for the dstrct n whch assessment was made or ta
pad. Dstrct drectors are nstructed to transmt, wthout deay,
such appcatons, together wth a certfcaton as to assessment and
payment of ta to the ssstant Commssoner (Operatons), In-
terna Revenue Servce, Washngton 25, D. C, for the attenton of
the Coecton ccountng ranch of the Coecton Dvson whch
w make the ad|ustments authorzed heren. In those cases n whch
nvountary qudatons occurred n more than 1 year, separate ap-
pcatons must be fed for each year. There must be attached to each
appcaton two copes of a duy e ecuted greement as to Interm
owance n Respect of Overpayment of Ta under Secton 22(d) (6)
of the Interna Revenue Code, Form 701 . In connecton wth the
fnanca statement referred to n tem 9 of the appcaton form, ds-
tnct drectors shoud furnsh any nformaton n ther possesson or
whch had been caed to ther attenton bearng on the wsdom of
effectng an nterm ad|ustment.
SU C PT R . T ON S LF- MPLOYM NT INCOM
S CTION 1. D FINITIONS
Reguatons 11 , Secton 39. 1-2: Sef- Rev. Ru. 275
empoyment ncome.
INT L R NU COD
Optca servces performed by members of a partnershp In connec-
ton wth the optometry busness of the partnershp, whch hods
Itsef out to the pubc us |eweers and optometrsts, may under
some crcumstances be Integrated wth the professon of optometry,
where some of the members are optometrsts, and e cuded from the
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7
(Regs. 11 , 39. 1-2.
sef-empoyment ta under secton 1(c) (5) of the Interna Reve-
nue Code; however, the ncome from the |ewery department may
not be so Integrated.
dvce s requested as to the manner n whch the dstrbutve shares
of the ncome from a partnershp dong busness as |eweers and
optometrsts shoud be computed for the purpose of determnng
the amount of sef-empoyment ncome of the partners.
In the nstant case a partnershp operates a |ewery store and an
optca department, and hods tsef out to the pubc as |eweers and
optometrsts. One of the partners s censed by the State as an
optometrst and devotes appro matey 95 percent of hs tme to the
practce of optometry and to the performance of servces as an optcan.
The other partners operate the |ewery store wth ony a porton of
ther tme spent n performng servces n connecton wth the optca
department. The profts of Doth departments are dvded equay
among the partners at the end of the year.
Secton 1 of the Interna Revenue Code provdes n part as foows:
(a) Net arnngs Fbom Sef- mpoyment. The term net earnngs from
sef-empoyment means the gross Income derved by an ndvdua from any
trade or busness carred on by such ndvdua, ess the deductons aowed by
ths chapter chapter I whch are attrbutabe to such trade or busness, pus
hs dstrbutve share (whether or not dstrbuted) of the ordnary net ncome
or oss, as computed under secton 1 3, from any trade or busness carred on by
a partnershp of whch he s a member;
(b) Sef- mpoyment Income. The term sef-empoyment ncome means
the net earnngs from sef-empoyment derved by an ndvdua dur-
ng any ta abe year begnnng after December 31, 11)50; e cept that such term
sha not ncude
(1) That part of the net earnngs from sef-empoyment whch s n e cess
of: ( ) 3,000, mnus ( ) the amount of the wages pad to such ndvdua
durng the ta abe year; or
(2) The net earnngs from sef empoyment, f such net earnngs for the
ta abe year are ess than 00.
(c) Tbade oe usness. The term trade or busness when used wth refer-
ence to sef-empoyment ncome or net earnngs from sef-empoyment, sha have
the same meanng as when used n secton 23, e cept that such term sha uot
ncude

(5) The performance of servce by an ndvdua n the e ercse of hs
professon as a optometrst or the performance of such
servce by a partnershp.
Secton 39. 1-3 of Reguatons 11 provdes n effect that the
nature of the servces performed by the partnershp as such and not
the nature of the servces contrbuted to the partnershp by an nd-
vdua member thereof determnes whether any partner s dstrbutve
share of partnershp ncome consttutes sef-empoyment ncome. I.
T. 097, C. . 1952-2, 20 , hods that the dstrbutve share of ncome
of a member of a partnershp whch s engaged n the practce of den-
tstry, even though such a member s not a dentst, does not consttute
sef-empoyment ncome wthn the meanng of secton 1(b) of the
Interna Revenue Code.
Secton 1(c)(5) of the Code e cudes from the term trade or
busness, when used wth reference to net earnngs from sef-empoy-
ment, the performance of servce by an ndvdua or a partnershp n
the e ercse of certan professons, one of whch s that of an optom-
etrst.
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Regs. 11 , 5 39. 1-3.
S3
It s not uncommon for persons practcng one of the e cuded pro-
fessons ether as ndvduas or as partners, to engage, n addton, n
sdene actvtes not n themseves so e cuded. There s of course no
precse rue for determnng whether any such actvty consttutes the
practce of the e cuded professon nasmuch as the answer n each
case must be ascertaned from a the surroundng facts and crcum-
stances.
In genera, however, the sdene actvty w be regarded as n-
cdenta to the practce of the e cuded professon f the former s a
norma e tenson of such professon and can reasonaby be embraced
theren. In that case the net earnngs from the sdene actvty must
be ntegrated wth those arsng from the practce of the e cuded
professon. On the other hand, f the actvty n ssue s not ncdenta
to such professon the net earnngs from each must be segregated and
ony those attrbutabe to the e cuded professon can be e empt from
the ta on sef-empoyment ncome. The segregaton or ntegraton of
net earnngs from each one of mutpe enterprses for sef-empoy-
ment ta purposes s not sub|ect to the ta payer s eecton.
Optcans are not among those e cuded professons enumerated n
secton 1(c) (5) and optca servces as such do not come wthn the
e cuson. propery censed optometrst, however, who e amnes
eyes and prescrbes gasses and charges for these servces mght per-
form optca servces to the e tent that he furnshes the gasses n
accordance wth hs prescrptons and fts them. In such a case the
performance of the optca servces, together wth any other optca
servce whch may evove from such actvty as an optometrst s nc-
denta to the practce of hs professon as an optometrst and the entre
ncome from both woud come wthn the e cuson.
The crcumstances n the nstant case dscose that the partners hod
themseves out to the pubc as |eweers and optometrsts and that
the servces performed by them n the optca department are ncden-
ta to the servces performed by them n the practce of optometry.
Snce the performance of the optca servces s not a separate trade
or busness, the net earnngs therefrom must be ntegrated wth those
arsng from the practce of optometry. owever, the servces per-
formed by the members of the frm n the operaton of the |ewery
department consttute a trade or busness wthn the meanng of
secton 1(c) of the Code.
ccordngy, no part of the dstrbutve shares of ncome derved
by the partners from the optca department of the partnershp shoud
be ncuded n computng ther net earnngs for the purpose of the ta
on sef-empoyment ncome. owever, the dstrbutve shares of the
partnershp ncome, to the e tent provded by secton 1(b) of the
Code whch are attrbutabe to ncome from the |ewery department
consttute net earnngs from sef-empoynent.
Reguatons 11 , Secton 39. 1-3: Trade or ev. RuL 276
busness.
INT RN L R NU COD
The professons specfcay desgnated n secton 1(c) (5) of the
Interna Revenue Code as beng e empt from the ta on sef-
empoyment ncome are to be gven ther commony accepted mean-
ng. Such e empton appes ony f the ndvdua meets the ega
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9
Regs. 11 , 39. 51-3.
requrements, f any, for practcng hs professon n the pace
where the servce s performed.
dvce s requested whether a partcuar actvty not n tsef one
of the professons enumerated n secton 1(c)(5) of the Interna
Revenue Code, may n some crcumstances be regarded as ncdenta
to and thus consttutng a part of such a professon so that the ncome
therefrom s e empt from sef-empoyment ta .
For ta abe years begnnng after December 31,1950, secton 0 of
the Code mposes a ta upon the sef-empoyment ncome of every
ndvdua. In genera, sef-empoyment ncome conssts of the net
earnngs derved by an ndvdua (other than a nonresdent aen)
from a trade or busness carred on by hm as soe propretor, or by
a partnershp of whch he s a member, sub|ect to certan e cusons,
e ceptons, and mtatons.
Secton 1(c)(5) of the Code e cudes from the term trade or
busness, for purposes of such ta , the performance of servce by an
ndvdua n the e ercse of hs professon as a physcan, awyer,
dentst, osteopath, veternaran, chropractor, naturopath, optome-
trst, Chrstan Scence practtoner, archtect, certfed pubc ac-
countant, accountant regstered or censed as an accountant under
State or muncpa aw, fu-tme practcng pubc accountant, funera
drector, or professona engneer.
Ony those professons specfcay desgnated n secton 1(c) (5)
of the Code are e cuded from the term trade or busness, and the
performance of servces by an ndvdua cannot consttute the e ercse
of an e cuded professon uness he meets the ega requrements, f
any, for the practce of such professon n the pace where the servces
are performed. Furthermore, the statutory desgnatons of the e -
cuded professons are to be gven ther commony accepted meanngs.
For e ampe, the term physcan as t s used n that secton means
an ndvdua who s egay quafed to practce medcne and the term
may not be e tended by admnstratve acton to ncude an ndvdua
who has been censed soey to practce chropody. Thus servces of a
character normay performed by a chropodst can consttute a part
of an e cuded trade or busness wthn the scope of secton 1 (c) (5)
when they are performed by a physcan ncdenta to the e ercse of
hs professon as such but not when they are performed by an ndv-
dua who s not a physcan but s engaged n the practce of chropody.
The Interna Revenue Servce has had occason to consder whether
certan actvtes may be consdered to quafy as a professon e empt
from sef-empoyment ta . Whe under some crcumstances actv-
tes not n themseves consttutng the practce of a professon mght
be regarded as such when performed ncdenta to the practce of a
professon, t may be sad that the performance of servce as a chrop-
odst, andscape archtect, masseuse, patent attorney (not egay
quafed to practce aw), pharmacst, physca-therapst techncan,
physotherapst, podatrst, regstered anesthetst, regstered and
surveyor, or scuptor does not generay quafy as the practce of a
professon e empt from the ta on sef-empoyment ncome under sec-
ton 1 (c) (5) of the Code. Cf. Rev. Ru. 275, page 6.
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Regs. 11 , 5 39.3760-1. 90
C PT R 36. COLL CTION
SU C PT R F.-CLOSING GR M NTS ND COMPROMIS S
S CTION 3760. CLOSING GR M NTS
Reguatons 11 , Secton 39.3760-1: Cosng
agreements reatng to ta abty n
respect of nterna revenue ta es.
INT RN L R NU COD
Cosng agreement upon qudaton of whoy-owned subsdary.
(See Rev. Ru. 259, p. 55.)
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. UND R LL OT R L WS ND R GUL TIONS
INT RN L R NU COD
C PT R 1. INCOM T
SU C PT R G N R L PRO ISIONS
P RT I. R T S OF T
S CTION 15. SURT ON CORPOR TIONS
Reguatons 111, Secton 29.15-2: Dsaowance T. D. 602
of surta e empton and mnmum e cess-profts
credt.
( so Secton 29.15-1; Secton 20 , Secton
29.20 -1; Secton 231, Secton 29.231-1; Sec-
ton 31, Secton 0. 31-1, Reguatons 130.)
TITL 26 INT RN L R NU . C PT R L SU C PT R , T RT 29 ND
P RT 0
Dsaowance of surta e empton and mnmum e cess-profts
credt under secton 15(c) of the Interna Revenue Code.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
On anuary 3, 1953, notce of proposed ruemakng was pubshed
n the Federa Regster (1 F. R. 1) to conform Reguatons 111 26
CFR, pt. 29 and Reguatons 130 26 CFR, pt. 0 to secton 15(c)
of the Interna Revenue Code, as added by secton 121(f) of the
Revenue ct of 1951, approved October 20,1951. fter consderaton
of a such reevant matter as was presented by nterested persons
reatng to the rues proposed, the amendments to Reguatons 111
and 130 set forth beow are hereby adopted.
R GUL TIONS 111 20 CFR, PT. 29
Paragraph 1. The foowng s nserted mmedatey after secton
29.15-1 20 CFR 29.15-1 :
S C. 121. INCR S IN R T OP CORPOR TION NORM L T
R NU CT OF 1051, PPRO D OCTO R 20, 1051 .

070 M T
(91)
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Reps. I, 29.15-2.
92
(f) mendment of Secton 15. Secton 15 (reatng to surta on
corporatons) s hereby amended to read as foows:
S C. 15. SURT ON CORPOR TIONS.

M(c) Dsaowance of Surta empton and Mnmum cess
Profts Credt. If any corporaton transfers, on or after annary 1,
1051, a or part of ts property (other than money) to another corpora-
ton whch was created for the purpose of acqurng such property or
whch was not actvey engaged n busness at the tme of such acqu-
ston, and f after such transfer the transferor corporaton or ts stock-
hoders, or both, are n contro of such transferee corporaton durng
any part of the ta abe year of such transferee corporaton, then such
transferee corporaton sha not for such ta abe year (e cept as may
be otherwse determned under secton 129(b)) be aowed ether the
25,000 e empton from surta provded n subsecton (b) or the 25,000
mnmum e cess profts credt provded n the ast sentence of secton
31, uness such transferee corporaton sha estabsh by the cear pre-
ponderance of the evdence that the securng of such e empton or
credt was not a ma|or purpose of such transfer. For the purposes of
ths subsecton, contro means the ownershp of stock possessng at east
0 per centum of the tota combned votng power of a casses of stock
entted to vote or at east 0 per centum of the tota vaue of shares of
a casses of stock of the corporaton. In determnng the ownershp
of stock for the purpose of ths subsecton, the ownershp of stock sha
be determned n accordance wth the provsons of secton 503, e cept
that constructve ownershp under secton 503(a) (2) sha be deter-
mned ony wth respect to the ndvdua s spouse and mnor chdren.
The provsons of secton 129(b), and the authorty of the Secretary
under such secton, sha, to the e tent not nconsstent wth the pro-
vsons of ths subsecton, be appcabe to ths subsecton. Ths sub-
secton sha not appy to any ta abe year wth respect to whch the
ta mposed by subchapter D of ths chapter s not n effect
S C. 125. FF CTI D T R NU CT OF 1951, PPRO D
OCTO R 20, 1951 .
The amendments made by ths part sectons 121 to 125, ncusve
sha be appcabe ony wth respect to ta abe years begnnng after
March 31, 1951, and to ta abe years begnnng on anuary 1, 1951,
and endng on December 31, 1951 For treatment of ta abe
years (other than the caendar year 1951) begnnng before pr 1,
1951. and endng after March 31,1951, see secton 131.
Sfc. 29.15-2. Dsaowance or Surta empton and Mnmum cess-
Profts Credt. (h) In genera. If one corporaton transfers after December
31, 1050, a or part of ts property (other than money) to another corporaton,
nether the 25,000 e empton from surta provded n secton 15(h) nor the
25,000 mnmum e cess-profts credt provded n secton 31 sha be aowed
the transferee f
(1) the transferee was created for the purpose of acqurng such property,
or
(2) the transferee was not actvey engaged n busness at the tme of
the acquston, and
(3) after such transfer the transferor or ts stockhoders, or both, are n
contro of the transferee durng any part of the ta abe year of the
transferee,
uness
( ) the transferee estabshes by the cear preponderance of the evdence
that the securng of ether such e empton or such credt or both was not
a ma|or purpose of such transfer, or
(5) the Commssoner aows such e empton or such credt pursuant
to the authorty provded n secton 15(c) and secton 129(b).
(6) Purpose of secton 15(c). The purpose of secton 15(c) s to prevent
avodance or evason of the surta on corporaton surta net ncome mposed by
secton 15(h) or of the e cess-profts ta mposed by secton 30. It s not n-
tended, however, that secton 15(c) be nterpreted as demtng or abrogatng
any prncpe of aw estabshed by |udca decson, or any e stng provsons
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93
Regs. I, 29.15-2.
of the Interna Revenue Code, such as sectons 5 and 129, whch have the effect
of preventng the avodance or evason of ncome or e cess-profts ta es. Such
prncpes of aw and such provsons of the Code, ncudng secton 15(c), are
not mutuay e cusve, and n approprate cases they may operate together or
they may operate separatey.
The provsons of secton 129(b) and the authorty of the Commssoner there-
under, to the e tent not nconsstent wth the provsons of secton 15(c), are
appcabe to cases covered by secton 15(c). Pursuant to the authorty provded
n secton 129(b), the Commssoner may aow to the transferee any part of a
surta e empton or mnmum e cess-profts credt for a ta abe year for whch
such e empton or credt woud otherwse be dsaowed under secton 15(c) ; or
he may apporton such e empton or credt among the corporatons nvoved (see
secton 29.129- ). For e ampe, Corporaton transfers on anuary 1, 1952,
a ts property to Corporatons and C n e change for a the stock of such
corporatons. Immedatey thereafter, Corporaton s dssoved and ts stock-
hoders become the soe stockhoders of Corporatons and C. ssumng that
Corporatons and C are unabe to estabsh by the cear preponderance of the
evdence that the securng of the surta e empton provded n secton 15(b)
or the mnmum e cess-profts credt provded n secton 31, or both, was not
a ma|or purpose of the transfer, the Commssoner, nevertheess, has authorty
under sectons 15(c) and 129(b) to aow one such e empton and credt and
to apporton such e empton and credt between Corporatons and C.
For the purpose of secton 15(c) and ths secton, a corporaton mantanng
an offce for the purpose of preservng ts corporate e stence s not consdered
to be actvey engaged n busness even though such corporaton may be deemed
to be dong busness for other purposes. Smary, for the purpose of secton
15(c) and ths secton, a corporaton engaged n wndng up ts affars, pror to
an acquston to whch secton 15(c) Is appcabe, s not consdered to be
actvey engaged n busness.
(c) Meanng and appcaton of the term contro . For the purpose of sec-
ton 15(c) and ths secton, the term contro means the ownershp of stock
possessng ether (1) at east 0 percent of the tota combned votng power of
a casses of stock entted to vote, or (2) at east 0 percent of the tota vaue
of shares of a casses of stock of the corporaton. In determnng whether
stock possessng at east 0 percent of the tota combned votng power of a
casses of stock entted to vote s owned, a casses of such stock sha be con-
sdered together; t s not necessary that 0 percent of each cass of votng stoc
the corporaton sha be consdered together; It Is not necessary that 0 percent
of the tota vaue of shares of a casses of stock Is owned, a casses of stock of
the corporaton sha be consdered together; t s not necessary that 0 percent
of the vaue of shares of each cass be owned. The far market vaue of a share
sha be consdered as the vaue to be used for the purpose of ths computaton.
The ownershp of stock sha be determned In accordance wth the provsons
of secton 503 and the reguatons thereunder, e cept that constructve owner-
shp under secton 503(a) (2) sha be determned ony wth respect to the nd-
vdua s spouse and mnor chdren. For e ampe, In addton to stock hed
drecty or under an opton to purchase, an ndvdua s deemed to own stock
hed drecty or Indrecty by or for bs spouse or mnor chdren, and aso to own
a proportonate part of the stock owned by a corporaton, partnershp, estate, or
trust n whch he hods an nterest as a sharehoder, partner, or benefcary.
Dsaowance of the e empton and credt under secton 15(c) s not mted
to the ta abe year of the transferee corporaton n whch the transfer of property
occurs. Secton 15(c) provdes for the dsaowance of the e empton and credt
for any ta abe year, whether the ta abe year n whch the transfer of property
occurs or any subsequent ta abe year of the transferee corporaton, f, durng
any part of such year, the transferor corporaton or ts stockhoders, or both,
are n contro of the transferee corporaton. Thus, If Corporaton D on anuary
1, 1951, transfers a part of ts property to Corporaton , a corporaton not
actvey engaged n busness at the tme of the acquston of such property, n
e change for 60 percent of the votng stock of Corporaton , and, thereafter,
durng a ater ta abe year wth respect to whch secton 15(c) Is appcabe,
acqures an addtona 20 percent of the votng stock of Corporaton , Corpora-
ton D, by reason of such ater acquston, s consdered to be n contro of
Corporaton as of the tme of such acquston for the purpose of secton 15(c).
ccordngy, Corporaton w be dsaowed the surta e empton and mn-
mum e cess-profts credt for the ta abe year In whch the ater acquston of
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Regs. I, 29.15-2.
9
stock occurred and for each ta abe year thereafter In whch the requste con-
tro contnues, uness Corporaton estabshes by the cear preponderance of
the evdence that the securng of such e empton or credt, or both, was not a
ma|or purpose of the transfer of the property n 1951.
In determnng, for the purpose of secton 15(c), whether a corporaton, Its
stockhoders, or both, are n contro of a transferee corporaton, t s not neces-
sary that the stock be acqured on or after anuary 1,1951. Thus, f Corporaton
F on une 1, 1950, owns 70 percent of the votng stock of Corporaton G, and
thereafter, on anuary 2, 1951, Corporaton F acqures an addtona 10 percent
of such stock, contro wthn the meanng of secton 15(c) s acqured by
Corporaton F on anuary 2, 1951.
(d) Nature of transfer. transfer made by any corporaton of a or part
of ts assets, whether or not such transfer quafes as a reorganzaton under
secton 112(g), s wthn the scope of secton 15(c), e cept that secton 13(c)
does not appy to a transfer of money ony. For e ampe, the transfer of cash
for the purpose of e pandng the busness of the transferor corporaton through
the formaton of a new corporaton s not a transfer wthn the scope of secton
15(c), rrespectve of whether the new corporaton uses the cash to purchase
from the transferor corporaton stock n trade or smar property.
(e) Purpose of transfer, In determnng, for the purpose of secton 15(c),
whether the securng of the e empton from surta or the mnmum e cess-profts
credt consttuted a ma|or purpose of the transfer, a crcumstances reevant
to the transfer sha be consdered. For dsaowance of the surta e empton
and mnmum e cess-profts credt under secton 15(c), t s not necessary that
the obtanng of ether such credt or e empton or both have been the soe or
prncpa purpose of the transfer of the property. It s suffcent f t appears,
n the ght of a the facts and crcumstances, that the obtanng of such e emp-
ton or credt, or both, was one of the ma|or consderatons that prompted the
transfer. Thus, the securng of the surta e empton or the mnmum e cess-
profts credt may consttute a ma|or purpose of the transfer, notwthstandng
that such transfer was effected for a vad busness purpose and quafed as a
reorganzaton wthn the meanng of secton 112(g). The ta payers burden of
estabshng by the cear preponderance of the evdence that the securng of
ether such e empton or credt or both was not a ma|or purpose of the transfer
may be met, for e ampe, by a showng that the obtanng of such e empton, or
credt, or both, was not a ma|or factor In reatonshp to the other consderaton
or consderatons whch prompted the transfer.
f) Ta abe years to tchch appcabe. Secton 15(c) and ths secton are
appcabe to a ta abe year whch Is the caendar year 1951 and to ta abe
years begnnng after March 31, 1951, and are aso appcabe n the computaton
of the ta for certan fsca years; however, such sectons do not appy to any
ta abe year wth respect to whch the e cess-profts ta mposed by subchapter D
of chapter 1 of the Interna Revenue Code s not n effect. For treatment of
ta abe years begnnng after une 30, 1950, and before pr 1, 1951, and
endng after March 31, 1951 (other than the caendar year 1951), see secton
29.10 -0. For treatment of ta abe years begnnng before pr 1, 195 . and
endng after March 31, 195 , see secton 29.10 -9. For computaton of the
e cess-profts ta for certan fsca years, see secton 0. 30-2(b) (2) and (c) of
Reguatons 130.
Par. 2. Secton 29.15-1, as amended by Treasury Decson 5950
C. . 1952-2, 32 , approved December 2, 1952 26 CFR 29.15-1 , s
further amended by addng at the end of the thrd paragraph of (6)
of the secton the foowng:
See, however, secton 29.15-2, as to the crcumstances under whch the 25,000
e empton from surta for the caendar year 1951 and certan ta abe years
begnnng after March 31, 1951, may be dsaowed n whoe or In part.
Par. 3. Secton 29.20 -1, as amended by Treasury Decson 5950
26 CFR 29.20 -1 , s further amended by addng after the seventh
sentence of the ast paragraph of the secton the foowng:
For the crcumstances under whch the 25,000 e empton from surta for the
caendar year 1951 and certan ta abe years begnnng after March 31, 1951,
may be dsaowed n whoe or In part, see secton 29.15-2.
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95
Regs. I, 29.22(aM.
Par. . Secton 29.231-1, as amended by Treasury Decson 5950 26
CFR 29.231-1 , s further amended by addng at the end of the thrd
paragraph of (6) of the secton the foowng:
See, however, secton 29.15-2, as to the crcumstances under whch the 25,000
e empton from surta for the caendar year 1951 and certan ta abe years
begnnng after March 31,1951, may be dsaowed n whoe or In part.
R GUL TIONS 130 26 CFR, PT. 0
Par. 5. Secton 0. 31-1 26 CFR 0. 31-1 s amended by addng
at the end thereof the foowng:
See, however, secton 15(c) and the reguatons thereunder, as to the crcum-
stances under whch the 25,000 mnmum e cess-prots credt may be dsaowed
n whoe or n part n the case of transfers of property (other than money) on or
after anuary 1, 1951, between reated corporatons. For treatment of ta abe
years begnnng before pr 1, 1951, and endng after March 31, 1951 (other
than the caendar year 1951), see secton 0. :0-2(b) (2). For treatment of
ta abe years begnnng before uy 1, 1953, and endng after une 30, 1953, see
secton 0. 30-2(c).
(Ths Treasury Decson s ssued under the authorty contaned n
sees. 62 and 3791 of the Interna Revenue Code (53 Stat. 32, 67;
26 U. S. C. 62, 3791).)
T. Coeman ndrews,
Commssoner of Interna Revenue.
pproved une 25,1953.
M. . Fosom,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster une 30, 1953, : 53 a. m.)
part . computaton of net ncome
S CTION 22(a). GROSS INCOM : G N R L
D FINITION
Reguatons 111, Secton 29.22 (a)-: What Rev. Ru. 119
ncuded n gross ncome.
nterna revenue code
The dscount at whch a Tweve Tear Doar Savngs ond of
the State of Israe s orgnay ssued consttutes nterest whch
Is ta abe as ordnary ncome under secton 22(a) of the Interna
Revenue Code when reazed upon redempton; t does not represent
an amount receved upon retrement of the bond wthn the meanng
of secton 117(f) of the Code.
dvce s requested as to the treatment, for Federa ncome ta
purposes, of the dscount upon orgna ssuance of a Tweve Year
Doar Savngs ond of the State of Israe when reazed upon
redempton thereof.
The bonds n queston are genera non-nterest-bearng obgatons
of the State of Israe ssued n regstered form and n eght denom-
natons rangng from 50 to 10,000. The maturty vaue of each bond
appears on the face thereof and s equa to 150 percent of the amount
for whch ssued, e. g., a 50 bond matures at 75 and a 10,000 bond
at 15,000. ach bond bears an ssue date as of the frst day of the
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Regs. I, 29.22(a)- .
C5
month durng whch ssued, and each bond matures wthn 12 years
of the ssue date. On the reverse sde of each bond s a Schedue
of pprecaton ndcatng the amount at whch the bond may be
redeemed durng each haf-year perod between the ssue date and
maturty. The bonds are nontransferabe and nonassgnabe e cept
n certan speca nstances. Pror to maturty, they are redeemabe
at the opton of the bearer ony n Israe and n Israe currency at
the then offca rate of e change. The estate of a deceased owner has
the opton, wthn 2 years of the owner s death, of redeemng the
bonds n ths country for Unted States ega tender. The bonds may
be redeemed on or after May 1, 1956, at the opton of the State of
Israe.
The bonds appear to be smar to Unted States savngs bonds,
Seres , ssued under the Second Lberty ond ct, as amended, n
that they are non-nterest-bearng obgatons ssued at a dscount.
The Second Lberty ond ct, as amended, provdes that the ncre-
ment n vaue represented by the dfference between the ssue prce
pad and the redempton vaue receved, whether at or before maturty,
sha be consdered as nterest. (See par. 1 of Mm. 6327, C. .
19 -2,12.)
In the case of an orgna purchaser of a Unted States Treasury
b ssued pror to March 1, 19 1, whch purchaser hods t unt
maturty, the entre amount of the dscount at whch the b was ssued
s consdered nterest whch s e empt as such from Federa ncome
ta . If the b s sod before maturty, the amount of the dscount
s, for purposes of the ncome ta computaton, to be apportoned
among the hoders accordng to the perods of ther hodngs. (See
T. D. 276, C. . III-2, 3 (1929).) The amount of dscount at
whch Treasury bs are ssued on or after March 1, 19 1, s con-
sdered as nterest whch s not ta e empt, and the prncpes of
Treasury Decson 276, supra, are appcabe wth respect to prora-
ton and apportonment of dscount among the orgna and other
hoders accordng to ther respectve hodng perods. (See I. T.
3 6, C. . 19 1-2, 76.)
Snce about 1920, dscount reazed on retrement of State and
muncpa obgatons n the hands of the orgna purchaser has been
treated by the ureau as nterest, the theory beng that dscount s
an amount pad n eu of nterest. (See (|r. C. M. 1 55, C. . I-1,
7 (1927), and rungs cted theren, whch G. C. M. was partay
revoked by G. C. M. 10 52, C. . I-1, 1 (1932), as to other ssues.)
It was aso the poston of the ureau as eary as 1923 that an amount
n e cess of the dscount at whch ssued (the dfference between the
orgna dscount and the greater dscount at whch subsequenty
purchased) reazed by the hoder upon retrement of an obgaton
of a potca subdvson of a State s to be treated as ta abe ncome,
not as ta -free nterest, (See I. T. 1637, C. . II-, 36 (1923).)
Subsequenty, the prncpes of Treasury Decson 276, supra, were
apped to State and muncpa securtes ssued at a dscount n order
to make the dscount apportonabe among the orgna and a sub-
sequent purchasers accordng to the perods of ther hodngs, the
same as nterest on nterest-bearng obgatons. (See I. T. 2629, C. .
I-1, 20 (1932), and G. C. M. 10 52, supra.) The poston taken by
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07
Regs. I, 29.22(a)- .
the ureau n the above-cted rungs has been consstenty mantaned
wth regard to characterzng dscount as nterest and treatng the
e cess over dscount (and ordnary nterest, f any) reazed upon
retrement as ta abe ncome. owever, after the enactment of sec-
ton 117(f) of the Interna Revenue Cede, the e cess over dscount
has been consstenty ta ed as capta gan rather than ordnary gan.
(See G. C. M. 21 90, C. . 19 0-1, 5.) Therefore, ony the e cess of
the amount reazed from a State or muncpa bond, ess dscount
from the date of acquston, and ordnary nterest, f any, over the
cost or other bass of the bond s the amount receved upon retrement
ta abe as capta gan under secton 117(f) of the Code.
In vew of the foregong, t s beeved that no ega dstncton for
Federa ncome ta purposes can be made between dscount receved on
the retrement at or pror to maturty of a State or muncpa obga-
ton, or on a Unted States savngs bond, Seres , and dscount re-
ceved on retrement at or pror to maturty of a Tweve Year Doar
Savngs ond of the State of Israe. ccordngy, t s hed that
the dscount at whch a Tweve Year Doar Savngs ond of the
State of Israe s orgnay ssued consttutes nterest whch s ta abe
a3 ordnary ncome under secton 22(a) of the Code when reazed
upon redempton; t does not represent an amount receved upon
retrement of the bond wthn the meanng of secton 117(f) of the
Code.
In the case of Commssoner v. George Peck Cauk ms, 1 Fed. (2d)
2, affrmng the Ta Court decson, 1 T. C. 65G, acquescence, C. .
19 , 5, the court hed that the e cess of the amount receved by the
ta payer, pursuant to a contract wth Investors Syndcate over the
aggregate payments made by hm for an ccumuatve Instament
Certfcate, consttuted capta gan, and stated that the certfcate n
queston was an evdence of ndebtedness smar to a bond or de-
benture and hence fas wthn the statutory group governed by sec-
ton 117(f). Ths decson shoud be mted precsey to what was
there decded under the partcuar facts of that case. It woud be
napproprate to appy the decson to any other case uness the facts
and crcumstances conform to those stated n the pubshed decson
of the Ta Court n the Caukns case.
Reguatons 111, Secton 29.22 (a)-1: What Rev. Ru. 129
ncuded n gross ncome.
INT RN L R NU COD
Payments receved by a essee-subessor whch are attrbutabe
to an assgnment of subsstng subeases on eased property, n
connecton wth a reassgnment of the basc ground ease to the
essor, are ncudbe n the gross ncome of the essee-subessor as
ordnary ncome.
dvce s requested as to the ta treatment, for Federa ncome ta
purposes, of payments receved by a essee-subessor whch are attrb-
utabe to the assgnment of subsstng subeases on the eased property
n connecton wth a reassgnment of the basc ground ea e to the
essor.
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Regs. I, 29.22(a)- . 9
In the nstant case after acquston of an e stng ease on and the
M Company mproved the ste by the erecton of varous budngs
and other structures and entered nto numerous subeases, renta agree-
ments, and other contracts for occupancy or use of the budngs, room
factes, and space. Later by vrtue of a purchase and saes agree-
ment the M Company agreed to se, convey, assgn, and transfer to
the essors of such and a rght, tte, and nterest n the easehod.
Tte and nterest n the easehod ncude rghts, tte, and nterest
n a subeases, renta agreements, and contracts for occupancy or
use of space, and a rentas or revenues to be derved therefrom.
of the subeases, agreements, and contracts e pre wthn a perod of 2
years, at whch tme the M Company s ease aso e pres.
Secton 22 of the Interna Revenue Code provdes n part as
foows:
(a) Genera Defnton. Gross Income Incudes gans, profts, and Income
derved from rent or gans or profts and ncome derved from any
source whatever.
In Water M. ort v. Commssoner, 313 U. S. 2 , Ct. D. 1502, C. .
19 1-1, 319, t was hed that an amount receved by a essor n con-
sderaton of a canceaton of a ease of rea estate s to be ta ed as
ordnary ncome for t nvoved nothng more than the renqush-
ment of the rght to future renta payments n return for a present
substtute payment and possesson of the eased premses. The court
reasoned that the defnton of gross ncome reaches the rent pad pror
to canceaton |ust as t embraces subsequent payments n the event
the ease s never canceed; that smpy because the ease s property
the amount receved for ts canceaton s not a return of capta; and
that where an amount s essentay a substtute for renta payments
whch secton 22(a) e pressy characterzes as gross ncome, t must
be regarded as ordnary ncome and t s mmatera that for some
purposes the contract creatng the rght to such payments may be
treated as property or capta. (See Genera rtsts Corporaton
v. Commssoner, decded by U. S. Court of ppeas, 2d Crcut, uy
7, 1953; Commssoner v. Starr ros., decded by U. S. Court of
ppeas, 2d Crcut, May 29,1953.)
The facts n the nstant case fa wthn the rue set forth n Water
M. ort v. Commssoner, supra. The payments to the essee-subessor
are essentay a substtute for renta payments owng the essee-sub-
essor from the subessee.
ccordngy, t s hed that payments receved by a essee-subessor
whch are attrbutabe to an assgnment of subsstng subeases on
eased property, n connecton wth a reassgnment of the basc ground
ease to the essor, are ncudbe n the gross ncome of the essee-
subessor as ordnary ncome.
Reguatons 111, Secton 29.22(a)-: What
ncuded n gross ncome.
INT RN L R NU COD
mounts contrbuted by ta payer for purpose of rehabtatng em-
poyees after ma|or dsaster. (See Rev. Ru. 131, p. 112.)
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99 Regs. I, 29.22(a)-2.
Reguatons 111, Secton 29.22 (a)-1: What
ncuded n gross ncome.
INT RN L R NU COD
Treatment of the amount pad by fe nsurance companes for ac
crued dvdends wth respect to capta stock purchased. (See Rev,
Ru. 19 , p. 221.)
Reguatons 111, Secton 29.22(a)-2: Compen- Rev. Ru. 130
saton for persona servces.
( so Secton 1621, Secton 05.101, Regua-
tons 116.)
INT RN L R NU COD
mpoyees contrbutons assumed and pad by empoyers, whch
contrbutons are requred of empoyees under artce 9 (known as
the dsabty benefts aw) of the New York workmen s compensa-
ton aw, are not ncudbe n the gross ncome of covered empoyees
and are not sub|ect to wthhodng of ncome ta at the source on
wages.
I. T. 010, C. . 1950-1, 30, and I. T. 075, C. . 1952-1, 13,
modfed.
Further consderaton has been gven to the hodng n I. T. 010,
C. . 1950-1,30, to the effect that contrbutons requred of empoyees
under artce 9 of the New York workmen s compensaton aw whch
are assumed and pad by empoyers are ncudbe n the gross ncome
of the empoyees and are sub|ect to wthhodng of ncome ta at the
ource on wages under secton 1622 of the Interna Revenue Code.
Under secton 209 of the New York workmen s compensaton aw,
every covered empoyer s gven the rght to requre contrbutons
from hs empoyees toward the cost of provdng nonoccupatona
dsabty benefts for empoyees. owever, subdvson of secton
211 of such aw provded for an e cepton n the case of such an
approved pan whch was n e stence on the effectve date of the
artce ( pr 13, 19 9) and dd not requre contrbutons from the
empoyees. Chapter 13 of the New York Laws of 1952, supra,
amended artce 9 to provde that n the case of new pans, as we as
n the case of pans n e stence on pr 13, 19 9, the obgaton of
empoyees to contrbute to the payment of the cost of the benefts
shoud, be as provded n the pan rather than as provded n the
statute. In I. T. 075, C. . 1952-1, 13, t s hed that n the case of
approved pans whch were n e stence when artce 9 became effec-
tve, and under such pans contrbutons are not requred of empoyees,
there s no recept of ncome by the empoyees upon the empoyer pro-
vdng for the payment of the dsabty benefts.
Upon further consderaton t s hed that empoyees contrbutons
assumed and pad by empoyers, whch contrbutons are requred of
empoyees under artce 9 (known as the dsabty benefts aw) of
the New York workmen s compensaton aw, are not ncudbe n the
gross ncome of covered empoyees and are not sub|ect to wthhodng
of ncome ta at the source under secton 1622 of the Interna Revenue
Code. I. T. 010, C. . 1950-1, 30, s modfed to the e tent that t
hods that contrbutons requred of empoyees under the New York
workmen s compensaton aw whch are assumed and pad by empoy-
ers are ncudbe n the gross ncome of empoyees and are sub|ect
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Regs. I, 29.22(a)-5.
to wthhodng of ncome ta at the source on wages under secton
1622 of the Interna Revenue Code. I. T. 075, C. . 1952-1, 13, s
modfed to emnate therefrom any reference to I. T. 010.
Reguatons 111, Secton 29.22(a)-3: Compen-
saton pad other than n cash.
INT RN L R NU COD
Premums pad by an empoyer on ndvdua accdent nsurance
poces purchased for each of ts saesmen. (See Rev. Ru. 210, p. 11 .)
Reguatons 111, Secton 29.22(a)-5: Gross T. D. 602
ncome from busness.
( so Secton 23(a), Sectons 29.23(a)-,
29.23(a)- ; Secton 23(c), Secton 29.23(c)-
2.)
TITL 2 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 permt ncuson of certan tems n
the cost of acquston or producton, rather than busness e pense.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
On December 20, 1952, a notce of proposed ruemakng was pub-
shed n the Federa Regster (17 F. R. 11656) to conform certan
provsons of Reguatons 111 26 CFR, pt. 29 to acceptabe ac-
countng practces. fter carefu consderaton of a reevant matter
presented by persons nterested n the rues proposed, the amendments
to Reguatons 111 set forth beow are hereby adopted.
Paragraph 1. Secton 29.22(a)-5 s amended by strkng out the
second sentence and nsertng n eu thereof the foowng:
In determnng gross ncome, subtractons shoud not be made for depeton
aowances based on dscovery vaue or percentage of ncome, seng e penses,
or osses, or for other tems not ordnary used n computng cost of goods sod.
Par. 2. Secton 29.23(a)-, as amended by Treasury Decson 6006
C. . 1953-1, 30 , approved pr 10, 1953, s amended further as
foows:
( ) y strkng from the frst sentence the words e cept the
casses of tems whch are deductbe under sectons 23(b) to 23(z),
ncusve, and the reguatons thereunder , and nsertng n eu
thereof the foowng: e cept tems whch are used as the bass for
a deducton or a credt under provsons of aw other than subsecton
(a) of secton 23.
( ) y nsertng after the seventh sentence, whch names certan
tems ncuded n busness e penses, the foowng sentence:
No such tem sha be ncuded n busness e penses, however, to the e tent that
It Is used by the ta payer n computng the cost of property Incuded n ts
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101
Regs. I, 29.22(a)-5.
Inventory or used n determnng the gan or oss bass of ts pant, equpment,
or othr property.
Par. 3. Secton 29.23(a)- s amended by strkng out the frst sen-
tence and nsertng n eu thereof the foowng:
The cost of ncdenta repars whch nether materay add to the vaue of the
property nor apprecaby proong ts fe, but keep t n an ordnary effcent
operatng condton, may be deducted as e pense, provded the cost of acquston
or producton or the gan or oss bass of the ta payer s pant, equpment, or
other property, as the case may be, s not ncreased by the amount of such
e pendtures.
Par. . Secton 29.23(c)-2, as amended by Treasury Decson 5371
C. . 19 , 0 , approved May 11,19 , s further amended by strk-
ng out the second sentence and nsertng n eu thereof the foowng:
The fact that any such ta s not deductbe as a ta under secton 23(c) for
a ta abe year begnnng after December 31, 19 3, does not prevent (a) a deduc-
ton therefor under secton 23(a) provded t represents an ordnary and neces-
sary e pense pad or ncurred durng the ta abe year by a corporaton or an
ndvdua n carryng on any trade or busness, or, n the case of an ndvdua,
for the producton or coecton of ncome, or for the management, conservaton,
or mantenance of property hed for the producton of ncome, or (b) the n-
cuson of such ta pad or ncurred durng the ta abe year by a corporaton
or an ndvdua as a part of the cost of acquston or producton n the trade
or busness, or, n the case of an ndvdua, as a part of the cost of property
hed for the producton of ncome wth respect to whch such ta Is pad or
Incurred.
(Ths Treasury Decson s ssued under the authorty contaned
n sees. 62 and 3791 of the Interna evenue Code (53 Stat. 32, 67;
26 U. S. C. 62,3791).)
T. Coeman ndrews,
Commssoner of Interna Revenue.
pproved uy 6,19 3.
M. . Fosom,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster uy 10, 1953, : 0 a. m.)
Reguatons 111, Secton 29.22(a)-5: Gross Rev. Ru. 1 1
ncome rom busness.
INT RN L R NU COD
In determnng the amount of gross ncome of manufacturng,
merchandsng, or mnng busnesses, the amount of deprecaton
and depeton based on cost, ncurred n connecton wth the pro-
ducton or acquston of goods or materas, may be ncuded n the
cost of such tems.
dvce s requested wth respect to the appcaton and sgnfcance
of the amendment to secton 29.22(a)-5, of Reguatons 111, by Treas-
ury Decson 602 promugated uy 7, 1953. page 100, ths uetn,
whch removed the prohbton aganst the subtracton of deprecaton
and depeton based on cost n determnng gross ncome of manufac-
turng, merchandsng, or mnng busnesses.
Pror to ts amendment secton 29.22(a)-5 of Reguatons 111 pro-
vded that, n determnng gross ncome, subtractons shoud not be
made for deprecaton, depeton, seng e penses, or osses, or for
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I 22(b).
102
tems not ordnary used n computng the cost of goods sod. The
reguatons as amended permt a subtracton of amounts for depreca-
ton or depeton based on costs ncurred n connecton wth the pro-
ducton of goods or materas n determnng gross ncome. The
reguatons, accordngy, now conform to accepted prncpes of cost
accountng and are consstent wth the provsons of sectons 29.22(c)-
2 and 3 of Reguatons 111, wth respect to the vauaton of nventores.
The amendment merey permts the subtracton of deprecaton and
cost depeton n determnng gross ncome n accordance wth accepted
accountng practce n the partcuar trade or busness and does not
requre such subtracton. ny change by a ta payer from the method
consstenty used n the past wth respect to the treatment of such tems
n determnng gross ncome consttutes a change n accountng method
whch requres the consent of the Commssoner n accordance wth
secton 29. 1-2 of Reguatons 111.
In those cases where subtractons for deprecaton and cost depe-
ton are propery ncuded n the costs of goods or materas produced
n determnng gross ncome, such tems and amounts shoud be set
forth n deta n schedue C of the ndvdua return, Form 10 0, or
n a suppementary schedue supportng tem 2 of the partnershp
return, Form 1065, or accompanyng schedue of the corporaton
return, Form 1120.
S CTION 22(b). GROSS INCOM : CLUSIONS
FROM GROSS INCOM
Rev. Ru. 203
INT RN L NU COD
benefts receved under a sef-nsured pan whch compes wth
the New York State dsabty benefts aw provdng a system of
cash benefts payabe to empoyees dsabed as a resut of non-
occupatona n|ures or sckness are e cudabe from the gross n-
come of the recpents as accdent or heath nsurance under secton
212(b) (5) of the Interna Revenue Code where the benefts are pad
entrey from an ndependent fund consstng soey of contrbu-
tons and the earnngs from the contrbutons of empoyees.
dvce s requested, n vew of I. T. 107, C. . 1952-2, 73, whether
nonoccupatona dsabty benefts receved by empoyees under a sef-
nsured pan estabshed by an empoyer and approved by the appro-
prate State agency as conformng to the requrements of artce 9
(known as the dsabty benefts aw) of the New York workmen s
compensaton aw, are e cudabe from the gross ncome of the recp-
ents as accdent or heath nsurance under secton 22(b) (5) of the
Interna Revenue Code, where the benefts are pad entrey from an
ndependent fund consstng soey of contrbutons and the earnngs
derved from the contrbutons of empoyees.
I. T. 107, supra, provdes that sef-nsured pans estabshed by
empoyers whch provde for the payment of sckness or accdent ds-
abty benefts to ther empoyees, and whch are not n themseves
ans of nsurance wthn the purvew of secton 22(b) (5) of the Code,
o not become pans of nsurance merey by vrtue of compance wth
State dsabty benefts statutes and approva by the approprate
State agences.
The New York State dsabty benefts aw provdes n pertnent
part that each empoyee s requred to contrbute to the cost of provd-
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103
22(b).
ng dsabty benefts by means of a payro deducton n the amount
of one-haf of 1 percent of the wages pad to hm on and after uy
1,1950, but not n e cess of 30 cents per week. The aw provdes that
n coectng empoyee contrbutons through payro deductons the
empoyer sha act as the agent of hs empoyees and sha use the con-
trbutons ony to provde dsabty benefts as requred by the aw.
To the e tent that the empoyer does not provde for the payment of
benefts by nsurng wth the State fund or wth another nsurance
carrer, he sha keep the contrbutons of hs empoyees as trust
funds separate and apart from a other funds of the empoyer. (Sec.
209.) very empoyer s requred to contrbute the cost of provdng
dsabty benefts n e cess of the contrbutons coected from hs
empoyees. (Sec. 210.)
In the nstant case the empoyer, under a sef-nsured pan approved
by the approprate State agency, coects from the weeky wages of
ts empoyees n the State of New York the statutory amounts whch
each empoyee s requred to contrbute to the cost of provdng the
dsabty benefts. Such amounts are, pursuant to the State aw, de-
tosted n a speca bank account. No deposts other than the contr-
utons of empoyees are made to ths account and the funds n the
account are used for the soe purpose of payng New York State ds-
abty benefts. The benefts pad are the mnmum amounts requred
under the statute. though the empoyer s obgated under the aw
to contrbute as much as s necessary to meet the cost of provdng ds-
abty benefts when they e ceed empoyee contrbutons, the empoyer
has thus far nether deposted any of ts own funds n the speca bank
account nor used any of ts own money to pay any benefts, the contr-
butons of the empoyees havng been the e cusve source of a ben-
efts pad.
Secton 22(b)(5) of the Code provdes n part as foows:
(b) cusons From Gross Income. The foowng Items sha not be In-
cuded In gross ncome and sha be e empt from ta aton under ths chapter
chapter 1 of the Code :

(5) Compensaton fob n|ures or sckness. cept n the case of
amounts attrbutabe to (and not n e cess of) deductons aowed under
secton 23( ) n any pror ta abe year, amounts receved, through accdent
or heath nsurance or under workmen s compensaton acts, as compensaton
for persona n|ures or sckness
n e amnaton of the facts n the nstant case reveas the e stence
of nsurance wthn the meanng of secton 22(b) (5), supra. (See
G. C. M. 23511, C. . 19 3, 6.) The benefts pad pursuant to the
State aw are based n part on reguar wages (the ma mum mt
beng an arbtrary amount) but the perod durng whch the benefts
are payabe does not depend on the empoyee s ength of servce. The
benefts are pad out of empoyee contrbutons wth no ndcaton
that the empoyer e pects to contrbute to the cost of the benefts
wthn the foreseeabe future. Furthermore, the contrbutons of the
empoyees are pad nto a bank account whch, snce t contans em-
poyee contrbutons, must be mantaned as a trust fund apart from
the moneys of the empoyer under the aw. The benefts are pad
from ths same account.
In vew of the foregong, t s hed that benefts receved under a
sef-nsured pan whch compes wth the New York State dsabty
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22(b).
1U
benefts aw provdng a system of cash benefts payabe to empoyees
dsabed as a resut of nonoccupatona n|ures or sckness are e -
cudabe from the gross ncome of the recpents as accdent or heath
nsurance under secton 22(b) (5) of the Interna evenue Code where
the benefts are pad entrey from an ndependent fund consstng
soey of contrbutons and the earnngs derved from the contrbu-
The concuson reached heren does not consttute an acceptance of
the decson n the case of rnod W. pmeer v. Unted States, 199
sef-Insured pan estabshed by an empoyer n compance
wth the New York State dsabty benefts aw provdng for the
payment of nonoccupatona dsabty benefts to ts empoyees
under whch (1) the benefts pad are based on ength of servce
rather than degree of dsabty, (2) empoyees make no contrbu-
tons to the pan or other payments smar to premums, and (3)
there s no trust or other separate entty nto whch the empoyer
pays hs contrbutons and from whch empoyees receve benefts,
s not a pan of nsurance wthn the purvew of secton 22(b) (5)
of the Interna Revenue Code snce there Is nothng to dstngush
the beneft payments under the pan from contnuaton of reguar
compensaton n whoe or n part durng perods of dsabty.
dvce s requested whether sef-nsured pans estabshed by an
empoyer n compance wth the New York State dsabty benefts
aw provdng for the payment of nonoccupatona dsabty benefts
to ts empoyees consttute pans of accdent or heath nsurance wthn
the purvew of secton 22(b) (5) of the Interna Revenue Code so that
the benefts receved thereunder may be e cuded from the gross
ncome of the recpents.
The ta payer has three nonoccupatona dsabty benefts pans
for ts empoyees, each of whch has been approved by the Workmen s
Compensaton oard of the State of New York as compyng wth the
requrements of the dsabty benefts aw of that State. ( rtce 9
of the New York workmen s compensaton aw.) Under the frst pan,
the ta payer pays, pursuant to the terms of a coectve barganng
agreement, dsabty benefts equa to reguar compensaton to reguar
empoyees covered by that agreement for a perod of tme based on
ength of servce. The second pan covers reguar empoyees not
wthn the coectve barganng unt. It provdes that an empoyee
dsabed as a resut of nonoccupatona n|ures or sckness, sha re-
ceve as dsabty benefts 1 week s pay at hs reguar rate and an
addtona week s pay for each addtona year of servce after the
frst year. The thrd pan appes to temporary empoyees not covered
by the frst two and provdes for the payment of mnmum statutory
benefts.
mpoyees covered by these pans are not requred to contrbute to
the cost of provdng the dsabty benefts. The ta payer has not
estabshed a trust or an ndependent entty nto whch contrbutons
are made and from whch benefts are pad. The ta payer has not
entered nto any contract wth an nsurance carrer to provde the
dsabty benefts.
Fed. (2d) 50 .
Rev. Ru. 209
INT RN L R NU COD
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105
22(b).
Secton 22(b)(5) of the Interna Revenue Code provdes n part
as foows:
(b) cusons From Gross Income. The foowng Items sha not be n-
cuded n gross ncome and sha be e empt from ta aton under ths chanter
chapter 1 of the Code :

(5) Compensaton fob n|ures or sckness. cept n the case of
amounts attrbutabe to (and not n e cess of) deductons aowed under
secton 23( ) n any pror ta abe year, amounts receved, through ac-
cdent or heath nsurance as compensaton for persona n|ures
or sckness Itacs supped.
I. T. 107, C. . 1952-2, 73, provdes that sef-nsured pans es-
tabshed by empoyers whch provde for the payment of sckness or
accdent dsabty benefts to ther empoyees, and whch are not n
themseves pans of nsurance wthn the purvew of secton 22(b) (5)
of the Code, do not become pans of nsurance merey by vrtue of
compance wth State dsabty benefts statutes and approva by
the approprate State agences. Nether the e stence of a contractua
obgaton, such as the coectve barganng agreement pursuant to
whch the frst pan n the nstant case was estabshed, nor the fact
that the pan operates under statutory requrements whch are essen-
tay equvaent to contractua obgatons, s by tsef enough to make
the pan one of nsurance for purposes of secton 22(b) (5). Some-
thng more than a contract or statutory obgaton s requred. See
L T. 107, supra, and G. C. M. 23511, C. . 19 3, 6.
n e amnaton of the facts n the nstant case does not revea the
e stence of nsurance wthn the meanng of secton 22(b) (5), supra.
The empoyees make no contrbutons to the pan or any other pay-
ments smar to premums for the dsabty benefts provded under
the pans. The benefts under the frst and second pans are based
on the reguar wages or saares of the covered empoyees and the
duraton of the benefts s based on the ength of empoyment rather
than the degree of dsabty. In the thrd pan, the statutory beneft
s based on a percentage of reguar compensaton e cept that an
arbtrary ma mum s f ed; the perod durng whch benefts are
pad under ths pan depends on ength of dsabty e cept that an
arbtrary ma mum s f ed. Furthermore, there s an absence of
any trust or ndependent entty nto whch the empoyer pays hs con-
trbutons under any of the pans and from whch the empoyees re-
ceve benefts when dsabed, cf. Rev. Ru. 20 , page 102, ths uetn.
Thus, athough there s a contract or an anaogous obgaton n each
of the pans n the nstant case, there s nothng to dstngush the
benefts payments receved thereunder from the contnuaton of regu-
ar compensaton n whoe or n part durng a perod of dsabty.
It s accordngy hed that the pans of the nstant ta payer are not
fans of nsurance wthn the meanng of secton 22(b)(5) of the
nterna Revenue Code. enefts receved thereunder after Decem-
ber 31, 1952, are ncudbe n the gross ncome of the recpents and
are sub|ect to wthhodng of ncome ta at the source on wages under
secton 1622 of the Code.
I. T. 107, supra, modfed I. T. 000, C. . 1950-1, 21, I. T. 015,
C. . 1950-1, 23, and I. T. 0(30, C. . 1951-2, 11, whch had hed that
dsabty benefts pad under sertan pans estabshed pursuant to
State aw n New ersey, Caforna, and New York, were e cudabe
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Regs 111, 29.22(b)()-2.
1C6
from gross ncome under secton 22(b) (5) of the Code. Those pay-
ments are no onger so e cuded merey on the bass that the pans
under whch pad comped wth State dsabty beneft statutes and
were approved by approprate State agences. L T. 107, supra, pro-
vded that the concuson stated theren woud not be apped wth
respect to dsabty payments receved pror to anuary 1,1953, under
the types of pans there nvoved. Pror to the ssuance of I. T. 107,
supra, some empoyers submtted ther pans to the Interna Revenue
Servce for a specfc determnaton as to whether ther ndvdua
pans consttuted pans of nsurance for the purpose of secton
22(b) (5) n accordance wth I. T. 000, supra, I. T. 015, supra, or
I. T. 060, supra. Such empoyers, to the e tent not heretofore spe-
cfcay notfed by the Revenue Servce, are hereby notfed of the
effect of I. T. 107, supra, and that, accordngy, wthhodng of ncome
ta n such cases sha, pursuant to the authorty contaned n secton
3791 (b) of the Code, be requred wth respect to payments made on
and after November 1, 1953.
Reguatons 111, Secton 29.22(b) ()-2: Death T. D. 6020
payment by empoyer amounts pad by reason
of the death of an empoyee.
( so Sectons 29.22(b) (2)-2, 29.22(b) (2)-5;
Secton 113(a), Secton 29.113(a) (5)-; Sec-
ton 165, Secton 29.165-6.)
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 302, Revenue ct
of 1951, reatng to payments to benefcares of deceased empoyees,
and secton 303 thereof, reatng to |ont and survvor annutes.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C,
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
On November 1 , 1952, notce of proposed ruemakng wth respect
to amendments to conform Reguatons 111 to secton 302 of the Reve-
nue ct of 1951 (Pubc Law 1 3, 2d Cong.), approved October 20,
1951, reatng to the e cuson from gross ncome of certan death
benefts pad by empoyers to benefcares of deceased empoyees, and
secton 303 thereof, reatng to the ta abty of amounts receved by a
survvng annutant under a |ont and survvor annuty, was pub-
shed n the Federa Regster (17 F. R. 10 11). fter consderaton
of a such reevant matter as was presented by nterested persons re-
gardng the rues proposed, the amendments to Reguatons 111 26
CFR, pt. 29 set forth beow are hereby adopted:
Paragraph 1. There s nserted mmedatey precedng secton
29.22(b) (1)-1 the foowng:
S C. 302. P YM NTS TO N FICI RI S OP D C S D M-
PLOY S R NU CT OF 1951, PPRO D OCTO R
20, 19511.
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107 Regs. I, 29.22(b)()-2.
(a) mendment of Secton 22(b)(1). Secton 22(b)(1) (reatng
to e cuson of fe nsurance proceeds from gross ncome) s hereby
amended to read as foows:
(1) Lfe nsurance, etc. mounts receved
( ) under a fe nsurance contract, pad by reason of the
death of the nsured; or
( ) under a contract of nn empoyer provdng for the pay-
ment of such amounts to the benefcares of an empoyee, pad
by reason of the death of the empoyee;
whether n a snge sum or otherwse (but f such amounts are
hed by the nsurer, or the empoyer, under an agreement to pay
nterest thereon, the nterest payments sha be ncuded n gross
ncome). The aggregate of the amounts e cudbe under sub-
paragraph ( ) by a the benefcares of the empoyee under a
such contracts of any one empoyer may not e ceed 5,000.
(b) ffectve Date. The amendment made by ths secton sha
be appcabe wth respect to ta abe years begnnng after December
31, 1950.
Par. 2. Immedatey foowng secton 29.22(b) (1)-1, as amended
by Treasury Decson 5515 C. . 19 6-1,26 , approved May 16,19 6,
there s nserted the foowng new secton whch represents the basc
provsons of reguatons regardng the nterpretaton of secton 302
of the Revenue ct of 1951:
Sec. 29.22(b) ()-2. Death Payment by mpoyer mounts Pad by Reason
of the Death of an mpoyee. mounts, not n e cess of 5,000, pad by an
empoyer n pursuance of an e press contract, to the estate or to a benefcary
(ndvdua, partnershp, trust, or corporaton) of an empoyee, ncudng a
former empoyee, by reason of the empoyee s death sha be e cuded from the
gross ncome of such benefcary f receved durng a ta abe year begnnng
after December 31, 1950. Where such death payments are made by more than
one empoyer, ncudng former empoyers of the decedent, a . 5,000 e cuson
appes separatey to amounts recevabe from each empoyer or former empoyer
of the decedent. Where the aggregate payments by an empoyer, under an
e press contract, to the benefcares of the deceased empoyee e ceed 5,000,
the 5,000 e cuson sha be proportoned among the benefcares n the same
proporton as the amount payabe to or receved by each under such contract
bears to the tota death payment the empoyer s contractuay obgated to
make. It s mmatera whether the proceeds are receved n a snge sum or
otherwse. If, however, the proceeds are hed by an empoyer under an agree-
ment to pay nterest thereon, the nterest payment must be ncuded n gross
ncome.
ampe (/). The M Corporaton, the empoyer of , who ded on November
30,1950, was abe under an e press contract to pay a death payment of 15,000
to the benefcares of , to be dstrbuted as foows; 5,000 to the wdow of ;
2,500 each to the parents of ; and 1,0( ) each to the fve chdren of . ach
of the benefcares of , e cept hs wdow, receved such payment n a ump
sum n anuary 1951. The wdow of eected to receve her share of the death
payment n monthy nstaments of 100 begnnng wth the month of anuary
1951. of the benefcares fed ncome ta returns on a caendar year bass.
pportonng the 5,000 e cuson n the same proportons as the tota death
payments the empoyer s contractuay obgated to make, the wdow of sha
e cude 1,606.G7 of the monthy payments made to her (one-thrd of 5,000) ;
each of s parents sha e cude S33.33 of hs or her death payment (one-s th
of 5,000) ; and each of the fve chdren sha e cude 333.33 (one ffteenth of
5,000). In the case of the wdow, 1,200 of her monthy payments sha be
e cuded from her ncome ta return for the year 1951 and the baance of 06.67
from her return for the year 1952.
ampe (2). ded on uy 1,1951. t the tme of hs death he was empoyed
by the Corporaton, whch was abe under an e press contract to pay a
dpath payment of 2,500 to W, hs wdow. The Corporaton, a former empoyer
of . was aso abe under an e press contract to pay a death payment of
S-|.OOO to W. The 7,500 recevabe by W from the and Corporaton Is
e cudabe from her gross ncome.
2 670
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Regs. I, 29.22(b)()-2.
1G
Where a payment Is made on account of the death of an empoyee by a we-
fare fund or a trust, ncudng a penson trust e empt under secton 163(a),
n pursuance of an agreement entered nto by an empoyer of the deceased em-
poyee, the payment sha be consdered to have been made by the empoyer for
the purpose of ths secton. ny part of a death payment whch s attrbutabe
to the contrbutons of the empoyee sha be dsregarded n determnng the
amount pad by an empoyer.
n e press contract requrng payment by an empoyer to the benefcares
of a deceased empoyee by reason of the atter s death sha be deemed to e st
ony f (1) the empoyer and empoyee had entered nto a wrtten contract, not
revoked before the empoyee s death, whch requred such payment or (2) the
empoyer had an estabshed pan (or program havng the effect of a pan)
makng provson for such payments n the case of hs empoyees generay,
or for a cass or casses of hs empoyees. In the atter case, the contract w
be deemed to e st between the empoyer and the members of the cass or
casses of empoyees to whom the pan appes, provded such pan had been
communcated to such empoyees and had not been rescnded pror to the death
of the empoyee to whom the partcuar death payment reates. Communca-
ton of an empoyer s pan or program to hs empoyees may be made n dfferent
ways, such as by pubczng or dstrbutng to the empoyees concerned notce
of the resouton approved by the board of drectors whch created the pan,
or by dstrbutng to the empoyees a booket contanng an e panaton of the
pan and the rghts of ther benefcares thereunder.
The e cuson from gross ncome provded by ths secton s mted soey to
those amounts pad by or on behaf of an empoyer whch, by the terms of the
contract wth the empoyee or by the provsons of the pan provdng for such
payments, are specfcay desgnated and ntended as a death payment, pad
ony by reason of the death of the empoyee. The e cuson does not appy
to amounts wth respect to whch the deceased empoyee possessed, mmedatey
pror to hs death, a nonforfetabe rght to receve the amounts whe vng.
See secton 29.165-7. mounts to whch the e cuson s not appcabe ncude,
among others, such tems as uncoected saary, payments for unused eave, and
amounts pad by or on behaf of an empoyer to the survvor of a deceased
retred empoyee as a survvor s annuty, as to whch see secton 29.22(b) (2)-2.
ampe (3). , who was a partcpant under the Company penson pan,
retred on December 31, 1951. e had made no contrbutons to the pan.
Upon hs retrement he became entted to a monthy ncome of 100 payabe for
fe, 120 months certan. ded n October 1952 havng receved 10 monthy
payments of 100 each. s wdow became entted to 110 monthy payments
representng the baance of the payments certan. No e cuson from gross
ncome may be made by s wdow under ths secton snce the empoyee s
rght to the monthy payments was nonforfetabe from the date of hs retre-
ment.
ampe (I). The trustee of the C Corporaton proft-sharng pan was re-
qured under the provsons of the pan to pay to the benefcary of , an
empoyee of the C Corporaton who ded on uy 1, 1952, the beneft due on
account of the death of . The provsons of the proft-sharng pan gave
each partcpatng empoyee In case of vountary termnaton of empoyment
a 10 percent vested nterest n the amount accumuated n hs account for each
year of partcpaton n the pan but, n case of death, the entre credt to the
partcpant s account woud be pad to hs benefcary.
t the tme of the death of he had been a partcpant for 3 years and the
accumuaton n bs account was S,000. fter hs death ths amount was
pad to hs benefcary. t the tme of the death of the amount dstrbutabe
to hm on account of vountary termnaton of empoyment was 2, 00 ( 30 per-
cent of ,000). The dfference of 5,600 ( ,000 mnus 2, 00), payabe to the
benefcary of ony by reason of the death of , s consdered an amount
payabe soey by reason of s death. ccordngy, 5,000 may be e cuded
from the gross ncome of the benefcary recevng such payment.
ampe (5). The Corporaton nsttuted a retrement pan for Its em-
poyees, the cost thereof beng borne entrey by the corporaton. The pan pro-
vded, n part, as foows: If, after 10 years of servce, an empoyee eft the empoy
of the corporaton, ether vountary or nvountary, before retrement, a per-
centage of the reserve provded for the empoyee n the penson trust fund woud
be pad the empoyee as foows: 10 to 15 years of servce, 23 percent; 15 to 20
years of servce, 50 percent; 20 to 25 years of servce, 75 percent; 25 years of
servce or over, 100 percent. The pan further provded that f an empoyee ded
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109
Iegs. I, 29.22(b)()-2.
before reachng retrement age, hs benefcary woud receve a percentage of
the reserve provded for the empoyee n the retrement fund, on the same bass
as shown In the precedng sentence. Y, an empoyee of the Corporaton for
17 years, ded whe In the empoy of the corporaton before retrement s
benefcary receved 7,500, an amount equa to 60 percent of the reserve pro-
vded for T retrement No e cuson from gross ncome may be made by
the benefcary wth respect to such payment snce Y, pror to hs death, had a
nonforfetabe rght to the payment
Par. 3. There s nserted mmedatey precedng secton 29.22(b)-
(2)- the foowng provsons of the Revenue ct of 1951:
S C. 303. OINT ND SUR I OR NNUITI S R NU CT OP
1951, PPRO D OCTO R 20, 1951 .
(a) mendment of Secton 22(b) (2). Secton 22(b) (2) s amended
by addng at the end thereof the foowng new subparagraph:
(C) ont and Survvor nnutes. For purposes of sub-
paragraphs ( ) and ( ) of ths paragraph, where amounts are
receved by a survvng annutant under a |ont and survvor s
annuty contract and the bnss of such survvor annutant s
nterest s determned under secton 113(a)(5) the consdera-
ton pad for such survvor s annuty sha be consdered to be an
amount equa to such bass.

(c) ffectve Dates. The amendments made by ths secton sha
be appcabe to ta abe years endng after December 31,1950.
Par. . Secton 29.22(b) (2)-2, as amended by Treasury Decson
56 C. . 19 9-1. 50 , approved anuary 7,1919, s further amended
as foows:
( ) y nsertng mmedatey after the frst paragraph the
foowng:
If, n the case of amounts receved under a |ont and survvor s annuty, the
vaue of any part of the survvor s nterest s requred to be ncuded n the
gross estate of a decedent annutant dyng after December 31, 1950, under the
provsons of secton 11 (whether or not such estate e ceeds ( ,0,000 so as to
requre the fng of an estate-ta return under secton 937), the bass of such
nterest to the survvor annutant s consdered to be the vaue of the fe
annuty to the survvor at the tme of the decedent s death as determned under
secton 113(a) (5). Such vauaton sha be substtuted, effectve upon the
(ate of death of the frst annutant, n eu of the consderaton prevousy
used, f any, for purposes of determnng the ta abe amounts of the annuty
payments receved after such date of death. Lkewse, the amount of consdera-
ton determned n accordance wth ths rue sha, wth respect to survvor an
uty payments made after the death of the frst annutant, be substtuted for
the amount of consderaton, f any, that may be recovered wthout ncuson n
gross ncome.
( ) y addng the foowng e ampes after e ampe (3) thereof:
ampe t). and W on ugust 1, 19 7, each contrbuted 90,000 toward
the purchase of a |ont and survvor s annuty of 12,000 a year, payabe n
monthy nstaments. On ugust 15, 1952, ded. There s ncudbe n hs
estate under the provsons of secton 11 the amount of 30,000 attrbutabe to
the decedent s nterest n the annuty contract. The vaue of the annuty pay-
ments to be receved by W subsequent to s death (. e., the cost of provdng
an annuty of 12,000 a year durng the remanng fe of W) s determned, under
the provsons of secton 113(a) (5), to be 60,000. Ths amount s deemed to be
the consderaton pad by W, effectve ugust 15, 1952, for the annuty payments
to e receved by her subsequent to that date. Therefore, of the monthy pay-
ments made to W foowng s death, W sha ncude the sum of 150, beng
such porton of the nstament as s not n e cess of 3 percent of 00,000 (the con-
sderaton deemed to have been pad) dvded by 12. The fu amount of the
annuty w not become ncudbe n gross ncome unt 60,000 sha have been
recovered.
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Regs. I, 29.22(b)()-2. 110
ampe (5). , an empoyee of the M Corporaton, retred on anuary 1,
1952. Under the company s retrement pan was entted, upon retrement, to
eect to receve a fe annuty of 2, 00 annuay or a reduced annuty wth a
provson that hs wfe woud receve 1,200 annuay durng her fetme If he
shoud predecease her. The M Corporaton naugurated ts retrement pan n
19 9 and pad the entre cost of a annutes. eected to take the reduced
annuty. e ded on November 1, 1952, and thereafter hs wfe W receved
1,200 annuay n equa monthy nstaments. y reason of s eecton to
accept a reduced annuty wth survvor payments for hs wdow, there s In-
cudbe In hs estate under the provsons of secton 11 the amount of 12,000.
Ths s the same vauaton, as determned under secton 113(a) (5), paced on
the annuty payments receved by W subsequent to s death. Therefore, W
sha ncude n her gross ncome wth respect to each monthy annuty payment
receved subsequent to November 1, 1952, the sum of 30, beng such porton of
the nstament as s not n e cess of 3 percent of 12,000 (the consderaton
deemed to have been pad) dvded by 12. The fu amount of the annuty pay-
ments w not become ncudbe In gross ncome unt 12,000 of the annuty
payments receved after s death sha have been e cuded from ncome. It
s mmatera that had no cost bass wth respect to hs annuty and had to
ncude the fu amount thereof n hs gross ncome.
Par. 5. Secton 29.22(b) (2)-5, as amended by Treasury Decson
5 53 C. . 1951-2, 90 , approved ugust 29, 1951, s further amended
by strkng the frst sentence of the thrd paragraph thereof and sub-
sttutng the foowng:
cept as provded n secton 29.22(b) (2)-2 wth respect to |ont and survvor
annuty payments receved subsequent to the death of an annutant who ded
after December 31, 1950, f upon the death of a retred empoyee, the wdow
or other benefcary of such retred empoyee s pad, n accordance wth the
terms of the annuty contract reatng to the deceased empoyee, an annuty or
other death beneft, the amounts receved by or made avaabe to her sha be
ncuded n her ncome to the e tent that they woud have been ncuded n the
Income of the deceased empoyee had he ved and receved such payments.
Par. 6. There s nserted mmedatey precedng secton 29.113(a)
(5)- the foowng:
S C. 303. OINT ND SUR I OR NNUITI S R NU CT
OF 1951, PPRO D OCTO R 20, 1951 .

(b) mendment or Secton 113(a) (5). Secton 113(a)(5) s
amended by addng nt the end thereof the foowng: For the purposes
of ths paragraph, the survvor s nterest n a |ont and survvor s an-
nuty sha be consdered to be property acqured by bequest, devse, or
nhertance from the decedent f the death of the decedent was after
December 31, 1950, and f the vaue of any part of such nterest was re-
qured to be ncuded n determnng the vaue of the decedent s gross
estate under secton 11.
(c) ffectve Dates. The amendments made by ths secton sha
be appcabe to ta abe years endng after December 31, 1950.
Par. 7. Secton 29.113(a) (5)-, as amended by Treasury Decson
50 7 C. . 1919-1,9 , approved February 16,19 9, s further amended
by addng at the end thereof the foowng:
(ft) ont and survvor annutes. If, wth respect to an annutant who
des after December 31, 1950, the vaue of any part of a survvor s nterest n
a |ont and survvor s annuty s requred to be ncuded n the gross estate
of the deceased annutant (whether or not such estate e ceeds 60,000 so as
to requre the fng of an estate ta return under secton 037), the bass of
such nterest to the survvor annutant s consdered to be the vaue at the tme
of the decedent s death. s to the ta abty of survvor annuty payments
In accordance wth ths rue, see secton 29.22(b) (2)-2.
Par. . Secton 29.105-6, as amended by Treasury Decson 5S53,
s further amended as foows:
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I
Regs. I, 29.22(b) (2)-5.
( ) y strkng the frst sentence of the thrd paragraph and sub-
sttutng n eu thereof the foowng:
cept as provded In secton 29.22(b) (2)-2, f penson or annuty payments
are contnued after the death of a retred empoyee to hs benefcary, such
benefcary w be requred to ncude such penson or annuty payments n
Income to the same e tent that the deceased empoyee woud have been requred
to ncude such payments n ncome had he ved to receve such payments.
( ) y addng at the end thereof the foowng new paragraph:
See aso secton 29.22(b) ()-2 as to the mted e cuson from ncome of
death benefts made by or on behaf of an empoyer n pursuance of an e press
contract and pad by reason of the death of an empoyee.
(Ths Treasury Decson s ssued under the authorty contaned n
sees. 62 and 3791 of the Interna Revenue Code (53 Stat. 32, 67;
26U. S. C. 62,3791).)
O. Gordon Dek,
ctng Commssoner of Interna Revenue.
pproved une 17, 1953.
M. . Fosom,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster une 19,1903, : 51 a. m.)
Reguatons 111, Secton 29.22(b) (2)-2: n-
nutes.
INT RN L R NU COD
enefts receved as an annuty that vary n amount wth an n-
crease or decrease n the market vaue of the assets from whch such
benefts are pad, or vary wth the fuctuatons of a specfed and gen-
eray recognzed cost-of-vng nde . (See Rev. Ru. 1 5, p. 202.)
Reguatons 111, Secton 29.22(b) (2)-5: m- Rev. Ru. 1 1
poyees annutes.
( so Secton 1 7, Secton 29.1 7-2; Secton
1 26, Secton 0 .227, Reguatons 12 ; Sec-
ton 1621, Secton 05.101, Reguatons 116.)
nterna revenue code
n amount pad by an empoyer e empt from Federa ncome ta
under secton 101(6) of the Interna Revenue Code as an nsurance
premum for the purchase of an annuty contract of the type referred
to n secton 22(b) (2) ( ) of the Code s not requred to be ncuded
n the ncome of the empoyee for whom the annuty s purchased.
The empoyee w be ta ed upon the bass of the amounts he actuay
receves under the annuty contract and at the tme he receves such
annuty payments. The payment of the nsurance premum by the
empoyer does not fa wthn the meanng of the term wages as
denned n secton 1621 of the Code or secton 1 26(a) (3) of the Fed-
era Insurance Contrbutons ct. Therefore, such payment s not
sub|ect to wthhodng ether for Federa empoyment or ncome ta
purposes. The empoyer s not requred to fe an nformaton return,
Form 1099, under secton 1 7 of the Code, wth respect to such
payment.
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Tegs. I, 29.23(a)-. 112
Reguatons 111, Secton 29.22(b) (2)-5: m-
poyees annutes.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. 6033, p. 203.)
Reguatons 111, Secton 29.22(b) (2)-5: m-
poyees annutes.
INT RN L R NU COD
enefts receved under an annuty contract purchased for an em-
oyee by an empoyer e empt under secton 101(6) of the Interna
;evenue Code. (See Rev. Ru. 1 5, p. 202.)
S CTION 22(n). GROSS INCOM : D FINITION OF
D UST D GROSS INCOM
Reguatons 111, Secton 29.22(n)-: d|usted
gross ncome.
INT RN L R NU COD
Transportaton e penses of empoyees workng on a temporary con-
structon pro|ect ocated at a dstance from ther reguar pace of
empoyment. (See Rev. Ru. 190, p. 303.)
S CTION 23(a). D DUCTIONS FROM GROSS
INCOM : P NS S
Reguatons 111, Secton 29.23 (a) -1: usness Rev. Ru. 131
e penses.
( so Secton 29.23(a)-13; Secton 22(a), Sec-
ton 29.22 (a)-1.)
INT RN L R NU COD
mounts contrbuted by the ta payer to promote the rehabta-
ton of ts empoyees and ther fames who sustaned n|ures or
damages n a tornado are deductbe as ordnary and necessary bus-
ness e penses under secton 23(a) (1) ( ) of the Interna Revenue
Code. Snce such contrbutons are not reated to servces rendered
but are based soey on need, they do not consttute ncome to the
empoyees for Federa ncome ta purposes.
dvce s requested reatve to the status, for Federa ncome ta
purposes, of amounts contrbuted by the nstant ta payer to promote
the rehabtaton of ts empoyees and ther fames, who were n|ured
or sustaned damages to ther property as a resut of a tornado.
The ta payer corporaton s one of the argest empoyers n the
dsaster area. Most of ts empoyees, who ved n resdenta com-
muntes hardest ht by the tornado, suffered mmedate osses ncud-
ng ves of famy members, n|ures, and severe property damage e -
tendng, n some nstances, to the compete destructon of ther homes.
undreds of automobes and other tems of persona property were
ether competey or partay destroyed. dsaster commttee was
created mmedatey after the dsaster, by a resouton of the board of
drectors of the corporaton, to assst n the rehabtaton of ts em-
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113 Regs. I, 29.23(a)- .
poyees and ther fames. fund tentatvey set at 500a; doars was
estabshed from whch contrbutons are to be made to empoyees and
ther fames and pensoners. No payment from the fund s to be
made by the commttee for n|ures resutng from any act of the cor-
poraton nor for any n|ures normay occurrng n the course of
empoyment. The payments, whch are to be made to empoyees who
are not drectors or offcers of the corporaton, are for purposes of
rehabtaton not actuay compensated for by nsurance or other
sources, and are to be made wthout regard to ength or type of servce.
Secton 23(a)(1)( ) of the Interna Revenue Code provdes n
part that n computng net ncome there sha be aowed as deductons
the ordnary and necessary e penses pad or ncurred durng the
ta abe year n carryng on any trade or busness, . Secton
29.23(a)-13 of Reguatons 111 provdes n pertnent part that Dona-
tons to organzatons other than those descrbed n secton 23 (q) whch
bear a drect reatonshp to the corporaton s busness and are made
wth a reasonabe e pectaton of a fnanca return commensurate wth
the amount of the donaton may consttute aowabe deductons as
busness e penses.
The mantenance of the goodw of a communty n whch a busness
enterprse has ts estabshment, s of prme mportance to the enter-
prse because of the effect on ts progress and on ts ncome. Moreover,
snce the communty s generay the source of abor suppy, a vta
consderaton s the morae of the empoyees n ther own communty.
These and ke consderatons ead to the concuson that amounts e -
pended by way of rehabtaton of empoyees for n|ures and damages
sustaned n a ma|or dsaster have a drect bearng on the retenton
of the empoyer s goodw and the morae of the empoyees, whch n
turn are essenta to the successfu conduct of the busness. It s ac-
cordngy hed that such amounts, e pended or propery accrued, w
be aowabe as ordnary and necessary busness e penses under secton
23(a) (1) ( ) of the Interna Revenue Code. (See Cornng Gass
Works v. Lucas. 37 Fed. (2d) 79 ; Sugarand Industres v. Comms-
soner, 15 . T. . 1265, acquescence, C. . I11-2, 50; and Saymaker
Lock Co. v. Commssoner, 1 T. C. 1001, acquescence, page 0, ths
uetn.)
The nstant contrbutons, whch are not reated to servces rendered
and are not measured by ength of servce or type of empoyment, are
to be made to empoyees, not ncudng drectors and offcers, who be-
cause of ther reatonshp wth the corporaton turn naturay to t
for hep. Such contrbutons, measured soey by need, are consdered
gratutous and spontaneous. The ob|ectve of the corporaton s to try
to pace the empoyees n the same economc poston, or as near to t
as possbe, whch they had before the casuay. In the ght of these
consderatons, t s hed that the payments n queston do not come
wthn the concept of gross ncome under the provsons of secton
22(a) of the Code and therefore shoud not be ncuded n the gross
ncome of the recpents for Federa ncome ta purposes.
In computng casuaty oss deductons, the recpents of the rehab-
taton payments shoud take them nto consderaton to the e tent that
such amounts are used by them as rembursement for or repacement of
property damaged or destroyed, n addton to rembursement from
other sources. If the rembursements shoud e ceed the recpent s
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Regs. I, 29.23(a)-13.
11
bass n the property pror to the casuaty, the amount of the e cess
cannot be used to ncrease the bass of the property.
Reguatons 111, Secton 29.23 (a)-1: usness Rev. Ru. 210
e penses.
( so Secton 22(a), Secton 29.22(a)-3.)
INT RN L R NU COD
n empoyer purchased an ndvdua accdent nsurance pocy for
each of ts saesmen and w contnue to pay the premums thereon.
Such poces provde an accdenta death beneft and weeky ndemnty
for tota dsabty. The empoyer retaned no ncdent of owner-
shp n the poces and the empoyees have fu rghts, benefts, and
prveges thereunder, ncudng the rght to name the benefcary.
ed, (1) the premums pad by the empoyer on the ndvdua acc-
dent nsurance poces purchased for ts saesmen are aowabe deduc-
tons under secton 23(a) (1) ( ) of the Interna Revenue Code, and
(2) the premums pad on such poces consttute ta abe ncome to
the saesmen under secton 22(a) of the Code.
Reguatons 111, Secton 29.23(a)-: usness
e penses.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. 602 , p. 100.)
Reguatons 111, Secton 29.23(a)-: usness
e penses.
nterna revenue code
mount contrbuted by ta payer corporaton for purpose of con-
structng a hospta budng to be used by ts empoyees. (See Rev.
Ru. 1G0, beow.)
Reguatons 111, Secton 29.23(a)-: usness
e penses.
INT RN L R NU COD
Transportaton e penses of empoyees workng on a temporary con-
structon pro|ect ocated at a dstance from ther reguar pace of
empoyment. (See Rev. Ru. 190, p. 303.)
Reguatons 111, Secton 29.23(a)-13: Cor- Rev.Ru.GO
porate contrbutons.
( so Secton 29.23 (a)-.)
INT RN L R NU COD
n amount contrbuted by a corporaton to Its mpoyees os-
pta ssocator for the purpose of constructng a hospta budng
to be used by ts empoyees s deductbe as an ordnary and neces-
sary busness e pense under secton 23(a) (1) ( ) of the Interna
Revenue Code.
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115
Regs. I, 29.23(a)-13.
dvce s requested whether an amount contrbuted by the ta payer
corporaton to ts mpoyees ospta ssocaton for the construc-
ton of a new hospta budng, tte and compete ownershp of whch
w be n the assocaton, s deductbe as an ordnary and necessary
busness e pense under secton 23(a) of the Interna Revenue Code.
In the nstant case the mpoyees ospta ssocaton, an unn-
corporated assocaton of the ta payer corporaton s empoyees,
e empt from Federa ncome ta under the provsons of secton
101( ) of the Code, operates the present hospta, whch s owned by
the ta payer corporaton, for the beneft of ts members who are en-
tted to medca, surgca, and hospta servces wthout charge. The
assocaton derves ts ncome from assessments on the corporaton s
offcers and empoyees who are requred to become members of the
assocaton and revenue from outsde patents. Dependents of mem-
bers are treated at ess than the reguar rates to nonmembers. Snce
there are no other hosptas ocated n the communty nor wthn a
radus of 50 mes, outsde patents are admtted to the hospta, but
are requred to pay reguar hospta rates. The assocaton aso as-
sumes a responsbty to the varous wefare organzatons n that
part of the State for tha care and treatment of ndgent patents. The
present hospta factes have been found to be nadequate for the
proper care of the corporaton s empoyees. ccordngy, the asso-
caton has purchased from the corporaton at current market vaues,
the vacant and ad|onng the present hospta for the purpose of
constructng a new hospta budng thereon. The corporaton has
contrbuted to the assocaton an amount of money estmated as neces-
sary to construct such budng, however, that contrbuton was ess
than 3 percent of net ncome after ta es. Tte and compete owner-
shp of the new budng w be n the assocaton. The queston pre-
sented s whether the amount contrbuted by the corporaton s de-
ductbe from the gross ncome of the corporaton as an ordnary and
necessary busness e pense under the provsons of secton 23(a) of
the Code.
Secton 23(a) (1) ( ) of the Code provdes n part that n com-
putng net ncome there sha be aowed as deductons the or-
dnary and necessary e penses pad or ncurred durng the ta abe
year n carryng on any trade or busness, . Secton 29.23(a)-
13 of Reguatons 111 provdes n pertnent part that Donatons to
organzatons other than those descrbed n secton 23(q) whch
bear a drect reatonshp to the corporaton s busness and are made
wth a reasonabe e pectaton of a fnanca return commensurate wth
the amount of the donaton may consttute aowabe deductons as
busness e penses.
The courts have consstenty aowed deductons for cash contrbu-
tons made by ta payers n the nterest of securng addtona hospta
factes whch tend to promote the genera we-beng and wefare of
ther empoyees. In the case of Sugarand Industres v. Comms-
soner, 15 . T. . 1265, acquescence, C. . III-2, 50, where smar
crcumstances were nvoved, the oard of Ta ppeas hed that
the ta payer was entted to deduct the fu amount of ts contrbuton
for the erecton of a hospta as an ordnary and necessary busness
e pense pursuant to secton 23 (a) (1) of the Revenue ct of 191 ,
whch corresponds to secton 23(a) (1) ( ) of the Code cted above.
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Regs. I, 29.23(c)- .
116
In determnng that ths amount represented an ordnary and neces-
sary e pense of the busness, the oard ponted out that the ta payer
n makng the e pendture made t as a busness proposton
wheren the e pendture represented a consderaton for a benet fow-
ng drecty to t and as an ncdent to ts busness.
Smar concusons were reached by the courts n other cases where
the facts were anaogous to those n the nstant case. (See Cornng
Gass Works v. Lvcas, 37 Fed. (2d) 79 ; ppea of Ponsett Mk,
1 . T. . 6; acquescence, C. . I11-2, 2, Frankn Ms v. Com-
mssoner, 7 . T. . 1290, acquescence, C. . III-2,1 ; We Coth-
ng Co. v. Com nssoncr, 13 T. C. 73, acquescence, C. . 1950-1, 5:
and Saymaker Lock Co. v. Commssoner, 1 T. C. 1001, acquescence,
p. 6, ths uetn. See aso I. T. 2G53, C. . I-2,9 .)
In vew of the foregong, t s hed that an amount contrbuted by
a corporaton to ts mpoyees ospta ssocaton for the purpose
of constructng a hospta budng for the use of ts empoyees, tte
and compete ownershp of the hospta budng to be n the assoc-
aton, s deductbe as an ordnary and necessary busness e pense
under secton 23(a) (1) ( ) of the Interna Revenue Code.
Reguatons 111, Secton 29.23(a)-13: Cor-
porate contrbutons.
INT RN L R NL COD
mounts contrbuted by ta payer for purpose of rehabtatng
empoyees after ma|or dsaster. (See Rev. u. 131, p. 112.)
S CTION 23(c). D DUCTIONS FROM GROSS
INCOM : T S G N R LLY
Reguatons 111, Secton 29.23 (c)-1 : Ta es. Rev. Ru. 1 2
INT RN L R NU COD
The ta on sprtous dsted quors mposed by secton 1 - 5 of
the Genera Statutes of North Carona of 19 3, as amended, consttutes
a reta saes ta wthn the meanng of secton 23(c) (3) of the
Interna Revenue Code, and to the e tent that such ta s added to
the saes prce of the quor and pad by the purchaser (other than n
connecton wth hs trade or busness) t s deductbe by hm n ar-
rvng at hs net ncome for Federa ncome ta purposes.
The ta es mposed on fortfed wnes and those on beer, ae, etc.,
by sectons 1 - 5.1 and 1 - 1, respectvey, of the above statutes,
as amended, are mposed upon the manufacturer, dstrbutor, or
retaer and are not reta saes ta es wthn the meanng of secton
23(c) (3) of the Interna Revenue Code. owever, such ta es may be
deducted under secton 23(c)(1) of the Code by the manufacturer,
dstrbutor, or retaer who purchases and aff es the ta stamps,
crowns, or ds to the contaners n whch such beverages are sod.
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117
Reps. I, 29.23(0-1.
Reguatons 111, Secton 29.23 (c)-: Ta es. Rev. Ru. 192
INT RN L R NU COD
The Pennsyvana State cgarette stamp ta mposed by the Cga-
rette Ta ct, 72 P. S. sectons 315 -3167 (Purdon s Pennsyvana
Statutes nnotated), s not a ta upon the retaer or upon the con-
sumer and may not be deducted by the consumer, for Federa ncome
ta purposes, under secton 23(c) of the Interna Revenue Code.
Reguatons 111, Secton 29.23(c)-2: Federa
dutes and e cse ta es.
nterna revenue code
Reguatons 111 amended. (See T. D. 602 , p. 100.)
S CTION 23(d). D DUCTIONS FROM GROSS INCOM :
T S ON S R OLD R P ID Y CORPOR TION
Reguatons 111, Secton 29.23(d)-: Ta on
bank or other stock.
nterna revenue code
Doube aowance of Pennsyvana ta mposed on bank shares.
(See Ct. D. 1762, p. 39.)
S CTION 23(e). D DUCTIONS FROM GROSS INCOM :
LOSS S Y INDI IDU LS
Reguatons 111, Secton 29.23(e)-5: Losses
of farmers.
nterna revenue code
Loss of vestock due to natura causes. (See Rev. Ru. 195, p. 1G9.)
S CTION 23(f). D DUCTIONS FROM GROSS INCOM :
LOSS S Y CORPOR TIONS
Rkguatons 111, Secton 29.23 (f )-: Losses Ct. D. 1761
by corporatons.
INCOM T INT RN L R NU COD D CISION OF COURT
1. Gross Income Deductons Capta Loss ssocated Press
Membershp Dmnuton n aue by Reason of Supbeme
Court Decson.
Ta payer, a pubsher of a newspaper and a member of the sso-
cated Press, dd not sustan a deductbe capta oss under secton
23(f) of the Interna Revenue Code by reason of the decson of the
Supreme Court of the Unted States n the case of ssocated Press
v. Unted States, 326 U. S. 1, whch hed ega, under the Sherman
nt-Trust ct, the byaws of the ssocated Press whch granted
ta payer as a member thereof an e cusve membershp n the asso-
caton and the e cusve rght to ssocated Press servces n the
communty. though t may be conceded that the decson by the
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Regs. I, 29.23(f)- .) 11
Supreme Court effected a dmnuton In vaue of the ssocated
Press membershp, the present membershp st enabes the ta -
payer to receve a the servces therefrom that t receved before
such decson. So ong as the membershp s beng retaned and used
In the busness, n the same way, for the same purposes and wth the
same benefca resuts, t cannot be sad to have no vaue.
2. Decson ffrmed.
Decson of The Ta Court of the Unted States, 1 T. C. 6 (1952)
affrmed.
3. Certorar Dened.
Petton for certorar dened on une 15,1953.
Unted States Court of ppeas, Tekth Crcut
The Reporter Pubshng Company, Inc., pettoner, v. Commssoner 0/
Interna Revenue, respondent
On petton to revew the decson of The Ta Court of the Unted States
efore ratton, u man, and Murrah, Unted States Crcut udges
anuary 30, 1953
opnon
u man, Crcut udge.
The queston presented for our consderaton Is whether the appeant ta payer
sustaned a deductbe capta oss for ncome ta purposes by reason of the
decson of the Supreme Court of the Unted States n ssocated Press v. Unted
States, 326 U. S. 1, hodng ega the byaws of the ssocated Press grantng to
appeant as a member thereof an e cusve membershp n the assocaton and
t e e cusve rght to ssocated Press servces n ts communty. The Ta
Court n a decson revew by the fu court unanmousy hed that no deductbe
oss was sustaned and the ta payer has appeaed.
On March 1, 19 0, ta payer purchased the assets of the Independence Day
Reporter, a day newspaper pubshed at Independence, ansas, for a tota con-
sderaton of 150,000. bond ssue was necessary to fnance the purchase of the
paper. Incuded n the assets was a membershp n the ssocated Press whch
was vaued by the engneer for the brokerage frm handng the bond Issue at
70,735. The ssocated Press membershp under the byaws e stng at that
tme entted the ta payer to the e cusve news gatherng factes of the
ssocated Press. Wthout appeant s consent, no competng paper n ts terr-
tory coud obtan suc a membershp and the benefts fowng therefrom. The
ta payer assgned a vaue of 79,73 .67 to the ssocated Press membershp on
ts books.
In ts decson the Supreme Court hed that the byaws of the ssocated Press
reatng to the condtons under whc new members mght be admtted n terr-
tory where a newspaper hed such a membershp were Iega because they
unawfuy restraned trade n voaton of the Sherman nt-Trust ct.1 The
effect of the decson was to prohbt any restrcton upon a new membershp
based soey upon the status of the new member wth respect to competton
wth an e stng membershp.
Foowng the decson by the Supreme Court, the ta payer reduced the vaue
of ts membershp on ts books from 79,73 .67 to 50,000 and took n ts ncome
ta return for the fsca year In queston a deducton of the dfference of
29,73 .67 from Its gross Income as a oss sustaned In that year, resutng from
such decson. The Commssoner dsaowed the deducton and mposed re-
sutng defcences n ta . efore the Ta Court the ta payer took the poston
that the decson of the Supreme Court competey destroyed the vaue of the
capta asset consstng of the ssocated Press membershp; that ts tota vaue
as refected on ts books shoud have been deducted and that the ta accountant
who prepared the return faed to take the fu deducton because he dd not
reaze the ega effect of the decson. That was ts poston before the Ta
Court and was the theory on whch the case was tred and decded and that s
the poston t takes on ths appea.
26 Stat. 209, 15 D. S. C. . 1, ct soq.
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119
Regs. I, 29.23(f)- .
There s no dspute n the appcabe prncpes of ncome ta aw reatng to
capta gans and capta osses or to the factors that must e st before one s
chargeabe wth a capta gan or may take the beneft of a capta oss as a
deducton from gross ncome. ta payer s not chargeabe wth a capta gan
resutng from an enhanced vaue of a capta asset whe t s st beng used
n the busness; nether may he take a deducton from gross ncome because of
the dmnuton n vaue of such an asset whe t s st a part of the busness
and s beng used n the busness. Snce there s no confct n the decsons wth
respect to these prncpes of aw, ctng numerous decsons n support thereof
woud be superfuous and add nothng of vaue to the opnon.
Secton 29.23(e)- promugated under the Interna Revenue Code and made
appcabe to corporatons by secton 29.23 (f)- provdes that osses for whch
an amount may be deducted from gross ncome must be evdenced by cosed and
competed transactons, f ed by dentfabe events, bona fde and actuay
sustaned durng the ta abe perod for whch aowed. Substance and not mere
form w govern n determnng deductbe osses. nd secton 29.23(e)-3 so
far as matera provdes that when the usefuness n the busness of some or a
of the assets s suddeny termnated, so that the ta payer dscontnues the bus-
ness or dscards such assets permanenty from use n such busness, he may
cam as oss for the year n whch he takes such acton the dfference between
the bass and the savage vaue of the property.
These reguatons mpementng the statute make t cear that before one may
take a capta oss deducton the capta asset must be qudated, generay by
sae, or n event by some defntey dentfabe event or, f ts usefuness n the
busness has been destroyed and t s not sod, t must be permanenty dscarded
from use n the busness.
Snce deductons from gross ncome are matters of egsatve grace, one who
seeks the beneft thereof must brng hmsef ceary wthn the statute or an
effectve reguaton authorzng the deducton.2 In ne wth these prncpes
t has been hed consstenty that a deducton under the statute and reguaton
n queston may be camed ony when there s a cosed transacton durng the
ta abe year, generay evdenced by a sae of the asset or abandonment of the
asset as competey worthess.
For the purpose of the opnon, It may be conceded that the decson by the
Supreme Court effected a dmnuton n vaue of the ssocated Press member-
shp. It s no doubt much ess desrabe snce the hoder thereof may no onger
prevent a compettor from havng such a membershp. ut ths s a far cry
from sayng that t s vaueess. The present membershp st enabes the
ta payer to receve a the servces therefrom that he receved before the decson
by the Supreme Court. If t dd not hod ths membershp, t woud be serousy
handcapped n the conduct of ts busness. If t dd not hod such membershp
and apped for one, t woud be requred to pay an nta charge n addton to
the reguar charges for the servces furnshed and, f the ta payer sod hs bus-
ness and transferred the membershp wth t, the purchaser kewse woud be
entted to fu benefts of the membershp wthout the payment of nta fees,
whch otherwse woud be requred. There are other eements of vaue n the
ownershp of ths membershp whch need not, however, be speed out because
n any event appeant has not brought tsef wthn the statutory provsons en-
ttng t to the camed deducton. The best evdence of vaue s found n the
fact that appeant contnues to use the membershp n the same way and wth
the same benefts as before the decson by the Supreme Court. If the member-
shp had no vaue or utty, t woud be a smpe matter to surrender t and em-
nate t entrey from the busness. Then appeant woud be entted to the
camed deducton. ut so ong as the membershp s beng retaned and used
n the busness, n the same way, for the same purposes and wth the same
benefca resuts, t cannot be sad to have no vaue.
We thnk the concusons reached by us fnd support n the case of Consodated
Freght Lnes v. Commssoner, 101 F. 2d 13 Ct. D. 1 21, C. . 1939-2, 20G .
There the monopostc rghts of a certfcate of pubc convenence and necessty
for whch a vauabe consderaton had been pad were conferred by statute.
Interstate Transt Lnes v. Commssoner, 19 T . S. 590 Ct. D. 15 . C. . 19 3. 101 ;
Commssoner of Interna Revenue v. Thompson (10th Cr.), 193 F. 2d 5 6 Ct. D. 17 ,
C. . 1952-1, 26 : Chcago Mnes Co. v. Commssoner (10th Cr.), 16 F. 2d 7 5; aes-
Uuay . Commssoner (10th Cr.), 131 F. 2d 509.
Pugh . Commssoner, 9 F. 2d 76; Commssoner . McCarthy, 129 F. 2d ; In re
Rae s state, 1 7 F. 2d 20 ; Lousana Land and poraton Co. v. Commssoner, 161 F.
2d 2.
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Regs. I, 29.23(m)-. 120
statute subsequent to the purchase of the certfcate aboshed and wped oat
the monopostc features of the certfcate. It was contended, as here, that ths
destroyed the vaue of the certfcate and entted the ta payer to a capta oss
deducton. Whe the facts are not dentca wth the facta In ths case, we
thnk the court s concuson that the destructon of the monopoy resuted ony
n a dmnuton of vaue of the certfcate s equay appcabe here.
ffrmed.
S CTION 23 (k). D DUCTIONS FROM GROSS
INCOM : D D TS
Reguatons 111, Secton 29.23(k)-5: Reserve Rev. Ru. 1 2
for bad debts.
nterna revenue code
budng and oan assocaton whch, pursuant to secton 313 of
the Revenue ct of 1951, s sub|ect to ncome ta for ta abe years
begnnng after December 31, 1951, has surpus, undvded profts,
and reserves at the begnnng of a gven ta abe year aggregatng
ess than 12 percent of ts tota wthdrawabe accounts outstandng
at the year s end. fter havng aocated the requste amounts out
of tota ncome to meet operatng e penses and pay dvdends on
wthdrawabe savngs accounts, t credted the baance (1) to reserves
estabshed soey for the purpose of absorbng osses, and (2) to und-
vded profts avaabe for dvdend dstrbuton. The amounts cred-
ted to the reserve for absorbng osses are mandatory under Federa
and State statutes, reguatons, or supervsory orders, and the baance,
credted to undvded profts, comprses an amount whch, f otherwse
credted as an addton to the reserve for osses or as a credt to a re-
serve mantaned for bad debts, woud be permssve under such stat-
utes, reguatons, or orders. ed, the amount of ncome so aocated to
undvded profts under crcumstances not forecosng ts avaabty
for dvdend dstrbuton w not be deemed to have been credted to
the bad debt reserve or smar accounts referred to n secton
29.23(k)-5(b) (3) of Reguatons 111, and such amount s not deduct-
be from gross ncome. ddtona credts to reserves of the type con-
tempated n secton 29.23(k)-5(b) (3) () furnsh addtona protec-
ton aganst oss to the depostors or owners of wthdrawabe accounts
and are treated as deductons for ncome ta purposes. ccordngy,
the amount of ncome aocated to undvded profts s sub|ect to Fed-
era ncome ta and, under the crcumstances here ndcated, const-
tutes net ncome for the purpose of computng the 5 percent mtaton
on chartabe and other contrbutons aowabe as a deducton under
secton 23 (q) of the Interna Revenue Code.
S CTION 23 (m). D DUCTIONS FROM GROSS
INCOM : D PL TION
Reguatons 111, Secton 29.23 (m)-: Depeton T. D. 6031
of mnes, o and gas wes, other natura deposts,
and tmber; deprecaton of mprovements.
( so Secton 11 , Secton 29.11 -1; Secton 53,
Secton 0. 53-2, Reguatons 130.)
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121 Regs. I, 29.23(m)-.
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 29 ND
P RT 0
Reguatons 111 and Reguatons 130 amended to conform to sec-
ton 319 of the Revenue ct of 1951, and to Pubc Law 69 ( 2d
Cong., 2d sess).
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. 0.
To Offcers and mpoyees of the Interna Revenue Servce and
Others Concerned:
On October 29, 1952, notce of proposed ruemakng wth respect
to amendments conformng the ncome ta and e cess-profts ta regu-
atons to secton 319 of the Revenue ct of 1951, approved October
20, 1951, and to Pubc Law 59 , ghty-second Congress, second
sesson, approved uy 21,1952, was pubshed n the Federa Regster
(17 F. R. 97 5). fter consderaton of such reevant suggestons as
were presented by nterested persons regardng the proposas, the
foowng amendments to Reguatons 111 26 CFR, pt. 29 and
Reguatons 130 26 CFR, pt. 0 are hereby adopted:
R GUL TIONS 111
Paragraph 1. Secton 29.23(m)-(/), as amended by Treasury
Decson 6021, approved une 1 , 1953 26 CFR 29.23(m)-(f) , s
further amended as foows:
( ) y nsertng n (3) of the ffth paragraph thereof mmedatey
after the word snterng the foowng (aggomeratng by n-
cpent fuson) ;
( ) y substtutng n ( ) of the ffth paragraph thereof the
word mneras for the word ores whch precedes the phrase
whch are not customary sod ;
(C) y substtutng n ( ) of the ffth paragraph thereof the word
mnera for the word ore whch appears at the end of the frst
sentence; and
(D) y nsertng mmedatey foowng the ffth paragraph
thereof the foowng new undesgnated paragraphs:
In addton, the processes sted beow are not ncuded n the term ordnary
treatment processes uness such processes are () otherwse provded for n
(1), (2), (3), or ( ) above; () necessary or ncdenta to the processes pro-
vded for n (1), (2), (3), or ( ) above; or () necessary to brng the ores
or mneras nto condton or form sutabe for shpment (for e ampe, the ag-
gomeraton of concentrates) :
( ) treatment effectng a chemca change,
( ) bendng wth other matera,
(C) therma acton,
(D) fne puverzaton, pressng nto shape, or modng.
For the purposes of (3) and ( ) above, the terms concentraton or con-
centratng mean the process of emnatng waste or of separatng two or more
mneras or ores.
Par. 2. Secton 29.23 (m) -3, as amended by Treasury Decson
56 5, approved uy 20, 19 26 CFR 29.23(m)-3 , s further
amended by substtutng for the headng and frst two sentences of the
frst paragraph the foowng:
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Regs. I, 29.23(m)-.
122
Sec. 29.23(m)-3. Computaton of Depeton of Mnes and Otheb Natura
Deposts (Otheb Than Those n Respect of Whch Pebcentaqe Depeton
s owabe) on ass of Dscovery aue. The bass on whch depeton s to
be computed n the case of mnes and other natura deposts (other than those n
respect of whch depeton s aowed on the bass of percentage of ncome under
secton 29.23(m)-5) dscovered by the ta payer after February 2 , 1913, s the
far market vaue of the property at the date of dscovery or wthn 30 days
thereafter, f such mnes or deposts were not acqured as the resut of purchase
of a proven tract or ease, and f the far market vaue of the property 3
materay dsproportonate to cost. Such bass may not be used n the case of
the mnes or deposts sted under secton 29.23 (m)-5 for any perod n respect to
whch depeton on the bass of percentage of ncome s aowabe.
Par. 3. Secton 29.23 (m)-5, as amended by Treasury Decson 56 5
26 CFR 29.23(m)-5 , s further amended as foows:
( ) y substtutng for the headng and the frst sentence of the
frst paragraph the foowng: .
Sec 29.23(m)-5. Computaton of Depeton ased on Percentage of Income
n Case of Certan Mnes ob Otheb Natura Deposts. In the case of the
mnes or other natura deposts sted herenafter, a ta payer may deduct for
depeton under secton 11 (b)( )( ) amounts equa to the foowng per-
centages of the gross ncome from the property durng the perods Indcated
beow:
Ta abe ftm
Mne or derot Percent begnnng ater
pte 15 0)
sbestos - 10 m
arte -- - --- 15 Dee. 31,19 3
au te 15 Dec. 31,19 6
entonte 15 Do.
ery 15 Dec. 31, 19 3
ora 15 ( )
romne - . 6
mcte. ...... 10
Cacum carbonates 10
Cacu m chorde . 5
Camshe 5
Cay, ba 15 Dec. 31,19 1
Cav, brck and te 5 ( )
Cay, chna 15 Dec. 31,19 6
Cay, refractory and fre 15 ( )
Cav, sagger 15 Dec. 31, 19 1
Coa 5 Do.
Coa 10 f )
Datomaceous earth . 15 ( )
Doomte 10 ()
Fedspar - 15 Dec. 31, 19 3
Fuorspar 15 Dec. 31, 19 1
Fuer s earth 15 ( )
Garnet 15 ( )
Gsonte -- - 15 Dec. 31, 19 6
Grante 5 ( )
Graphte, fake 15 Dec. 31, 19 2
Grave.. 5 ( )
Lepdote 15 Dec. 31,19 3
Lmestone, chemca grade 15 ( )
Lmestone, metaurgca grade 15 ( )
Magncste 10 ( )
Magnesum carbonates 10 ()
Magnesum chorde . k.. 5 ( )
Marbe 5 ( )
Mota mnes ..... .C 15 Dec. 31,19 1
Mca 15 Dec. 31,19 3
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123
IRegs. I, 29.23(m)-.
Mnt or pos
Ovstershes
Perte
Phosphate rock
Potash
Pumce
Pyrophte..
uartzte --
Rock asphat
Sand --
Scora
Shae -
Sate
Sodum chorde
Spodumene
Stone ---
Suphur -
Tac
Thenardte
Trpo -- ---
Trona -
ermcute
Woastonte
1 ffectve anuary 1,1951. For ta abe years begnnng before anuary 1,1951, and endng after Decem-
ber 31,1950, see beow.
Such deducton sha not n any ca e e ceed 50 percent of the net ncome of the
ta payer (computed wthout aowance for depeton) from the property.
y nsertng mmedatey foowng the frst paragraph the foow-
ng new paragraph:
For the purposes of ths secton, the mneras ndcated beow sha have the
foowng meanngs:
ora ny boron matera ncudng that
contaned n brnes.
romne romne f obtaned from brne wes.
Cacum carbonates Msceaneous mestones and other
cacum carbonate rocks (not spe-
cfcay provded for at a 5 percent
or 15 percent rate of percentage
aowance) such as cement rock and
mestone used or sod for use n
so treatment. Ths cassfcaton
does not ncude rock or mneras
used or sod for use as baast,
road makng, concrete aggregates,
or other purposes for whch chem-
ca composton s not a ma|or
requrement.
Cacum chorde Cacum chorde f produced from
brne wes.
Cay, brck, and te Cay used or sod for use n the
manufacture of common brck,
dran and roofng te, sewer ppe,
fower pots and kndred products
(other than cay specfcay dent-
fed as a cay for whch a 15 percent
rate of percentage aowance s
provded).
Ta abt vear
Percen b ||fnnn| after
10 ( )
15 Dec. 31, 19 6
15 Dec. 31,19 3
5 ( )
15 Dec. 31, 19 6
15 (0
15 Dec. 31,19 1
15 Dec. 31, 19 3
5 ( )
23 Dec. 31, 19 1
15 Dec. 31, 19 3
15 Dec. 31, 19 6
15 ( )
15 Dec. 31, 19 6
15 Dec. 31, 19 3
10 ( )
2 670 6 9
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Regs. I, 29.23(m)-.
12
Lmestone, metaurgca grade.
Coa
Lmestone, chemca grade
Magnesum chorde.....
coa ncudng gnte.
Lmestone used or sod for use n the
chemca trades.
Lmestone used or sod for use n the
producton of metas.
Magnesum chordes f produced
Phosphate rock.
Pumce
Scora
from brne wes.
ny phosphate ore.
pumce ncudng pumcte.
scora produced from natura
deposts.
common dmenson, crushed or
Stone
broken stone wthn the ordnary
Thenardte
meanng of these terms.
sodum sufate mneras, ncudng
Trona..
those contaned n brne.
sodum carbonate mneras ncud-
ng those contaned n brne.
(C) y nsertng mmedatey foowng the ast paragraph the
foowng new paragraphs:
In the case of a ta payer whose ta abe year began before anuary 1, 1951,
and ended after December 31, 1950, and who became entted to percentage de-
peton, or an ncrease theren, or whose bass for depeton changed on anuary
1,1951, the aowance for depeton for the ta abe year under ths secton s an
amount equa to the sum of:
(1) That porton of a tentatve aowance computed under the provsons
of ths secton (wthout regard to the amendments to secton 11 (b) ( ) ef-
fectve anuary 1, 1951), whch the number of days n such ta abe year
pror to anuary 1, 1951, bears to the tota number of days n such ta abe
year; pus
(2) That porton of a tentatve aowance computed under the provsons
of ths secton as though the amendments to secton 11 (b)( ), effectve
anuary 1,1951, were appcabe to the entre ta abe year, whch the number
of days n such ta abe year after December 31, 1950, bears to the tota
number of days n such ta abe year.
For ta abe years endng after December 31, 1950, percentage depeton s not
aowabe wth respect to any dsposa of coa to the e tent that such dsposa
s treated as a sae of coa under secton 117 (k) (2).
Par. . Secton 29.23(m)- 26 CFR 29.23(m)- s amended by
substtutng for the frst sentence of the frst paragraph the foowng :
No revauaton of a property whose vaue as of any specfc date has been de-
termned and approved w be made or aowed durng the contnuance of the
ownershp under whch the vaue was so determned and approved, e cept n the
case of a subsequent dscovery of nonmetac mneras n respect to whch de-
peton s not aowed on the bass of percentage of ncome under secton
29.23(m)- or 5, or of msrepresentaton or fraud or gross error as to any facts
known on the date as of whch the vauaton was made.
Par. 5. Secton 29.23(m)-10( ), as amended by Treasury Decson
56 5 26 CFR29.23(m)-10(d) s further amended to read as foows:
(d) In eu of the treatment provded for In paragraphs (a) and (6) above,
the owner of an economc nterest n mneras n respect of whch depeton s
aowed on the bass of percentage of ncome under secton 29.23(m)- or 5 may
take as a depeton deducton n respect of any bonus or advanced royaty from
the property for the ta abe year or perod for whch such deducton s aowabe
under such secton an amount computed on the bass of the percentages app-
cabe as ndcated n such sectons; but the deducton sha not n any case e ceed
50 percent of the net Income of the ta payer (computed wthout aowance for
depeton) from the property.
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125 IRegs. I, 29.23(n)-.
Pab. 6. Secton 29.23(m)-13(a), as amended by Treasury Decson
56 5 26 CFR 29.23 (m)-13 (a) s amended by substtutng for so
much of the frst paragraph as precedes (1), the foowng:
(o) There sha be attached to the return of every ta payer who cams de-
peton on the bass of percentage of ncome under secton 29.23(m)- or 5, a
statement contanng the foowng nformaton wth respect to every property
or whch percentage depeton Is aowabe:
Pab. 7. Secton 29.23(m)-1 (a), as amended by Treasury Decson
56 5 26 CFR 29.23(m)-1 (a) s further amended by substtutng
for the headng and so much of paragraph (a) as precedes the ast sen-
tence thereof the foowng:
Sec. 2 ).23(m)-1 . Dscovery of Mnes or Other Natura Deposts ( -
cept Those n Respect of Whch Percentage Depeton s owabe Under
Secton 29.23(m)-o). (a) To entte a ta payer to a vauaton of hs prop-
erty, for the purposes of depeton aowances, by reason of the dscovery of a
mne or mneras (other than those n respect of whch percentage depeton
s aowabe under secton 29.23(m)- or 5), t must appear that the mne or
mneras were not acqured as the resut of the purchase of a proven tract
or ease; aso the dscovery must be made by the ta payer after February 2 ,
1913, and must resut n the far market vaue of the property becomng ds-
proportonate to cost. For the purposes of ths secton, mnes or mneras sha
not be entted to vauaton upon the bass of dscovery for any ta abe year
or perod n respect to whch percentage depeton s aowabe under secton
29.23(mM or 5.
Par. . There s nserted mmedatey precedng secton 29.11 -1
26 CFR 29.11 -1 the foowng:
S C. 319. P RC NT G D PL TION R NU CT OF 1051,
PPRO D OCTO R 20, 1051 .
(a) owance of Percentage Depeton. So much of paragraph
( ) of secton 11 (b) as precedes the ast sentence of subparagraph
( ) Is hereby amended to read as foows:
( ) Percentage depeton for coa and meta mnes and for
cebtan other mnes and natura mnera deposts.
( ) In Genera. The aowance for depeton under sec-
ton 23(m) n the case of the foowng mnes and other natura
deposts sha be
() n the case of sand, grave, sate, stone (Incudng
pumce and scora), brck and te cay, shae, oyster she,
cam she, grante, marbe, sodum chorde, and, f from
brne wes, cacum chorde, magnesum chorde, and bro-
mne, 5 per centum,
() n the case of coa, asbestos, bructe, doomte,
magneste, perte, woastonte, cacum carbonates, and
magnesum carbonates, 10 per centum,
() In the case of meta mnes, apte, bau te, fuor-
spar, fake graphte, vermcute, bery, garnet, fedspar,
mca, tac (ncudng pyrophyte), epdote, spodumene,
barte, ba cay, sagger cay, chna cay, phosphate rock,
rock asphat, trona, bentonte, gsonte, thenardte, bora ,
fuer s earth, trpo, refractory and fre cay, quartzte,
datomaceous earth, metaurgca grade mestone, chem-
ca grade mestone, and potash, 15 per centum, and
(v) n the case of sufur, 23 per centum,
of the gross ncome from the property durng the ta abe year,
e cudng from such gross Income an amount equa to any rents
or royates pad or ncurred by the ta payer n respect of the
property.
(b) Technca mendment. So much of paragraph (2) of secton
11 (b) as precedes dscovered by the ta payer after February 2 ,1913
s hereby amended to read as foows:
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Regs. I, 29.23(m)-.
126
(2) Dscovert vaue n the case op mnes. In the case of
mnes (e cept mnes n respect of whch percentage depeton s
aowabe under paragraph ( ) at ths subsecton) .
(c) ffectve Date. The amendments made by ths secton sha
be appcabe ony wth respect to ta abe years begnnng after De-
cember 31,1950.
PU LIC L W 59 , IG TY-S COND CONGR SS, PPRO D
ULY 21, 1952
Sec. 5. Secton 319(c) of the Revenue ct of 1951 s amended to read as
foows:
(c) ffectve Date. The amendments made by ths secton sha be effec-
tve on and after anuary 1,1951.
Par. 9. Secton 29.11 -1, as amended by Treasury Decson 56 5
26 CFR 29.11 -1 , s further amended to read as foows:
Sec. 29.11 -1. ass for owance of Deprecaton ano Depeton. The
bass upon whch e hauston, wear and tear, obsoescence, and depeton w
be aowed n respect of any property s the same as s provded n secton
113(a), ad|usted as provded n secton 113(b), for the purpose of determnng
the gan from the sae or other dsposton of such property, e cept that as
provded n secton 29.23(m)-21 n the case of the cuttng of tmber whch s
consdered to be a sae or e change of such tmber under secton 117(k) (1),
the bass sha be the far market vaue of such tmber as of the frst day of
the ta abe year n whch t s cut; and e cept as provded n secton 29.23(m)-3
reatng to depeton based on dscovery vaue, n secton 29.23 (m) - reatng
to percentage depeton n the case of o and gas wes; n secton 29.23(m)-5
reatng to percentage depeton n the case of certan mneras wth respect to
the appcabe ta abe years or effectve date specfed theren, and n sectons
23(cc) (3) and 23(ff) ( ) reatng to bass for depeton for ta abe years endng
after December 31,1950.
R GUL TIONS 130
Par. 10. Secton 0. 53-2(h) of Reguatons 130 26 CFR 0. 53-2
(h) s amended by addng at the end thereof the foowng:
The nonmetac mneras referred to n sectons 53(a) (13) and 53(b) (2)
and ( ) sha be gven the meanngs set forth In secton 29.23(m)-5 of Regua-
tons 111.
Par. 11. Secton 0. 53-2(|) (3) of Reguatons 130, as amended
by Treasury Decson 600 26 CFR 0. 53-2(|) (3) , s amended as
foows:
( ) y nsertng n (C) of subdvson () mmedatey after
the word snterng the foowng: (aggomeratng by ncpent
fuson) ;
( ) y substtutng n (D) of subdvson () the words mn-
eras for the word ores whch precedes the phrase whch are not
customary sod ;
(C) y substtutng n (D) of subdvson () the word mnera
for the word ore whch appears at the end of the frst sentence; and
(D) y nsertng mmedatey foowng subdvson () the fo-
owng new undesgnated paragraphs:
In addton, the processes sted beow are not Incuded n the term ordnary
treatment processes uness such processes are (a) otherwse provded for n
( ), ( ), (C), or (D) above; (6) necessary or ncdenta to the processes pro-
vded for n ( ), ( ), (C), or (D) above; or (c) necessary to brng the ores or
mneras nto condton or form sutabe for shpment (for e ampe, the aggomer-
aton of concentrates):
( ) treatment effectng a chemca change,
(2) bendng wth other matera,
(3) therma acton,
( ) fne puverzaton, pressng nto shape or modng.
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127 Regs. I, 29.23(o)-.
For the purposes of (C) and (D) above, the terms concentraton or con-
centratng mean the process of emnatng, waste or of separatng two or more
mneras or ores.
(Ths Treasury Decson s ssued under the authorty contaned n
sees. 23 (m) and 62 of the Interna Revenue Code (53 Stat. 1 , 32;
26 U. S. C.23(m),62).)
T. Coeman ndrews,
Commssoner of Interna Revenue.
pproved uy 1 ,1953.
M. . Fosom,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster uy 17, 1953, : DO a. m.)
Reguatons 111, Secton 29.23 (m)-: Depeton
of mnes, o and gas wes, other natura deposts,
and tmber; deprecaton of mprovements.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. C021, p. 169.)
Reguatons 111, Secton 29.23(m)-: Depeton
of mnes, o and gas wes, other natura deposts,
and tmber; deprecaton of mprovements.
INT RN L R NU COD
Processes whch may be consdered mnng processes n the case
of ow-grade ron ores. (See Rev. Ru. 1 , p. 15 .)
S CTION 23(o). D DUCTIONS FROM GROSS INCOM :
C RIT L ND OT R CONTRI UTIONS
Reguatons 111, Secton 29.23 (o) -1: Contr- Rev. Ru. 1G2
butons or gfts by ndvduas.
nterna revenue code
Furnshng Wood for a transfuson, or to a bood bank s anaogous
to the renderng of a persona servce by the donor rather than a con-
trbuton of property and the far market vaue of bood donated
by an ndvdua to a chartabe nsttuton 3 not deductbe as a
chartabe contrbuton under secton 23 (o) of the Interna Revenue
Code.
dvce s requested whether the far market vaue of bood dona-
tons made to a chartabe nsttuton s deductbe as a chartabe
contrbuton under secton 23 (o) of the Interna Revenue Code.
Secton 23 (o) of the Interna Revenue Code provdes n part that
n computng net ncome there sha be aowed as deductons, n the
case of an ndvdua, contrbutons or gfts payment of whch s made
wthn the ta abe year to or for the use of a corporaton, trust, or
communty chest, fund, or foundaton organzed and operated e cu-
svey for regous, chartabe, scentfc, terary, or educatona pur-
poses, etc., of an amount not n e cess of 20 percent of the ta payer s
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Regs. I, 29.23(o)-. 12
ad|usted gross ncome. Secton 29.23(o)-, of Reguatons 111, pro-
mugated under secton 23(o) of the Code, provdes that f the con-
trbuton or gft s other than money, the bass for cacuaton of the
amount thereof sha be the far market vaue of the property at the
tme of the contrbuton or gft.
ccordngy, aowabe deductons are confned to donatons of
money and of thngs whch are generay thought of as beng com-
prehended by the term property as dstngushed from the vaue of
servces rendered. It has been a ong estabshed pocy of the Interna
Revenue Servce not to aow a deducton for the vaue of servces ren-
dered to chartabe nsttutons. See O. D. 712, C. . 3, 1 (1920).
The Comptroer Genera of the Unted States n consderng the ques-
ton of rembursement for bood transfusons has rued that a bood
transfuson nvoves the renderng of a persona servce by the donor
rather than the sae of a commodty. See 5 Comp. ( en. 65 and .
In vew of the foregong, t s hed that furnshng bood for a
transfuson or to a bood bank s anaogous to the renderng of a per-
sona servce by the donor rather than a contrbuton of property
and the far market vaue of bood donated by an ndvdua to a
chartabe nsttuton s not deductbe as a chartabe contrbuton
under secton 23 (o) of the Interna Revenue Code.
Reguatons 111, Secton 29.23(o)-: Contr- Rev. Ru. 19
butons or gfts by ndvduas.
INT RN L R NU COD .
Where a ta payer Irrevocaby transfers property to a trust to be
hed for a perod of 10 years and 10 days for the beneft of a char-
tabe foundaton meetng the requrements of secton 23(o)(2) of
the Interna Revenue Code, the ta payer s entted to a deducton of
the present vaue of the property nterest whch she contrbuted to
the trust, sub|ect to the mtatons provded by secton 23(o) of the
Code.
dvce s requested whether an ndvdua s entted to a deducton
under secton 23 (o) of the Interna Revenue Code for transfers whch
she made to a trust to be hed by the trust for a perod of 10 years and
10 days for the beneft of a chartabe foundaton.
In the nstant case the grantor rrevocaby transferred shares of
common stock to a trust to be hed for the beneft of a chartabe foun-
daton for a perod of 10 years and 10 days. t the e praton of that
perod of tme, the stock w be returned to the grantor (or her estate
n the event of her death) as her absoute property. The trust nstru-
ment provdes that durng the e stence of the trust a the ncome
from the corpus thereof sha beong absoutey to the foundaton.
The ncome of the trust s not ta abe to the grantor under the prov-
sons of Reguatons 111, secton 29.22(a)-21. The foundaton s
e empt under secton 101(6) of the Code as a chartabe organzaton.
Secton 23 of the Interna Revenue Code provdes n part as foows:
In computng net ncome there sha be aowed as deductons:

(o) Chartabe and Otheb Contrbutons. In the case of an ndvdua, con-
trbutons or gfts payment of whch Is made wthn the ta abe year to or for
the use of:
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129
Regs. I, 29.23( )-.
(2) a corporaton, trust, or communty chest, fund, or foundaton, created
organzed and operated e cusvey for regous, chartabe
purposes.

to an amount whch n a the above cases combned does not e ceed 20 per centum
of the ta payer s ad|usted gross ncome.
The phrase for the use of as used n secton 23 (o) (2) of the
Interna Revenue Code s ntended to convey a meanng smar to
n trust for and, where the benefcary of a trust meets the requre-
ments of that secton, the vaue of the nterest transferred n trust s
deductbe by the grantor n the manner and to the e tent theren
provded. See I. T. 37037, C. . 19 5, 11 , and the case of ohn Daw,
et a. v. Commssoner, 1 T. C, 5 , acquescence C. . 1952-2, 1.
ccordngy, t s hed that where a ta payer rrevocaby transfers
property to a trust to be hed for a perod of 10 years and 10 days
for the beneft of a chartabe foundaton meetng the requrements of
secton 23 (o) (2) of the Interna Revenue Code, the ta payer s en-
tted to a deducton of the present vaue of the property nterests
whch she contrbuted to the trust, sub|ect to the mtatons provded
by secton 23 (o) of the Code.
S CTION 23(p). D DUCTIONS FROM GROSS INCOM :
CONTRI UTIONS OF N MPLOY R TO N M-
PLOY S TRUST OR NNUITY PL N ND COMP NS -
TION UND R D F RR D-P YM NT PL N
Reguatons 111, Secton 29.23 (p)-: Contr-
butons of an empoyer to an empoyees
trust or annuty pan and compensaton under
a deferred-payment pan In genera.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. 6033, p. 203.)
Reguatons 111, Secton 29.23(p)-9: Contrbu-
tons of an empo3rer under an empoyees annuty
pan that meets the requrements of secton
165(a) ppcaton of secton 23(p)()( ).
INT RN L R NU COD
Penson pans whch provde benefts that vary n amount wth an
ncrease or decrease n the market vaue of the assets from whch such
benefts are pad, or whch provde benefts that vary wth the fuctua-
tons of a specfed and generay recognzed cost-of-vng nde .
(See Rev. Ru. 1 5, p. 202.)
S CTION 23( ). D DUCTIONS FROM GROSS INCOM :
M DIC L, D NT L, TC., P NS S
Reguatons 111, Secton 29.23( )-1 : Medca, Rev. Ru. 1 3
denta, etc., e penses.
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Regs. I, 29.23(z)-.
130
INT RN L R NU COD
mounts pad psychoogsts who are quafed and authorzed under
State aw to practce psychoogy for servces rendered by them n
connecton wth the dagnoss, cure, mtgaton, treatment, or preven-
ton of dsease, or for the purpose of affectng any structure or functon
of the body, consttute e penses pad for medca care wthn the mean-
ng of secton 23 ( ) of the Interna Revenue Code and may be deducted
n computng net ncome for Federa ncome ta purposes, to the e tent
provded theren.
S CTION 23(z). D DUCTIONS FROM GROSS INCOM :
MOUNTS R PR S NTING T S ND INT R ST
P ID TO COOP R TI P RTM NT CORPOR TION
Reguatons 111, Secton 29.23(z)-: mounts Rev. Ru. 120
representng ta es and nterest pad to co-
operatve apartment corporaton.
nterna heve ce code
tenant-stockhoder of a cooperatve apartment corporaton Is
not deprved of a deducton for hs proportonate share of the corpo-
raton s nterest and rea estate ta es under secton 23(z) of the
Interna Revenue Code soey by reason of a speca ssue, pursuant
to secton 213 of the Natona ousng ct, of preferred stock to
the Commssoner of the Federa ousng dmnstraton n a
nomna amount not e ceedng 100.
dvce s requested whether a tenant-stockhoder of a cooperatve
apartment corporaton s deprved of a deducton for hs proportonate
share of the corporaton s nterest and rea estate ta es under secton
23 (z) of the Interna Revenue Code soey by reason of a speca ssue,
pursuant to secton 213 of the Natona ousng ct, of preferred
stock to the Commssoner of the Federa ousng dmnstraton
n a nomna amount not e ceedng 100.
Secton 23(z) of the Interna Revenue Code provdes that n com-
putng net ncome a tenant-stockhoder may deduct amounts pad or
accrued to a cooperatve apartment corporaton to the e tent that
such amounts represent hs proportonate share of rea estate ta es
and nterest pad or ncurred by the corporaton wth respect to the
apartment budng or the and on whch t s stuated. In dennng
a cooperatve apartment corporaton secton 23(z) (2) of the Code
provdes n part as foows:
( ) Cooperatve apartment corporaton. The term cooperatve
apartment corporaton means a corporaton
() havng one and ony one cass of stock outstandng,
Under the provsons of secton 213 of the Natona ousng ct,
as added by Pubc Law 75, enacted by the ghty-frst Congress,
6 Stat., 3, the Federa ousng dmnstraton s authorzed to
nsure mortgages coverng property hed by nonproft cooperatve
housng corporatons, the permanent occupancy of the dwengs of
whch s restrcted to members of such cooperatves. The common
stock of such corporaton s owned and hed by the cooperatve corpo-
raton members. Secton I of the Federa ousne dmnstraton
rues and reguatons, governng secton 213 of the Natona ousng
ct, provdes that the Certfcate of Incorporaton, or other nstru-
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131
Regs. I, 29.23(z)-.
ment under whch the mortgagor corporaton s created, w provde
for the ssuance of:
certan shares of speca stock (or other evdence of a benefca Interest
In the mortgagor) whch stock or nterest w acqure ma|orty votng rghts n
the event of defaut under the mortgage cr voaton of provsons of the charter,
but ony for a perod coe stent wth the duraton of such defaut or voaton.
Such speca stock or nterest ssued to the Commssoner sha be n
suffcent amount to consttute under the aws of the partcuar State a vad
cass of stock or nterest and sha be ssued n consderaton of the payment
by the Commssoner of not e ceedng n the aggregate 100.
Pursuant to the rues and reguatons ssued under secton 213. the
Federa ousng dmnstrator has ssued a Mode Form of Cer-
tfcate of Incorporaton. Under the Mode Form of Certfcate
of Incorporaton the preferred stock outstandng s to be redeemed by
the corporaton at par after the termnaton of the contract of
mortgage nsurance and, when so redeemed, sha be retred and
canceed.
The preferred stock ssued to the Commssoner n the specfed
amount of 100 par vaue under such crcumstances s ssued for
the purpose of grantng to the Commssoner the rght to acqure
ma|orty votng rghts n the corporate mortgagor n the event of
a defaut under the mortgage or a voaton of the charter. The
Commssoner does not make an nvestment n the corporaton as a
sharehoder. Under the charter, the preferred stock, costng
the nomna sum of 100, s created as a securty devce that protects
the Commssoner as the nsurer of the mortgage debt. That the
preferred stock s not an equty nterest s evdent from the charter
provson that the preferred stock s to be redeemed at par upon
termnaton of the contract of mortgage nsurance coverng any
ndebtedness cf the corporaton. ssurance that the preferred stock
w ony be used as a securty devce s provded by makng the shares
nontransferabe to anyone other than the Commssoner or hs nom-
nees, and redeemabe, upon satsfacton of the ndebtedness, ony for
canceaton and retrement.
The genera purpose of secton 23(z) of the Interna Revenue Code
s to pace the tenant-stockhoders of a cooperatve apartment n the
same poston as the owner of a dweng house so far as deductons for
nterest and ta es are concerned. There s no reason to beeve that
when Congress mposed the restrctve snge cassfcaton of stock
under secton 23 (z) (2) ( ) () of the Code that t ntended that a
speca cassfcaton of preferred stock, ssued soey as a securty de-
vce, woud consttute a cass of stock so as to deprve tenant-stock-
hoders of the common stock of the benefts conferred by secton 23(z)
of the Code. The purpose of the condton s to restrct the benefts
of secton 23(z) of the Code to bona fde cooperatve apartment
corporatons. (S. ept. No. 1031 on the Revenue of 19 2, C. .
19 2-2, 50 , at pp. 5 6 and 577.)
In vew of the foregong, t s hed that preferred stock ssued
pursuant to secton 213 of the Natona ousng ct by a cooperatve
apartment corporaton to the Commssoner of the Federa ousng
dmnstraton n a nomna amount not e ceedng 100, s ssued for
the purpose of creatng a securty devce on the mortgage debt of the
corporaton. Snce t does not represent an equty nterest n the
corporaton, such speca stock shoud not be treated as a cass of
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Regs. I, 29.23(cc)-. 132
stock wthn the meanng of secton 23 (z) (2) ( ) () of the Interna
evenue Code. For the purpose of such secton of the Code a corpora-
ton whch has one and ony one cass of stock outstandng n addton
to preferred stock hed soey by the Commssoner w quafy as
a cooperatve apartment corporaton f t satsfes a the other con-
dtons of secton 23 (z) (2) ( ) of the Code, n whch case ts tenant-
stockhoders w be entted to deductons n ther ndvdua ncome
ta returns for ther proportonate share of the corporaton s nterest
and ta es under secton 23 (z) (1) of the Code.
S CTION 23 (cc). D DUCTIONS FROM GROSS
INCOM : D LOPM NT OF MIN S
Reguatons 111, Secton 29.23(cc)-: Mne T. D. 6023
deveopment e pendtures.
( so Sectons 29.23(m)-, 29.23(m)-2,
29.23(m)-15, 29.23(m)-7, 29.23(ff)-;
Secton 2 , Secton 29.2 -2; Secton 113 (b),
Secton 29,113 (b)()-.)
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 29.
INCOM T ; T L T RS GINNING FT R D C M R 1, 10 1
Reguatons 111 amended to conform to sectons 309 and 3 2
of the Revenue ct of 1951.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
On November 6, 1952, notce of proposed ruemakng wth respect
to amendments conformng the ncome ta reguatons to sectons 309
and 3 2 of the Revenue ct of 1951, approved October 20,1951, was
pubshed n the Federa Regster (17 F. R. 99 5). fter consdera-
ton of such reevant suggestons as were presented by nterested per-
sons regardng the proposas, the foowng amendments to Regua-
tons 111 26 CFR, pt. 29 are hereby adopted:
Paragraph 1. Secton 29.23(m)-( 7), as amended bv Treasury
Decson 5 5 C. . 19 5, 5 , approved une 15, 19 5 26 CFR
29.23(m)-(g) |, s further amended by changng the term deveop-
ment costs propery charged to e pense appearng n the frst sentence
to read as foows: deveopment costs propery charged to e pense
or aowabe as deductons under secton 23 (ce) .
Par. 2. Secton 29.23 (m)-2 26 CFR 29.23 (m)-2 s amended as
foows:
( ) y amendng the frst sentence thereof and the bracketed mat-
ter mmedatey foowng that sentence to read as foows:
The bass upon whch depeton, other than dscovery depeton or percentage
depeton, s to be aowed n respect of any property s the bass provded for n
secton 113(a), ad|usted as provded n secton 113(b) for the purpose of deter-
mnng the gan upon the sae or other dsposton of such property, e cept
that wth respect to ta abe years endng after December 31, 1950, the amount
of e pendtures treated as deferred e penses under sectons 23(cc) (2) and
23(ff) (2) shaU be dsregarded n determnng such ad|usted bass (see sectons
29.113(a)- to 29.11 -1 ncusve, and sectons 29.23(cc)- and 29.23(ff)- of
these reguatons); and
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133 Regs. I, f 29.23(cc)-.
( ) y nsertng mmedatey after the word deprecaton n
the fourtn paragraph the foowng: , through deferred e penses, .
Par. 3. Secton 29.23 (m) -15 26 CFR 29.23 (m)-15 s amended as
foows:
( ) y changng the headng thereof to read as foows: Sec.
29.23(m)-15. owabe Capta ddtons n Case of Mnes. (a)
Genera. ;
( ) y deetng (b) whch mmedatey precedes the begnnng of
the second paragraph; and
(C) y addng mmedatey foowng the second paragraph the
foowng new paragraph:
( ) Speca rues for ta abe years endng after December SI, 1950. Sectons
23(cc) and 23(ff) contan speca provsons for treatment of e pendtures for
certan e poraton and deveopment costs (other tan for acquston or Im-
provement of deprecabe property) wth respect to ores and mneras other than
o or gas. See sectons 29.23(cc)- and 29.23(ff)- of these reguatons.
Par. . Secton 29.23(m)-17 26 CFR 29.23(m)-17 s amended by
addng at the end thereof the foowng new paragraph:
(h) For ta abe years endng after December 31, 1950, sectons 23(cc) and
23(ff) provde speca rues for treatment of deprecaton aowances wth re-
spect to the e poraton and deveopment of a mne or other natura depost other
than o or gas. See sectons 29.23(cc)- and 29.23(ff )-.
Pah. 5. There s nserted mmedatey foowng secton 29.23 (bb)-
26 CF 29.23(bb)- the foowng:
S C. 309. P NDITUR S IN T D LOPM NT OF MIN S
R NU CT OF 1951, PPRO D OCTO R 20, 1951 .
(a) Deducton of pendtures. Secton 23 (reatng to deductons
from gross Income) s hereby amended by addng at the end thereof the
foowng new subsecton:
(cc) Deveopment of Mnes.
(1) In genera. cept as provded In paragraph (2), a
e pendtures pad or ncurred durng the ta abe year for the deve-
opment of a mne or other natura depost (other than an o or gas
we) f pad or ncurred after December 31, 1950, and after the
e stence of ores or mneras n commercay marketabe quanttes
has been dscosed. Ths subsecton sha not appy to e pendtures
for the acquston or mprovement of property of a character whch
s sub|ect to the aowance for deprecaton provded n secton
23(1), but aowances for deprecaton sha be consdered, for the
purposes of ths subsecton, as e pendtures.
(2) ecton of ta payer. t the eecton of the ta payer,
made n accordance wth reguatons prescrbed by the Secretary,
e pendtures descrbed n paragraph (1) pad or ncurred durng the
ta abe year sha be treated as deferred e penses and sha be de-
ductbe on a ratabe bass as the unts of produced ores or mneras
benefted by such e pendtures are sod. In the case of such e pend-
tures pad or ncurred durng the deveopment stage of the mne or
depost, the eecton sha appy ony wth respect to the e cess of
such e pendtures durng the ta abe year over the net recepts
durng the ta abe year from the ores or mneras produced from
such mne or depost. The eecton under ths paragraph, f made,
must be for the tota amount of such e pendtures, or the tota
amount of such e cess, as the case may be, wth respect to the mne
or depost, and sha be bndng for such ta abe year.
(3) d|usted bass of mne or depost. The amount of e -
pendtures whch are treated under paragraph (2) as deferred e -
penses sha be taken nto account n computng the ad|usted bass
of the mne or depost, e cept that such amount and the ad|ustments
to bass provded n secton 113(b) (1) ( ), sha be dsregarded n
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Regs. I, S 29.23(cc)-.
13
determnng the ad|usted bass of the property for the purpose of
computng a deducton for depeton under secton 11 .

(d) ffectve Date. The amendments made by ths secton sha be
appcabe to ta abe years endng after December 31,1950.
Sec. 29.23(cc)-1. Mne Deveopment pendtures. (a) owance of de-
ducton. ffectve ony wth respect to ta abe years endng after December 31,
1950, secton 23(cc) (1) provdes for a deducton from gross ncome of a e -
pendtures for the deveopment of a mne or other natura depost (other than an
o or gas we) pad or ncurred by the ta payer after December 31, 1950, and
after the e stence of ores or mneras n commercay marketabe quanttes has
been dscosed sub|ect to the foowng rues. The deducton s not aowabe
wth respect to e pendtures for the acquston or Improvement of property of
a character sub|ect to aowance for deprecaton under secton 23(1). ow-
ever, aowances for deprecaton sha be consdered for the purposes of ths
secton as e pendtures for deveopment to the e tent aocabe to deveopment.
Such deveopment e pendtures are deductbe under secton 23(cc) (1) (not-
wthstandng the provsons of secton 29.23(m)-15 of these reguatons) whether
pad or ncurred by the ta payer whe the mne or depost s n the deveopment
or whe n the producton stage.
For the purposes of ths secton, e pendtures thus descrbed ncude ony those
whch, e cept for ths secton, woud not quafy as a deducton for the ta abe
year. For treatment of certan e poraton e pendtures see secton 23(ff) and
secton 29.23(ff)-. In genera, the provsons of ths secton are appcabe
ony to costs pad or ncurred by the ta payer n respect of deveopment under-
taken (drecty or through a contract) by the ta payer and do not appy, for
e ampe, to such costs of deveopment undertaken by other persons as may be
refected In the acquston cost pad or ncurred by the ta payer for whoy or
partay deveoped property.
s to the deductbty of e pendtures attrbutabe to a grant or oan made to
a ta payer by the Unted States for the encouragement of the e poraton, de-
veopment, or mnng of crtca and strategc mneras, see secton 22(b) (15).
(6) ecton to defer. ta payer entted to the deducton under secton
23(cc) (1) may, n eu of takng such deducton n the year when the e pen-
dtures for deveopment were pad or Incurred, eect under secton 23(cc)(2)
to treat such e pendtures as deferred e penses to be deducted rataby as the
unts of the produced ore or mneras benefted by the e pendtures are sod.
In the case of such e pendtures pad or Incurred whe the mne or depost Is
In the deveopment stage, the eecton s appcabe ony n respect of the e cess
of such e pendtures pad or ncurred durng the ta abe year over the net re-
cepts durng the ta abe year from the ore or mneras produced from the mne
or depost. The amount of such e pendtures not n e cess of net recepts from
the ore or mnera for the ta abe year whe the mne or depost s n the de-
veopment stage sha be deductbe n fu. (See secton 29.23(m)-15(o) of
these reguatons for descrpton as to when a mne w be consdered to have
passed from a deveopment to a producton stage.)
The amount of the deducton aowabe durng the ta abe year s an amount ,
whch bears the same rato to (the tota deferred deveopment e pendtures
for a partcuar mne or depost reduced by the amount of such e pendtures
deducted n pror ta abe years) as O (the number of unts of the ore or mnera
benefted by such e pendtures sod durng the ta abe year) bears to D (the
number of unts of ore or mnera benefted by such e pendtures remanng
as of the ta abe year). For the purposes of ths proporton, the number of
unts of ore or mnera benefted by such e pendtures remanng as of the ta -
abe year s the number of unts of ore or mnera benefted by the deferred
deveopment e pendtures remanng at the end of the year to be recovered from
the mne or depost (ncudng unts benefted by such e pendtures recovered
but not sod) pus the number of unts benefted by such e pendtures sod wthn
the ta abe year. The prncpes outned In secton 29.23(m)-9 of these regu-
atons are appcabe n estmatng the number of unts remanng as of the
ta abe year and the number of unts sod durng the ta abe year. The est-
mate s sub|ect to revson n accordance wth that secton n the event t s
ascertaned as the resut of operatons or deveopment that the remanng unts
are materay greater or ess than the number of unts remanng from a pror
estmate. Sectons 29.23(e)- and 29.23(f)- of these reguatons contan rues
reatng to the treatment of osses resutng from abandonment
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135 Regs. I, 29.23(cc)-.
If the ta payer has pad or Incurred e pendtures of the character descrbed
heren, has made the eecton to defer such e pendtures, and thereafter eases
the deveoped property retanng a royaty Interest theren, he sha be aowed
the ratabe deducton ndcated n the foregong paragraph.
The eecton referred to n ths paragraph sha be made for each mne or
depost by a cear ndcaton on the return or by a statement fed wth the drector
of Interna revenue wth whom the return was fed not ater than 6 months
after the fng of the return for the ta abe year to whch such eecton s ap-
pcabe, or, n case the return for the ta abe year to whch such eecton s
appcabe s fed on or before March 15, 1953, by a statement n wrtng to
that effect fed wth the drector of nterna revenue wth whom the return
was fed on or before September 15, 1953. If such an eecton s made by the
ta payer, such eecton must be for the tota amount of a such e pendtures
durng the ta abe year whe the mne or depost s n the producng stage. If
the mne or depost s n the deveopment stage, such eecton must be for a of
the e cess of such e pendtures over the net recepts durng the ta abe year
from the ore or mnera produced. The eecton sha be bndng for the ta abe
year n respect to whch the eecton was made.
Pab. 6. There s nserted mmedatey foowng secton 23 (ee) whch
foows secton 29.23(dd)- 26 CFR 29.23(dd)- the foowng:
S C. 3 2. D DUCTION OF P NDITUR S FOR MIN PLO-
R TION R NU CT OF 1951, PPRO D OCTO R 20,
1951 .
(a) Deducton of Mne poraton pendtures. Secton 23 (re-
atng to deductons from gross ncome) s hereby amended by addng at
the end thereof the foowng new subsecton:
(ff) Deducton of poraton pendtures.
(1) In genera. In the case of e pendtures pad or Incurred
durng the ta abe year for the purpose of ascertanng the e stence,
ocaton, e tent, or quaty of any depost of ore or other mnera,
and pad or ncurred pror to the begnnng of the deveopment stage
of the mne or depost, so much of such e pedtures as does not
e ceed 75,000. Ths subsecton sha appy ony wth respect to
the amount of such e pendtures whch, but for ths subsecton,
woud not be aowabe as a deducton for the ta abe year. Ths
subsecton sha not appy to e pendtures for the acquston or
mprovement of property of a character whch s sub|ect to the
aowance for deprecaton provded n secton 23(1), but aow-
ances for deprecaton sha be consdered, for the purposes of ths
subsecton, as e pendtures pad or ncurred. In no case sha ths
subsecton appy wth respect to amounts pad or ncurred for the
purpose of ascertanng the e stence, ocaton, e tent, or quaty
of any depost of o or gas.
(2) ecton of ta payer. If the ta payer eects, n accordance
wth reguatons prescrbed by the Secretary, to treat as deferred
e penses any porton of the amount deductbe for the ta abe year
under paragraph (1), such porton sha not be deductbe under
paragraph (1) but sha be deductbe on a ratabe bass as the unts
of produced ores or mneras dscovered or e pored by reason of
such e pendtures are sod. n eecton made under ths paragraph
for any ta abe year sha be bndng for such year.
(3) Lmtaton. Ths subsecton sha not appy to any amounts
pad or Incurred In any ta abe year f n any four precedng years
the ta payer, or any ndvdua or corporaton who has transferred
to the ta payer any mnera property under crcumstances whch
make the provsons of paragraph (7), (S), (11), (13), (15), (17),
(20), or (22) of secton 113 (a) appcabe to such transfer, has ether
( ) been aowed a deducton under paragraph (1) of ths sub-
secton or ( ) made the eecton provded under paragraph (2)
of ths subsecton.
( ) d|usted bass of mne or depost. The amount of e pend-
tures whch are treated under paragraph (2) as deferred e penses
sha be taken nto account n computng the ad|usted bass of the
mne or depost, but such amounts, and the ad|ustments to bass pro-
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Regs. I, 5 29.23(cc)-.)
136
Tded In secton 113(b) (1) (M) sha be dsregarded n determnng
the ad|usted bass of the property for the purpose of computng a
deducton for depeton under secton 11 .

(c) ffectve Date. The amendments made by ths secton sha be
appcabe to ta abe years endng after December 31,1960.
Sec. 29.23(ff)-. Dscovery ok poraton pendtures. (a) owance of
deducton. Sub|ect to the mtaton prescrbed n (c) herenafter, secton
23(ff)- provdes wth respect to ta abe years endng after December 31, 1950,
for a deducton from gross ncome of e pendtures for ascertanng the e stence,
ocaton, e tent, or quaty of any depost of ore or other mnera (other than
o or gas) pad or Incurred by the ta payer pror to the begnnng of the de-
veopment stage. The e pendtures thus descrbed ncude ony those whch,
e cept for ths secton, woud not quafy as a deducton for the ta abe year and
do not ncude e pendtures for the acquston or mprovement of property of a
character whch s sub|ect to the aowance for deprecaton provded for n
secton 23(1). owever, aowances for deprecaton sha be consdered for
the purposes of ths secton as e pendtures pad or ncurred. For the pur-
poses of ths secton, such e pendtures do not ncude e pendtures pad or n-
curred after the e stence of ores or mneras n commercay marketabe quant-
tes has been dscosed. For treatment of deveopment e pendtures see secton
23(cc) and secton 29.23(cc)-. In genera, the provsons of ths secton are
appcabe ony to costs pad or Incurred by th ta payer n respect of e pora-
ton or dscovery undertaken (drecty or through contract) by the ta payer and
do not appy, for e ampe, to such costs of e poraton or dscovery undertaken
by other persons as may be refected n the acquston cost pad or ncurred by
the ta payer for the property.
s to the deductbty of e pendtures attrbutabe to a grant or oan made
to a ta payer by the Unted States for the encouragement of the e poraton,
deveopment, or mnng of crtca and strategc mneras, see secton 22(b) (15).
(6) ecton to defer. ta payer entted to the deducton under secton
23(ff)() may, n eu of takng such deducton to whch he s entted n the
year when the e pendtures for dscovery or e poraton were pad or ncurred,
eect under secton 23(ff) (2) to treat any porton of such deductbe e pendtures
as deferred e penses to be deducted rataby as the unts of produced ores or
mneras dscovered or e pored by reason of such e pendtures are sod.
The amount of the deducton aowabe durng the ta abe year s an amount
, whch bears the same rato to (the tota deferred dscovery or e poraton
e pendtures reduced by the amount of such e pendtures deducted n pror ta -
abe years) as C (the number of unts of the produced ore or mnera sod durng
the ta abe year) bears to D (the number of unts of ore or mnera remanng
as of the ta abe year). For the purposes of ths proporton, the number of
unts of ore or mnera remanng as of the ta abe year s the number of unts
of ore or mnera remanng at the end of the year to be recovered from the mnes
or deposts benefted by such e pendtures (ncudng unts recovered but not
sod) pus the number of unts sod wthn the ta abe year. The prncpes
outned n secton 29.23(m)-9 of these reguatons are appcabe n estmatng
the number of unts remanng as of the ta abe year and the number of unts
sod durng the year. The estmate s sub|ect to revson n accordance wth
that secton n the event It s ascertaned as the resut of further dscovery, de-
veopment or operatons that the remanng unts are materay greater or ess
than the unts remanng from a pror estmate. Sectons 29.23(e)-3 and
29.23(f)- of these reguatons contan rues reatng to the treatment of osses
resutng from abandonment.
If the ta payer has pad or ncurred e pendtures of the character descrbed
heren, has made the eecton to defer such e pendtures and thereafter eases
the mne or depost benefted by such e pendtures retanng a royaty nterest
theren, he sha be aowed the ratabe deducton n the foregong paragraph.
The eecton referred to n ths paragraph sha be made by a cear ndcaton
on the return or by a statement fed wth the drector of nterna revenue wth
whom the return was fed not ater than 6 months after the fng of the return
for the ta abe year to whch such eecton Is appcabe, or, In case the return
for the ta abe year to whch such eecton s appcabe s fed on or before
March 15,1953, by a statement n wrtng to that effect fed wth the drector of
Interna revenue wth whom the return was fed on or before September 15,
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137
(Regs. I, 29.23(cc)-.
1 53. In such statement, the ta payer sha dscose the amount to be deferred,
and the name, ocaton, e tent, and nature of the mnera depost to whch the
eecton reates. The eecton sha be bndng for the ta abe year n respect
to whch the eecton was made.
(c) Lmtaton. The deducton descrbed n (a) above s aowabe ony for
the amount of a such e pendtures pad or ncurred by the ta payer n the
ta abe year as does not e ceed 75,000. mounts otherwse aowabe as
deductons wthout reference to ths secton (e cept aowances for depreca-
ton) are not to be taken nto account n determnng ths mtaton. The m-
taton appes to a such descrbed e pendtures of the ta payer and s not a
tota amount aowabe wth respect to each mne or depost. No deducton
under secton 23(ff)() or eecton under secton 2o(ff) (2) may be taken or
e ercsed f n any precedng years (not necessary consecutve years) the
ta payer, or any ndvdua or corporaton who has transferred to the ta payer
any mnera or ore property under crcumstances whch make the provsons
of paragraph (7), ( ), (11), (13), (15), (17), (20), or (22) of secton 113(a)
appcabe to such transfer, has been aowed a deducton or eected to treat such
e pendtures as deferred e penses under secton 23(ff) (1) or secton 23(ff) (2),
respectvey. Thus, under such crcumstances, no deducton under secton
23( )(1) or eecton under secton 23(ff)(2) may be taken or e ercsed after
the combned deductons and eectons so taken or e ercsed by one or more
transferors and the ta payer equa four. For the purposes of the precedng
sentence, a deducton and an eecton avaed of n any ta abe year by a partcu-
ar ta payer or transferor sha be consdered as havng been taken or e ercsed
ony once.
ampe (/). ssume that a ta payer who has never camed the benefts
of secton 2 (ff) receved n 1956 a mnera depost from Corporaton upon a
dstrbuton n compete qudaton of the atter under condtons whch woud
make the provsons of secton 113(a) (15) appcabe n determnng the bass
of the property n the hands of the ta payer, and that durng the year 1955
Corporaton e pended 60,000 for e poraton e pendtures whch Corporaton
eected to treat as deferred e penses. On the bass of these facts the ta payer
may deduct or defer for any three (not necessary consecutve) subsequent
ta abe years smar e pendtures made n those years not to e ceed 75,000
In any year. Where the amount e pended n any ta abe year s ess than 75,000
the dfference, If any, may not be carred over or back to other ta abe years.
ampe (2). ssume the same facts stated n e ampe (1) e cept that, pror
to acquston by the ta payer of the depost from Corporaton n 1956, Corpo-
raton had acqured the depost In 195 n a smar dstrbuton from Y Corpo-
raton whch, n the years 1952 and 1953, deducted e poraton costs pad n
respect of an entrey dfferent depost n the amounts of 30,000 and 50,000
respectvey. Under these crcumstances, the ta payer may deduct or defer
e poraton e pendtures pad or ncurred for ony 1 ta abe year n an amount
not n e cess of 75,000.
Pab. 7. There s nserted mmedatey precedng secton 29.2 -1
26 CFR 29.2 -1 the foowng:
S C. 309. P NDITUR S IN T D LOPM NT OF MIN S
R NU CT OF 1951, PPRO D OCTO R 20, 1951 .

(c) Technca mendment. Secton 2 (a)(2) (reatng to tems
not deductbe) s hereby amended by addng after the word estate
the foowng: , e cept e pendtures for the deveopment of mnes or
deposts deductbe under secton 23 (cc) .
(d) ffectve Date. The amendments made by ths secton sha be
appcabe to ta abe years endng after December 31,1950.
Par. . Secton 29.2 -2, as amended bv Treasury Decson 5513
C. . 19 6-1, 61 , approved May 16, 19 6 26 CFR 29.2 -2 , s
further amended as foows:
( ) y nsertng mmedatey after the headng the foow-
ng: (a) pendtures e cept nondeprecabe mne deveopment
e pendtures.
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Regs. I, 29.23(cc)-. 13
( ) y addng at the end thereof the foowng:
(6) Nondeprecabe e pendtures for mne deveopment. Secton 23(cc) pro-
vdes that certan e pendtures (not sub|ect to deprecaton aowance under
secton 23(1)) pad or ncurred by the ta payer for mne deveopment after
December 31, 1950, may be deducted or treated as deferred e penses. For the
rues governng treatment of such e pendtures see secton 23 (cc) and secton
29.23 (cc)-L
Par. 9. There are nserted mmedatey precedng secton
29.113(b) (1)-1 26 CFR 29.113(b) (1)-1 the foowng:
S C. 309. P NDITUR S IN T D LOPM NT OP MIN S
R NU CT OF 1951, PPRO D OCTO R 20, 1951 .

(b) d|usted ass for Determnng Gan or Loss Upon Sae or
change. Secton 113(b) (1) (reatng to ad|usted bass of property)
Is hereby amended by addng at the end thereof the foowng subpara-
graph :
( ) for amounts aowed as deductons as deferred e -
penses under secton 23(cc)(2) (reatng to certan e pend-
tures n the deveopment of mnes) and resutng n a reducton
of the ta payer s ta es under ths chapter, but not ess than the
amounts nowabe under such secton for the ta abe year and
pror years.

(d) ffectve Date. The amendments made by ths secton sha
be appcabe to ta abe years endng after December 31, 1950.

S C. 3 2. D DUCTION OF P NDITUR S FOR MIN PLO-
R TION R NU CT OF 1951, PPRO D OCTO R 20,
.1951 .

(b) d|usted ass for Determnng Gan or Loss Upon Sae or
change. Secton 113(b) (1) (reatng to ad|usted bass of property)
s hereby amended by addng at the end thereof the foowng:
(M) for amounts aowed as deductons as deferred e -
penses under secton 23(ff)(2) (reatng to certan e pora-
ton e pendtures) and resutng n a reducton of the
ta payer s ta es under ths chapter, but not ess than the
amounts aowabe under such secton for the ta abe year
and pror years.
(c) ffectve Date. The amendments made by ths secton sha be
appcabe to ta abe years endng after December 31, 1950.
Pak. 10. Secton 29.113(b) (1)-1, as amended by Treasury De-
cson 6006 C. . 1953-1, 30 , approved pr 10, 1953 26 CFR
29.113(b) (1)-1 , s further amended by addng at the end thereof
the foowng:
Wth respect to ta abe years endng after December 1, 1950, the bass sha
aso be ad|usted to take Into account the amount of e pendtures for deveop-
ment and e poraton of mnes or mnera deposts treated as deferred e penses
under sectons 23(cc)(2) and 23(ff) (2). The bass so ad|usted sha be
reduced by the amount of such e pendtures aowed as deductons under such
sectons whch resuts n a reducton of the ta payer s abty for Income
ta but not ess than the amounts aowabe under such sectons for the ta abe
year and pror years. For e ampe, f a ta payer purchases une pored and
undeveoped mnng property for 1,000,000 and at the cose of the deveopment
stage has ncurred e poraton and deveopment costs of 9,000,000 treated as
deferred e penses, the bass of such property at such tme for computng gan
or oss w be 10,000,000. ssumng that the ta payer In ths e ampe has
operated the mne for severa years and has deducted aowabe percentage
depeton n the amount of 2,000,000 and has deducted aowabe deferred
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139 Regs. I, 29. 2-1.
e poraton and deveopment e pendtures of 2,000,000, the bass of the prop-
erty n the ta payer s hands for purposes of determnng gan or oss f sod
w be 6,000,000.
(Ths Treasury Decson s ssued under the authorty contaned n
sec 62 of the Interna Revenue Code (53 Stat 32; 26 U. S. C. 62), and
sees. 23(cc) and 23(ff) of the Interna Revenue Code (65 Stat. 6.
515;26U.S.C.23(cc) and23(ff)).)
T. Coeman ndrews,
Commssoner of Interna Revenue.
pproved une 23,1953.
M. . Fosom,
ctng Secretary of the Treasury,
(Fed wth the Dvson of the Federa Regster une 25, 1953, : 51 a. m.)
S CTION 2 . IT MS NOT D DUCTI L
Reguatons 111, Secton 29.2 -2: Capta
e pendtures.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. 6023, p. 132.)
Reguatons 111, Secton 29.2 -6: Losses from
saes or e changes between certan casses or
persons.
INT RN L R NU COD
Deducton by wfe, where communty property s nvested by hus-
band n a partnershp, of one-haf of husband s share of partnershp
oss where husband s precuded from deductng hs share of such
oss. (See Rev. Ru. 121, p. 209.)
P RT I . CCOUNTING P RIODS ND M T ODS OF CCOUNTING
S CTION 2. P RIOD IN W IC IT MS OF GROSS
INCOM INCLUD D
Reguatons 111, Secton 29. 2-1: When ncuded Rev. Ru. 169
n gross ncome.
INT RN L R NU COD
Income resutng from a retroactve ncrease n temporary arma
rates, accrues, for Federa ncome ta purposes, n the year n
whch the Cv eronautcs oard ssues an order provdng for
such ncrease. Pendng fna determnaton of arma rates by the
oard, compensaton w be accrued at the arma rates n effect
at the end of the ta abe year for whch such ncome s beng re-
ported for Federa Income ta purposes.
I. T. 3961, C. . 19 9-2, 35, revoked.
dvce s requested as to the year of accrua of ncome resutng
from a retroactve ncrease n temporary arma rates, granted by
an order of the Cv eronautcs oard f ng permanent arma
2 670 5 10
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Regs. I, 29. 2-1.
1 0
rates wth respect to transportaton of arma durng pror ta abe
years.
In I. T. 3 51, C. . 19 7-1, 32, t was hed that ncome from ret-
roactve ncreases n permanent arma rates accrues n the year n
whch the oard ssues ts fna order provdng for such ncreases.
Ths rung cted and foowed Law Opnon 10 6, C. . 1-1, 7,
(1922), n whch addtona compensaton granted raway ma
carrers by order of the Interstate Commerce Commsson for serv-
ces performed n 1916 and 1917 was hed to accrue n the year 1919,
the year n whch the Commsson s order was ssued. I. T. 3961,
C. . 19 9-2, 35, hods that ncome from retroactve ncreases n tem-
porary arma rates accrues for the years durng whch the servces
are rendered. The prncpa factua dfference between the two ru-
ngs s that I. T. 3961 nvoved a retroactve ncrease n temporary
arma rates, whereas L T. 3 51 nvoved a retroactve ncrease n
permanent arma rates.
It s beeved that the rues governng accrua of retroactve n-
creases n permanent arma rates are equay appcabe to the
treatment of retroactve ncreases n temporary arma rates. c-
cordng y t s hed that-L T. 3 51, supra, s appcabe to retroactve
ncreases n both temporary and permanent arma rates. I. T. 3961,
supra, s hereby revoked.
Pendng fna determnaton of arma rates by the oard, com-
pensaton w be accrued at the arma rates n effect at the cose
of the ta abe year for whch such ncome s beng reported for
Federa ncome ta purposes. d|ustments for changes n arma
rates w be made upon the return for the year n whch an order s
ssued by the oard changng such arma rates.
Pursuant to the authorty contaned n secton 3791(b) of the In-
terna Revenue Code, ths rung w not be apped wth respect to
retroactve ncreases n temporary arma rates granted by an order
of the oard promugated pror to ugust 31, 1953.
Reguatons 111, Secton 29. 2-1: When Rev. Ru. 21
ncuded n gross ncome.
INT N L R NU COD
ppcaton of Revenue Rung 62, C. . 11)53-1, 71, reatng to
amounts credted to nsured banks under secton 7(d) of the Federa
Depost Insurance ct, to ta abe years ended pror to anuary 1,
1953.
Revenue Rung 62, C. . 1953-1, 71, hods that amounts credted
to nsured banks under secton 7(d) of the Federa Depost Insurance
ct by the Federa Depost Insurance Corporaton are ncudbe n
the gross ncome of the bank, on the cash recepts and dsbursements
bass, for ts ta abe year or years n whch and to the e tent each such
credt s appcabe toward payment of a depost-nsurance assessment
or assessments or s refundabe or assgnabe. ach such credt, be-
ng utmatey reazed by the bank n fu, s ncudbe n ts gross
ncome, on the accrua bass, n entrety for ts ta abe year n whch
t s defntey advsed by the Corporaton of the amount thereof.
Snce the Federa Depost Insurance Corporaton dd not determne
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1 1
(Regs. I, 29. 3-2.
unt 1952 that nsured banks were entted as a matter of rght to tho
fu amount of the credt and aso snce Revenue Rung 62 was not
pubshed unt pr 27,1953, the Interna Revenue Servce, pursuant
to authorty contaned n secton 3791(b) of the Interna evenue
Code, w not requre the appcaton of the rung for ta abe years
ended pror to anuary 1, 1953, f for such pror years a bank had a
dfferent method for refectng the credt owever, ths w not
precude such a bank from adoptng or usng the method provded n
Revenue Rung 62 begnnng wth a ta abe year ended pror to
anuary 1, 1953.
S CTION 3. P RIOD FOR W IC D DUCTIONS
ND CR DITS T N
Regttatons 111, Secton 29. 3-2: When Rev. Ru. 170
charges deductbe.
INT UN L NU COD
Intangbe drng and deveopment costs prepad by a ta payer,
who keeps bs accounts and fes bs retnrns on tbe casb bass and
eects to treut such costs as e penses, consttute an aowabe de-
ducton ony for the tn abe year n whch the drng and deveop-
ng servces are actuay rendered.
dvce s requested whether ntangbe drng and deveopment
costs prepad by a ta payer, who keeps hs accounts and fes hs
returns on the cash bass and eects to treat such costs as e pense,
consttute an aowabe deducton for the year n whch payment
was made or for the year n whch the drng and deveopment
servces were actuay rendered.
In the nstant case, the ta payer acqured a ease on certan and
for the purpose of drng an o we. In November of 1951, the
ta payer oray accepted a bd of the M Company to do the drng.
On December 31, 1951, the ta payer e ecuted a forma agreement
for the drng of the we. The agreement provded for the payment
of a specfed amount per foot of we dred, pus a specfed amount
per foot of hoe cored. Pursuant to a provson n the agreement,
the ta payer pad the M Company, on December 31, 1951, the sum
of 95a; doars as payment for the work to be performed and materas
to be furnshed under the agreement. The agreement aso provded
that upon competon of the contract the ta payer woud pay any
addtona amount due n e cess of the 95 doars aready pad,
and f the fna contract prce was ess than 95a: doars the M Company
woud refund the e cess to the ta payer. Drng of the we began
durng anuary 1952, and by March 1952 o producton had started.
The evdence submtted does not ndcate that n other years the
ta payer foowed a consstent practce of prepayng drng or
deveopment e penses and camng a deducton therefor n the year
of payment.
Secton 29.23(m)-16 of Reguatons 111 provdes n part that a
ta payer may, at hs opton, eect to treat ntangbe drng and
deveopment costs of the type here nvoved as an e pense, deductbe
from gross ncome, or as a charge to hs capta account. That sec-
ton does not specfy when such ntangbe costs may be deducted.
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Regs. I, 5 29. 3-2.
1 2
ccordngy, t s necessary to refer to secton 23(a)(1)( ) of the
Interna Revenue Code to determne when they may be deducted.
Secton 23(a) (1) ( ) of the Code provdes n part that n computng
net ncome there sha be aowed as deductons:
the ordnary and necessary e penses pad or Incurred durng the
ta abe year n carryng on any trade or busness, ncudng a reason-
abe aowance for saares or other compensaton for persona servces
actuay rendered .
Under the provsons of secton 23(a) (1) ( ), supra, the ta payer
s not entted to a deducton n hs return fed for the ta abe year
1951 for the payment made n that year, uness the ntangbe drng
and deveopment costs were an ordnary and necessary e pense n
1951, and were not compensaton for persona servces. If the costs
consttute compensaton for persona servces, they are deductbe
ony n the year n whch the persona servces were actuay rendered,
namey, n 1952.
The contract between the ta payer and the M Company requred
the company to perform servces. The M Company provded such
equpment as was necessary for the drng of the we. The money
pad by the ta payer to the M Company n the ta abe year 1951
consttuted compensaton for servces and renta for the equpment
that the contractor empoyed n performng the servces. The con-
tract was an e ecutory one cang for future performance by the M
Company. When t was made the ony mmedate effect was the
ncdence of the obgatons of the partes to keep ther contract.
The measure of such an obgaton s not the contract prce, but the
response n damages for ts breach. (See aack oward Lum-
ber Co. v. Commssoner 1 . T. . 95 , n whch case t was hed
that an e pense for servces was deductbe by an accrua bass ta -
payer n the year n whch the servces were performed and not n
the prevous year when the contract for such servces was made.) It
woud foow, therefore, that the payment made by the ta payer n
the ta abe year 1951, smutaneousy wth the makng of the contract,
was merey an advance payment for work to be performed n the
future.
In Gaatore ros. v. Lnes, 23 Fed. (2d) 676, T. D. 13 , C. . II-
1, 229, the court hed that a essee may not deduct advance renta
payments n the year n whch the renta payments are made. The
statute appcabe n that case aowed a deducton for the necessary
Commssoner v. oyhton Market ssocaton, 131 Fed. (2d) 966, Ct.
L. 1573, C. . 19 3, 102 , the court hed that prepad nsurance pre-
mums were not an ordnary and necessary busness e pense n the
year n whch prepad n the case of a ta payer on the cash bass.
(See aso G. C. M. 235 7, C. . 19 3, 213.) In D. . McCo v. Com-
mssoner ( . T. . Memo. Op., Docket 95 3 , an. 11,19 1) the ta -
payer was dened a deducton n the year of payment where the
servces were rendered n a subsequent year.
ccordngy, t s hed that the ntangbe drng and deveopment
costs here nvoved consttute an aowabe deducton for the ta abe
year 1952, the year n whch the drng and deveopment servces
were rendered, and not for 1951, the year n whch payment therefor
was made.
e penses actuay pad
busness or trade. In
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1 3
(Regs. I, 29. 3-2.
Reguatons 111, Secton 29. 3-2: When Rev. Ru. 1 3
charges deductbe.
INT RN L R NU COD
Determnaton of year In whch embezzement osses are deductbe
for Federa Income and e cess-profts ta purposes In tbe ght of
the opnon of the Supreme Court of the Unted States n the cases
of Martha L. son v. The Unted States of merca and The Unted
States of merca v. Stevenson-Chsett, Inc., 3 U. S. 1C7, Ct. D.
175 , a . 1953-1, 39.
dvce s requested whether embezzement osses occurrng over a
perod of severa years are propery deductbe n the years n whch
the embezzement occurred or n the year the osses were dscovered and
ther amounts ascertaned.
On December , 1952, the Supreme Court of the Unted States, n
ts decson n the cases of Martha L. son v. The Unted States of
merca and The Unted States of merca v. Stevenson-Chsett,
Inc., 3 U. S. 167, Ct. D. 175 , C. . 1953-1, 39, stated, Whether
and when a deductbe oss resuts from an embezzement s a factua
queston, a practca one to be decded accordng to the surroundng
crcumstances . n nfe be rue s not needed; the statute
does not compe t.
Secton 29. 3-2 of Reguatons 111 provdes that a oss from theft
or embezzement occurrng n 1 year and dscovered n another s
ordnary deductbe for the year n whch sustaned. On the bass
of that provson, t has been the pocy to aow a deducton for a
oss from an embezzement occurrng n 1 year or over a perod of
severa years and dscovered n a ater year ony n the year or years
n whch the embezzement actuay occurred, mtng the deducton
each year to the amount of the oss occurrng n that year. Generay,
that pocy w contnue to be foowed. owever, n vew of the
above-mentoned decson, an e cepton to that pocy w be app-
cabe n those cases n whch t s mpossbe from the facts and cr-
cumstances nvoved to dentfy the year or years n whch the em-
bezzements actuay occurred and to ascertan the amount thereof
n such year or years. Lkewse, n other speca factua cases where
the embezzement s not dscovered for many years because of the
secret maneuvers of the embezzer and the facts revea that undue
hardshp or n|ustce woud resut f the oss were aowed ony n
the years the embezzements occurred, t s boeved that the oss may
propery be aowed n the year n whch t s dscovered and the
amount thereof ascertaned.
It shoud be understood, however, that ths e cepton does not pro-
vde ta payers wth an opton to seect the ta abe year n whch the
deducton of the oss s to be aowed for ta purposes. The seecton
of the year n whch to cam such a deducton shoud be made n
accordance wth actua facts and crcumstances, as e paned above.
Reguatons 111, Secton 29. 3-2: When Rev. Ru. 25
charges deductbe.
( so Secton 113(b), Secton 29.113(b)
(1)-1; Secton 125, Secton 29.125-1;
Secton 201, Secton 29.201-9.)
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Regs. I, 29. 3-2.
1
INT RN L R NU COD
Mortgage oans nsured by the Federa ousng dmnstraton do
not consttute bonds wthn the meanng of secton 125 of the
Interna Revenue Code, and, therefore, the amortzaton of bond
premums provded theren s not appcabe to premums pad for
such oans.
Premums pad for such oans by fe nsurance companes may
be amortzed by them, under secton 201(e) of the Code, over the
perod from the date of acquston to maturty or the earest
nterest payment date at whch payabe, or such other payment
date, pror to maturty, specfed n the securty as may be seected
by them.
Premums pad by banks for such oans consttute a part of
purchase prce, but, n vew of ther nature, are deductbe n pro-
portonate amounts n each ta abe year as payments of oan prn-
cpa are receved. In the event of sae or e change of such a oan,
ad|ustment must be made of ts gan or oss bass for the porton
or portons of the premum thereon prevousy deductbe (and
for any portons deducted n e cess of amounts deductbe n ta -
abe years barred from ad|ustment of ta abty.)
dvce has been requested regardng the treatment, for Federa
ncome ta purposes, of premums pad by banks and nsurance com-
panes upon purchasng Federa ousng dmnstraton nsured
mortgage oans from orgna enders.
Such mortgages are made ntay to a mortgagee approved by
the dmnstrator as responsbe and abe to servce the mortgage
propery (sees. 203(b)(1) and 003(b)(1) of the Natona ous-
ng ct, as amended), and oans secured by such mortgages, thereupon
nsured, were purchased from the orgna enders at a premum
(. e., at a prce n e cess of the prncpa amount of the mortgage
notes). It appears that such premums were pad prmary n vew
of these mortgage oans beng nsured and servced.
For Federa ncome ta purposes, under the Interna Revenue Code
and reguatons, e cept where speca provson s made, premums
pad upon the purchase of securtes consttute to the purchaser a part
of the purchase prce or cost of the securty. (See New York Lfe In-
surance Company v. dwards, T U. S. 109, T. D. 3S72, C. . -,
305 (192G).) Such speca provsons are contaned n secton 125 of
the Interna Revenue Code, reatng to amortzabe bond premums,
and secton 201 of the Code, reatng to the ta on fe nsurance
companes.
Secton 125 of the Code generay provdes for the amortzaton of
bond premums, but ony n the case of any bond as defned n sub-
secton (d) thereof, namey, any bond, debenture, note or certfcate,
or other evdence of ndebtedness ssued by any corporaton and bear-
ng nterest (ncudng any ke obgaton ssued by a government or
potca subdvson thereof) wth nterest coupons or n regstered
f orm. Snce Federa ousng dmnstraton nsured mortgage oans
are not ssued by ether a corporaton, a government, or a potca sub-
dvson thereof, such oans are not bonds for the purposes of that
secton and, therefore, ts provsons do not appy to premums on such
oans.
Secton 201 (e) of the Code provdes for certan ad|ustments on ac-
count of amortzaton of premums and accrua of dscount on bonds,
notes, debentures, or other evdences of ndebtedness hed by a fe
nsurance company. Secton 29.201-9 of Reguatons 111 provdes
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1 5
Regs. I, 29. -5.
for amortzaton of the premum on such bonds and notes over the
perod from the date of ther acquston to ther maturty or earest
nterest payment date, f payabe at such date, or such other payment
date, pror to maturty, specfed n the securty as may be seected
by the fe nsurance companes. The servce has hed that such pro-
vson n the reguatons for premum amortzaton s appcabe to
Federa ousng dmnstraton nsured mortgage oans.
Under the present statute, premums pad by banks on Federa
ousng dmnstraton nsured mortgage oans consttute to them a
part of the purchase prce pad therefor and, as such, are not deduct-
be from gross ncome when pad. owever, snce such premums
appear to have been pad prmary n vew of these mortgage oans
beng nsured and servced, and the oans are payabe n nstaments,
the Servce has hed that the banks may deduct for each ta abe year
the same proporton of the tota premum as the payment on prncpa
of a oan durng the year bears to ts prncpa (face) amount when
purchased. Shoud such a oan be pad pror to maturty, the porton
of the tota premum whch, under the above-stated rue, was not pre-
vousy deductbe (and was not deducted n any ta abe year barred
from ad|ustment of ta abty) s deductbe for the ta abe year n
whch the oan s pad. In the event of sae or e change of such a oan,
ad|ustment must be made of ts gan or oss bass for the porton or
portons of the premum prevousy deductbe (and for any portons
deducted n e cess of amounts deductbe n ta abe years barred from
ad|ustment of ta abty). See secton 113(b) of the Code; aso
G. C. M. 19367, C. . 1937-2,115, and G. C. M. 235 7, C. . 19 3, 213.
s provded n secton 29.113(b) (1)-1 of Reguatons 111, d|ust-
ments must aways be made to emnate doube deducton or ther
equvaent.
S CTION . INST LLM NT SIS
Reguatons 111, Secton 29. -5: Gan or oss T. D. 60 1
upon dsposton of nstament obgatons.
( so Secton 112(b), Secton 29.112(b) (6)-3;
Secton 112(f), Secton 29.112(f)-3; Secton
131, Secton 29.131-3.)
TITL 26 INT RN L R NU . C PT R I. SU C PT R , P RT 29.
INCOM T ; T L 1 RS GINNING FT R D C M R 1, 10 1
Msceaneous changes n procedure n connecton wth the trans-
fer of certan functons to dstrct drectors of nterna revenue.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. 0.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
Reguatons 111 26 CFR, pt. 29 are amended as foows:
Paragraph 1. Secton 29. -5 (reatng to gan or oss upon dspos-
ton of nstament obgatons), as amended by Treasury Decson
533 C. . 19 ,160 , approved February 2 ,19 , s further amended
by nsertng mmedatey after the second sentence of the second para-
graph from the end thereof the foowng new sentence:
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Regs. I, 29. -5.)
On and after September 1, 1953, the functons of the Commssoner wth respect
to such bonds sha be performed by the dstrct drector of nterna revenue for
the nterna revenue dstrct n whch the ast return of the decedent s fed,
and any bond fed on or after such date sha be fed wth such dstrct drector.
Par. 2. Secton 29.112(b) (6)-3 (reatng to qudatons coverng
more than 1 ta abe year) s amended as foows:
( ) y strkng from the frst sentence of paragraph (b) thereof
the words for transmtta to the Commssoner .
( ) y strkng the frst sentence of paragraph (c) thereof and
nsertng n eu thereof the foowng:
For each of the ta abe years whch fas whoy or party wthn the perod of
qudaton, the recpent corporaton may be requred to fe a bond, the amount
of whch sha be f ed by the dstrct drector of nterna revenue.
(C) y nsertng at the end of paragraph (c) thereof the foowng
sentence:
On and after September 1,1903, the functons of the Commssoner wth respect
to such bonds sha be performed by the dstrct drector of nterna revenue for
the nterna revenue dstrct n whch the return was fed, and any bond fed
on or after such date sha be fed wth such dstrct drector.
Par. 3. Secton 29.112(f)-3( ) (reatng to nvountary converson
where dsposton of the converted property occurred after December
31, 1950), as added by Treasury Decson 5991 C. . 1953-1, 1 6 ,
approved February 17,1953, s hereby amended by strkng that part
of the thrd paragraph whch foows the frst sentence and nsertng
n eu thereof the foowng:
Such appcaton sha be made pror to the e praton of the 1 year after the
cose of the frst ta abe year n whch any part of the gan from the converson
s reazed, and sha contan a of the detas n connecton wth the nvountary
converson. Such appcaton, f made pror to September 1, 1953, sha be made
to the Commssoner, or, f made on or after September 1, 1953, sha be made to
the dstrct drector of nterna revenue for the nterna revenue dstrct n whch
the return s fed for the frst ta abe year n whch any of the gan from the
nvountary converson s reazed. No e tenson of tme sha be granted pur-
suant to such appcaton uness the ta payer can show reasonabe cause for
not beng abe to repace the converted property wthn the requred perod of
tme.
Par. . Secton 29.131-3 (reatng to condtons of aowance of
credt for ta es pad other than to the Unted States), as amended by
Treasury Decson 5917 C. . 1952-2, 1 5 , approved November 19,
1952, s further amended by nsertng after the ast sentence of the
thrd paragraph thereof the foowng new sentence:
On and after September 1, 1953, the functons of the Commssoner wth respect
to such bonds sha be performed by the dstrct drector of nterna revenue, and
any bond fed on or after such date sha be fed wth the dstrct drector.
ecause ths Treasury Decson merey changes the desgnaton of
the offca wth whom certan bonds and appcatons for e tenson
must be fed, and reeves certan ta payers from the requrement
of fng bonds, t s found that t s unnecessary to ssue such Treasury
Decson wth notce and pubc procedure thereon under secton (a)
of the dmnstratve Procedure ct, approved une 11,19 6, or sub-
|ect to the effectve date mtaton of secton (c) of sad act.
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1 7 Regs. I, 29. 6-1.
(Ths Treasury Decson s ssued under the authorty contaned n
sec. 3791 of the Interna Revenue Code (53 Stat. 67 ; 26 L S. C.
3791).)
T. Coeman ndrews,
Commssoner of Interna Revenue.
pproved September 9, 1953.
M. . Fosom,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster September 1 ,1953, : 9 a. m.)
S CTION 6. C NG OF CCOUNTING P RIOD
Reguatons 111, Secton 29. 6-1: Change of T. D. 6035
accountng perod.
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
Secton 29. 6-1 of Reguatons 111 amended to provde that ta -
payers may make a change of accountng perod under certan cr-
cumstances wthout obtanng the pror approva of the Comms-
soner.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. G.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
Secton 29. 6-1 of Reguatons 111 26 CFR, pt. 29 , as amended by
Treasury Decson 561 C. . 19 -1, 50 , approved May 11,19 , s
further amended as foows:
( ) y changng the headng thereof to read as foows: Change
of ccountng Perod. (a) Short ta abe years endng pror to
uy, 1953:
( ) y revsng the second and thrd sentences thereof to read as
foows:
owever, f the short ta abe year for whch a return woud be requred to effect
the change ends after uy 31, 19 3, but not ater than une 30, 1953, such ta -
payer sha, before usng the new perod for ncome ta purposes, secure the
consent of the Commssoner, and appcaton for permsson to change the ac-
countng perod sha be made drect to the Commssoner on Form 112 at east
60 days pror to the cose of the short ta abe year for whch a return woud be
requred to effect the change. If a change of accountng perod of a subsdary
s requred for ncome ta purposes under secton 2 .1 of Reguatons 129 26
CFR, pt. 2 , the nformaton requred on Form 112 sha be furnshed by the
subsdary at or before the tme of fng the consodated ncome ta return.
(C) y addng at the end thereof the foowng:
(6) Short ta abe years endng after une SO, 1953. (1) Genera change
of accountng perod for ncome ta purposes requrng a return for a short
ta abe year endng after une 30,1953, Is authorzed, e cept where Inconsstent
wth secton 1, requrng the use of the caendar year batds In certan specfc
cases, and e cept as provded n subparagraph 2 of ths paragraph, and no app-
caton for such change need be fed. To make such a change the ta payer sha
fe a ta return on or before the 15th day of the 3d fu caendar month foow-
ng the cose of the short ta abe year accompaned by a statement that t s
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Regs. I, 29. 6-1.
1
made under the authorzaton conferred by ths secton. Once a change of ac-
countng perod has been made, the ta payer sha thereafter make hs returns
and compute hs net ncome on the bass of the new accountng perod.
(2) Cases n chch approva of change of accountng perod s requred.
The pror approva of the Commssoner w be requred before a ta payer may
change hs accountng perod If any of the foowng condtons e st:
() t any tme wthn the 5 caendar years endng wth the caendar
year whch Incudes the begnnng of the short ta abe year requred to effett
the change of accountng perod the ta payer has changed hs accountng
perod for ncome ta purposes. For the purpose of ths subparagraph a
change of accountng perod for ncome ta purposes by a partnershp sha
be consdered as a change by each member thereof and a change by any
member sha be deemed to be a change by the partnershp. Lkewse, a
change of accountng perod for ncome ta purposes by a trust sha be
consdered as a change by each benefcary thereof and a change by a bene-
fcary sha be deemed to be a change by the trust.
() The short ta abe year requred to effect the change of accountng
perod ends more than 3 months and ess than 0 months after the cose of
the accountng perod used by the ta payer for purposes of fng hs ncome
ta return for the prevous fu ta abe year.
( ) The ta payer s net ncome for the short ta abe year requred to
effect the change of accountng perod, as annuazed n the manner provded
n secton 29. 7-2, s ess than 0 percent of the net ncome of the ta payer
for the fu ta abe year mmedatey precedng such short ta abe year.
The appcaton of certan cf the foregong provsons Is ustrated by the
foowng e ampe:
ampe. fes hs ncome ta returns on a caendar year bass. e desres
to change Ids accountng perod durng the year 195 n order to fe hs returns
on a fsca year bass endng March 31. has not prevousy changed hs ac-
countng perod. s ncome for the perod anuary 1 through March 31, 19. .
when annuazed n accordance wth secton 29. 7-2, equas at east SO percent of
hs net ncome for the caendar year 1953. s authorzed to change hs
accountng perod by fng, on or before une 15, 195 , a ta return for the short
ta abe year begnnng anuary 1 and endng March 31,195 . Thereafter sha
make hs annua returns and compute hs net ncome on the bass of a fsca
year endng March 31.
ad preferred, he coud have changed to a fsca year bass endng the ast
day of anuary, February, September, October, or November. owever, f
had eected to change to a fsca year accountng perod endng on the ast day
of pr, May, une, uy, or ugust, the pror approva of the Commssoner
woud be requred snce such a change woud resut n a return for a short
ta abe year endng more than 3 months and ess than 9 months after the cose
of the accountng perod reguary used by .
Where pror approva of a change of accountng perod s requred, appcaton
sha be fed on Form 112 wth the Commssoner of Interna Revenue, Wash-
ngton. D. C, on or before the 15th day foowng the cose of the short ta abe
year for whch a return woud be requred to effect the change of accountng
perod. In genera, an appcaton for a change of accountng perod w be
approved where the ta payer estabshes vad busness reasons for makng such
change. change of accountng perod Intended to be made prmary for the
purpose of effectng a ta savng sha not be aowed e cept where such ta
savng resuts from the appcaton of secton 12(d), the so-caed ncome spt-
tng provson, n the case where a husband and wfe adopt the same accountng
perod n order to fe a |ont return and no other reason appears whch s con-
sdered suffcent by the Commssoner for denyng such permsson.
(3) Change of accountng perod ;/ a subsdary corporaton fUng a conso-
dated return. The foregong provsons of ths paragraph have no appcaton n
the case of a subsdary corporaton requred to change ts accountng perod
because It has eected to fe consodated returns. (See sec. 2 .1 , Regua-
tons 129.) In such a case, f a change of accountng perod Is made on or after
uy 1, 1953, the corporaton sha compete Form 112 and forward It to the
drector of nterna revenue wth whom the consodated return s to be fed
at or before the tme of fng of such consodated return.
ecause ths Treasury Decson makes ony procedura changes n
net effect reevng restrctons, t s found unnecessary to ssue such
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1 9
Regs. I, 29.53-1.
Treasury Decson wth notce and pubc procedure thereon under
secton (a) of the dmnstratve Procedure ct, approved une 11,
19 6, or sub|ect to the effectve date mtaton of secton (c) of sad
act.
(Ths Treasury Decson s ssued under the authorty contaned n
sees. 62 and 3791 of the Interna evenue Code (53 Stat. 32, 67:
26 U. S. C. 62, 3791).)
T. Coeman ndrews,
Commssoner of Interna Revenue.
M. . Fo 0m,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster ugust 3,1953, : 52 a. m.)
P RT . R TURNS ND P YM NT OF T
S CTION 53. TIM ND PL C FOR FILING R TURNS
Reguatons 111, Secton 29.53-1: Tme for Rev. Ru. 215
fng returns.
( so Secton 56, Secton 29.56-1.)
INT RN L R NU COD
corporaton whch has satsfed or made provson for a of ts
abtes and dstrbuted a of ts assets pror to the end of ts
annua accountng perod has competed qudaton thereby effectng
a de facto dssouton and must fe ts Federa Income ta return
and pay ts ta on or before the 15th day of the thrd fu month
foowng such qudaton uness a ater date for fng the return
s permtted by the Commssoner. The corporaton may eect,
however, to pay the ta n nstaments n accordance wth secton
56(b) of the Code. O. D. 692, C. . 3,2 6 (1920), s nappcabe wth
respect to ta abe years begnnng after December 31, 19 1.
dvce s requested reatve to the tme for fng a Federa ncome
ta return and payment of the ta by a corporaton whch qudated
pror to the end of ts norma annua accountng perod.
Secton 7(g) of the Interna Revenue Code provdes as foows:
(g) Returns Whebe Ta payer Not n stence for Tweve Months. In
the case of a ta payer not n e stence durng the whoe of an annua accountng
perod endng on the ast day of a month, or, f the ta payer has no such annua
accountng perod or does not keep books, durng the whoe of a caendar year,
the return sha be made for the fractona part of the year durng whch the
ta payer was n e stence.
Secton of the Code, defnng certan terms used n chapter 1 of
the Code, provdes n part as foows:
(a) Ta abe Year. Ta abe year means, n the case of a return
made for a fractona part of a year under the provsons of ths chapter or under
reguatons prescrbed by the Commssoner wth the approva of the Secretary,
the perod for whch such return s made.
Secton 29.52-1 of Reguatons 111 provdes that a corporaton hav-
ng an e stence durng any porton of a ta abe year s requred to
make a return. If a corporaton was not n e stence throughout an
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S 55.
150
annua accountng perod (ether caendar year or fsca year), the
corporaton s requred to make a return for that fractona part of a
year durng whch t was n e stence. corporaton s not n e st-
ence after t ceases busness and dssoves, retanng no assets, whether
or not under State aw t may thereafter be treated as contnung as a
corporaton for certan mted purposes connected wth wndng up
ts affars, such as for the purpose of sung and beng sued. If the
corporaton has vauabe cams for whch t w brng sut durng
ths perod, t has retaned assets, and t contnues n e stence.
Secton 29.53-1 of Reguatons 111 provdes that, n genera, re-
turns of ncome must be fed on or before the 15th day of the thrd
fu caendar month foowng the cose of the ta abe year. ow-
ever, n the case of a return for a fractona part of a year, the Com-
mssoner may, upon a showng by the ta payer of unusua
crcumstances, prescrbe a ater tme for the fng of the return.
Such secton further provdes that a corporaton gong nto quda-
ton durng any ta abe year may, upon the competon of such
qudaton, prepare a return for that year coverng ts ncome for the
part of the year durng whch t was engaged n busness and may
mmedatey fe such return wth the coector (now dstrct
drector).
In vew of the foregong, t s hed that a corporaton whch has
satsfed or made provson for a of ts abtes and dstrbuted
a of ts assets pror to the end of ts annua accountng perod has
competed qudaton thereby effectng a de facto dssouton and must
fe ts Federa ncome ta return and pay ts ta on or before the 15th
day of the thrd fu month foowng such qudaton uness a ater
date for fng the return s permtted by the Commssoner. See
I. T. 3 71, C. . 19 7-2, G2. The corporaton may eect, however,
to pay the ta n nstaments n accordance wth secton 56(b) of
the Code. O. D. 692, C. . 3, 2 G (1920), s nappcabe wth respect
to ta abe years begnnng after December 31, 19 1.
S CTION 55. PU LICITY OF R TURNS
Rev. Ru. 132
INT RN L R NU COD
The ureau s wthout authorty to permt the banket nspecton
of Federa estate and gft ta returns by State offcas or by
brandes of the Government other than the Treasury Department.
dvce s requested whether propery desgnated State offcas or
representatves of branches of the Government other than the Treasury
Department may be permtted to make banket nspectons of Federa
estate and gft ta returns.
The nspecton of Federa estate and gft ta returns and reated
papers by States and by branches of the Government, other than the
Treasury Department, s governed by the provsons of T. D. 929,
C. . 1939-2, 91, as amended by T. D. 991, C. . 19 0-2, 92.
Subpart C of T. D. 929, reatng specfcay to estate and gft ta
returns, provdes n part as foows:
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151
55.
Sec. 63C.20. Genera. state ta returns and notces and gft ta returns,
fed under the Interna Revenue Code, sha be treated as prveged commun-
catons and sha not be nspected nor ther contents dscosed e cept as heren-
after provded.

Sec. 63C.23. Inspecton by State offcas. return or notce may be e hbted,
or nformaton contaned theren may be dscosed, to an offcer of any State, for
offca use In connecton wth an estate, nhertance, egacy, successon, gft, or
other ta of the State, provded a ke cooperaton Is gven by the State to the
Commssoner or hs representatves for use n the admnstraton of the Federa
ta aws. Such offcer may aso be permtted to nspect schedues, sts, and
other statements desgned to be suppementa to or to become a part of, the
orgna return, and other records and reports whch contan nformaton n-
cuded or requred by statute to be ncuded In the return.
Subpart D, reatng to genera provsons, provdes n part as
foows:
Sec. 63C.30. Scope. The foowng provsons, uness otherwse stated, are
appcabe to a returns referred to n subparts and C of these reguatons.
Sec. 63C.31. Permsson to nspect. The Commssoner, upon wrtten appca-
ton settng forth fuy the reason for the request, may grant permsson for the
nspecton of returns n accordance wth these reguatons.

Sec. 63C.33. (a) Inspecton by branch of Government other than Treasury
Department. cept as provded n 63C.3 , f the head of an e ecutve depart-
ment (other than the Treasury Department), or of any other estabshment of
the Unted States Government, desres to Inspect or to have some other offcer
or empoyee of hs branch of the servce nspect a return n connecton wth some
matter offcay before hm, the nspecton may, n the dscreton of the Secre-
tary of the Treasury, be permtted upon wrtten appcaton to hm by the head
of such e ecutve department or other Government estabshment. The appca-
ton sha be sgned by such head and sha show n deta why the nspecton
s desred, the name and address of the ta payer who made the return, and the
name and offca desgnaton of the person It s desred sha nspect the return.
The nformaton obtaned under ths secton and secton 03C.32 may be used
as evdence n any proceedng, conducted by or before any department or estab-
shment of the Unted States, or to whch the Unted States Is a party.
Secton 63.33(b) of T. D. 929, as amended by T. D. 991, provdes
for nspecton of ncome returns by representatves of the Dstrct of
Coumba and the severa Terrtores n the dscreton of the Comms-
soner of Interna evenue. Under ths secton banket nspectons of
ncome returns have been authorzed n order to permt propery
desgnated offcas of the Dstrct of Coumba and the severa terr-
tores to nspect ncome returns under a method of procedure smar
to that provded for nspecton by the States. Under secton
29.55(b)- of Reguatons 111 States are aowed to make banket n-
spectons of ncome returns but there are no provsons n the Interna
evenue Code or reguatons authorzng banket nspecton of Fed-
era estate and gft ta returns by State offcas. Secton 63C.23 of
T. D. 929, whch deas wth the nspecton of ndvdua Federa
estate and gft ta returns by State offcas, has not been nterpreted
as authorzng banket nspecton of such returns.
In vew of the foregong t s hed that athough sectons 63C.23
and 63C.33(a) of T. D. 929, supra, authorze the nspecton of Fed-
era estate and gft ta returns by State offcas and branches of the
Government other than the Treasury Department, such nspecton s
mted to specfc cases and does not e tend to banket nspecton of
such returns.
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5 55.
152
Rev. Ru. 229
INT RN L R NU COD
Processng by dstrct drectors of certan appcatons to Inspect
returns and reated papers.
1. ffectve ugust 2 , 1953, the udt Dvson n the Natona
Offce dscontnued the processng of appcatons to nspect returns
and reated documents retaned for permanent fng n dstrct d-
rectors offces (or requests for copes of such returns and reated
documents) whch are submtted to the Commssoner pursuant to
the provsons of Treasury Decson 929, C. . 1939-2,91, as amended
by Treasury Decson 5019, C. . 19 0-2, 95, Treasury Decson 9 5,
C. . 1939-2, 97, as amended by Treasury Decson 5 0 , C. . 1950-2,
3 , and Treasury Decson 513 , C. . 19 2-1, 99, by the appcants
sted n paragraph 2 beow cf ths Revenue Rung. such ap-
pcatons on hand and not n process n the udt Dvson on the
effectve date, or receved after that date, w be forwarded to dstrct
drectors for dsposton. ny such appcatons submtted to dstrct
drectors w be handed by them n the same manner as f addressed
to the Commssoner and forwarded to the dstrct drectors for
handng.
2. The processng of appcatons referred to n paragraph 1 of
ths Revenue Rung appy ony wth respect to appcatons sub-
mtted by the appcants sted beow:
a. Returns Under Chapters 1 and 2, Interna Revenue Code.
(1) Indvdua returns. (a) The maker of a separate
return;
(b) ther spouse for whom a |ont return was made,
upon satsfactory showng of such reatonshp;
(c) The admnstrator, e ecutor, trustee, or guardan of
the estate of the maker of a separate return or of a spouse
for whom a |ont return was made, f such maker or spouse
s deceased or has become egay ncompetent;
(d) n her at aw, ne t of kn, or benefcary under the
w of a deceased person who shows that he has a matera
nterest whch w be affected by nformaton contaned n
the return of the decedent;
(e) recever or trustee n bankruptcy, f the property
of the person who made the return s n the hands of such
recever or trustee; or
(/) The duy consttuted attorney n fact of any of the
foregong.
(2) Partnershp returns. (a) n ndvdua who was
a member of the partnershp durng any part of the tme
covered by the return upon satsfactory showng of such
membershp;
( ) The admnstrator, e ecutor, trustee, or guardan of
the estate of a member durng any part of the tme covered
by the return who has ded or become egay ncompetent;
(c) n her at aw, ne t of kn, or benefcary under the
w of the deceased member who shows that he has a ma-
tera nterest whch w be affected by nformaton contaned
n the return;
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153
(d) recever or trustee, f the property of the partner-
shp s n the hands of such recever or trustee n bankruptcy;
or
(e) The duy consttuted attorney n fact of any of the
foregong.
(3) state returns. (a) The admnstrator, e ecutor, or
trustee of such estate;
(6) n her at aw, ne t of kn, or benefcary under the
w of the decedent for whose estate the return s made,
upon a showng of a matera nterest whch w be affected
by nformaton contaned n the return;
(c) The admnstrator, e ecutor, trustee, or guardan of
the estate of an her a aw, ne t of kn, or benefcary under
a w who has ded or become egay ncompetent, upon a
showng of a matera nterest whch w be affected by
nformaton contaned n the return; or
(d) The duy consttuted attorney n fact of any of the
foregong.
( ) Trust returns. (a) The trustee or trustees, |onty or
severay;
(6) ny ndvdua who was a benefcary of the trust
durng any part of the tme covered by the return upon
satsfactory showng that he was such benefcary;
(c) The admnstrator, e ecutor, trustee, or guardan of
the estate of a benefcary durng any part of the tme covered
by the return who has ded or has become egay ncom-
petent ;
(d) n her at aw, ne t of kn, or benefcary under the
w of the deceased benefcary upon a showng of a matera
nterest whch w be affected by nformaton contaned n
the return; or
(e) The duy consttuted attorney n fact of any of the
foregong.
(5) Corporaton returns. (a) ny person desgnated by
acton of ts board of drectors, or other smar governng
body, upon submsson of satsfactory evdence of such
acton;
(b) ny offcer or empoyee upon wrtten request to the
Commssoner, sgned by any prncpa offcer and attested
by the secretary, or other offcer, under the corporate sea, f
any; _
(c) The duy consttuted attorney n fact of the corpora-
ton;
(d) In the case of a corporaton whch has snce been ds-
soved, by any person who mght have nspected at date of
dssouton;
(e) recever or trustee, f the property of the corporaton
s n the hands of such recever or trustee n bankruptcy, or
by the duy consttuted attorney n fact of such recever or
trustee; or
(/) bona fde sharehoder of record ownng 1 percent or
more of the outstandng stock. No power of attorney n
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55.
15
ths respect may be accepted, snce the prvege to a share-
hoder s persona and may not be deegated to another.
b. Returns Under Chapters 3 and , Interna Revenue
Code.
(1) state ta returns. (a) The e ecutor, or hs succes-
sor n offce, or hs duy consttuted attorney n fact; or
(6) ny other person havng a matera nterest n ascer-
tanng any fact dscosed by the return, or n obtanng
nformaton as to payment of the ta .
(2) Gft ta returns. (a) The donor or hs duy au-
thorzed attorney n fact; or
(b) ny other person havng a matera nterest n ascer-
tanng any fact dscosed by the return, or n obtanng
nformaton as to payment of the ta .
c. Returns Under Chapters 7, 12, 21, 30, Subchapter C op
Chapter 9, and Subchapter of Chapter 29, Interna Rev-
enue Code.
(1) Same casses of appcants sted n paragraph 2a,
above, coverng returns under chapters 1 and 2 of the Code.
3. ppcants entted to nspect returns may be furnshed copes
thereof and may aso nspect, and receve copes of, nformaton
returns, schedues, etc., desgnated to be suppementa to or become
part of returns, as we as records and reports reatng to the returns.
The pocy wth respect to what documents may be nspected s gen-
eray as foows:
a. If the nspecton of returns and the furnshng of copes of
returns s authorzed, schedues, nformaton returns, protests,
brefs, face of cams, wavers, and other statements or documents
desgned to be suppementa to or become part of the return, may
aso be nspected and copes furnshed.
b. amners reports may be nspected and copes furnshed
to the e tent that such reports have prevousy been furnshed to
the ta payers; therefore, the transmtta etter porton of a reve-
nue agent s report, or a separate confdenta report, whch con-
tans nformaton for Servce use ony, may not be nspected or
copes furnshed.
c. Conference reports may not be nspected or copes furnshed
wth the e cepton of the pages showng recomputaton of ta
abty.
d. Work papers of e amners, engneers reports, cover etters
of the reports n whch opnons are e pressed, reports of speca
agents, and nteroffce communcatons, may not be nspected or
copes furnshed, uness specfc authorzaton s gven by the
Commssoner.
e. Inspecton of cams for refund and furnshng of copes w
be mted to the face of the cam ony, snce the back of the cam
contans Servce records. Typed copes of offce copes of certf-
cates of overassessment may be furnshed; no photostat copes of
certfcates of overassessment are to be made.
. Copes of returns, etc., may be certfed by dstrct drectors and
assstant regona commssoners ( ppeate) ony as provded n
T. I). 5S0 , supra. other requests for certfed copes of documents
w be handed by the udt Dvson n the Natona Offce.
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155
101
5. In submttng the appcatons wthn the purvew of ths Rev-
enue Rung, a the evdentary requrements of the Treasury De-
csons cted n paragraph 1 must be comped wth. Inspectons are
permtted ony n the presence of desgnated nterna revenue offcers.
S CTION 56. P YM NT OF T
Reguatons 111, Secton 29.56-1: Date on
whch ta sha be pad.
INT RN L R NU COD
Tme for payment of ta shown to be due on corporaton return
fed for a fractona part of a year. (See Rev. Ru. 215, p. 1 9.)
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
Rev. Ru. 133
INT RN L R NU COD
The revocaton of the ta -e empt status, for ta abe years be-
gnnng after December 31, 1951, of certan banks and budng and
oan assocatons by the Revenue ct of 1951, does not affect the
e empton from Federa ncome ta es of natona fnrm oan assoca-
tons whch are st entted to e empton under secton 101(10) of
the Interna Revenue Code.
dvce s requested whether the revocaton of the ta -e empt status,
for ta abe years begnnng after December 31,1951, of certan banks
and budng and oan assocatons by the Revenue ct of 1951, affects
the e empton from Federa ncome ta es of natona farm oan
assocatons under secton 101(15) of the Interna Revenue Code.
Secton 101(15) of the Interna Revenue Code whch provdes for
the e empton from Federa ta of certan corporatons, reads as
foows:
(15) Corporatons organzed under ct of Congress, f such corporatons
are nstrumentates of the Unted States and f, under such ct, as amended
and suppemented, such corporatons are e empt from Federa ncome ta es;
Secton 313 of the Revenue ct of 1951 repeaed the e empton,
under secton 101(15) of the Interna Revenue Code, of Federa sav-
ngs and oan assocatons for ta abe years begnnng after December
31,1951, by amendng secton 5(h) of the ome Owners Loan ct of
1933, as amended, Stat. 12 . owever, such amendment does not
affect natona farm oan assocatons, whch are e empt from Federa
ta pursuant to secton 26 of the Federa Farm Loan ct, 39 Stat. 360,
as amended, whch provdes n part as foows:
very Federa and bank and every natona farm oan assocaton, Incudng
the capta and reserve or surpus theren and the Income derved therefrom,
sha be e empt from Federa, State, muncpa, and oca ta aton, e cept ta es
2 670 11
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Rons. I, 29.112(n)-.
156
upon rea estate hed, purchased, or taken by sad bank or assocaton under the
provsons of sectons 761 and 7 1 of ths tte.
ccordngy, t s hed that the revocaton of the ta -e empt status,
for ta abe years begnnng after December 31,1951, of certan banks
and budng and oan assocatons by the Revenue ct of 1951, does
not affect the e empton from Federa ncome ta es of natona farm
oan assocatons whch are st entted to e empton under secton
101(15) of the Interna Revenue Code.
S CTION 102. SURT ON CORPOR TIONS IMPROP-
RLY CCUMUL TING SURPLUS
Reguatons 111, Secton 29.102- : Computaton
of undstrbuted secton 102 net ncome.
INT RN L R NU COP
Reguatons 111 amended. (See T. D. G021, p. 169.)
SUPPL M NT . COMPUT TION OF N T INCOM
S CTION 112(b). R COGNITION OF G IN OR LOSS:
C NG S SOL LY IN IND
Reguatons 111, Secton 29.112(b) (6)-3: Lqu-
datons coverng more than one ta abe year.
nterna revenue code
Reguatons 111 amended. (See T. D. 60 1, p. 1 5.)
S CTION 112(f). R COGNITION OF G IN OR LOSS:
IN OLUNT RY CON RSION
Reguatons 111, Secton 29.112 (f)-3: Invo-
untary converson where dsposton of the
converted property occurred after December
31,1950.
INT RN L R NU COD
Reguatons I amended. (See T. D. 60 1, p. 1 5.)
S CTION 112(n). R COGNITION OF G IN OR LOSS:
G IN FROM S L OR C NG OF R SID NC
Reguatons 111, Secton 29.112(n)-: Gan from
sae or e change of resdence.
nterna revenue code
Defcency nterest on recognzed gan from sae of ta payer s prn-
cpa resdence. (See Rev. Ru. 112, p. 226.)
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157 Regs. I, 29.113(a)(1 )-1.
S CTION 113(a). D UST D SIS FOR D T RMINING
G IN OR LOSS: SIS (UN D UST D) OF PROP RTY
Reguatons 111, Secton 29.113(a) (5)-: ass
of property acqured by bequest, devse, or
nhertance.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. 6020, p. 100.)
Reguatons 111, Secton 29.113(a) (5)-: ass
of property acqured by bequest, devse, or
nhertance.
nterna revenue code
ffect of a change n partnershp nterests upon the bass of such
nterests and of partnershp assets. (See Rev. Ru. 1 , p. 212.)
Reguatons 111, Secton 29.113(a) (5)-1: ass
of property acqured by bequest, devse, or
nhertance.
INT RN L R NU COD
ass of an annuty to a survvor annutant. (See Rev. Ru. 15 ,
p. 259.)
Reguatons 111, Secton 29.113(a) (13)-1: Prop-
erty contrbuted n knd by a partner to a part-
nershp.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. 6037, p. 213.)
Reguatons 111, Secton 29.113(a) (13)-1: Prop-
erty contrbuted n knd by a partner to a partner-
shp.
INT RN L R NU COD
ffect of a change n partnershp nterests upon the bass of such
nterests and partnershp assets. (See Rev. Ru. 1 , p. 212.)
Reguatons 111, Secton 29.113(a) (1 )-1: Prop-
erty acqured pror to March 1,1913.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. 6021, p. 169.)
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Regs. I, | 29.11 -1. 15
S CTION 113(b). D UST D SIS FOR D T RMINING
G IN OR LOSS: D UST D SIS
Reguatons 111, Secton 29.113(b) (1)-1: d-
|usted bass: Genera rue.
INT RN L R NU COD
Determnaton of gan or oss on the sae or e change of a Federa
ousng dmnstraton nsured mortgage oan for whch a premum
has been pad. (See Rev. Ru. 25 , p. 1 3.)
Reguatons 111, Secton 29.113(b) (1)-1: d-
|usted bass: Genera rue.
INT RN L R NU COD
Reguatons 111 anmeded. (See T. D. 6023, p. 132.)
S CTION 11 . SIS FOR D PR CI TION
ND D PL TION
Reguatons 111, Secton 29.11 -1: ass for Rev. Ru. 1
aowance of deprecaton and depeton.
( so Secton 23(m), Secton 29.23(m)-.)
nterna revenue code
Processes whch may be consdered to be mnng processes n the
case of ow-grade ron ores for the purpose of determnng gross
ncome for the computaton of percentage depeton.
dvce s requested whether certan processes apped n the case of
ow-grade ron ores may be consdered to be mnng processes for the
purpose of determnng gross ncome from the property for the com-
putaton of percentage depeton.
Low-grade ron ores are frst ground or, f necessary, puverzed to
free ferrous partces from nonferrous partces. If the ferrous par-
tces at ths stage are magnetc, separaton from the nonferrous
partces may be accompshed by magnetc forces. If the ferrous
partces are not magnetc, a so-caed magnetc roast may be ap-
ped whch reduces such partces to a magnetc state, thereby makng
magnetc separaton possbe. Ths so-caed magnetc roast s not
a true roast, such as that e cuded from the mnng processes by secton
11 (b) ( ) ( ) (v) of the Interna Revenue Code, whch s an o dz-
ng process. It s a cosey controed therma process carred on n a
reducng atmosphere, and t removes some of the o ygen from the
nonmagnetc partces.
Other processes may aso be apped. When the separaton of fer-
rous and nonferrous partces s carred on by wet processes, such as
fotaton or heavy meda, t may be necessary to remove as much of
the reagents or meda and water as practcabe, by ftraton or equva-
ent processes. If the concentrates so obtaned are of shppng grade
and form, they may be oaded and shpped. If not, snterng or some
substantay equvaent process may be apped to brng the concen-
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159
Regs. I, 29.115-9.
trates to shppng grade and form. Peetzng, noduzng, e trud-
ng, and brquettng may be consdered as equvaent to snterng,
provded they accompsh no more than to aggomerate the concen-
trates to sutabe shppng form.
It s hed that the grndng or puverzng necessary to free the
ferrous partces from the nonferrous partces, the reducng treat-
ment (magnetc roast) when t precedes magnetc concentraton, the
varous concentraton processes and such processes as fterng and
dryng ncdenta thereto, and such aggomeratng processes as pe-
etzng, noduzng, e trudng, or brquettng, when substantay
equvaent to snterng, are ordnary treatment processes normay
apped by mne owners or operators wthn the ntent of secton
11 (b) ( ) (13).
Reguatons 111, Secton 29.11 -1: ass for
aowance of deprecaton and depeton.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. 6031, p. 120.)
S CTION 115. DISTRI UTIONS Y CORPOR TIONS
Reguatons 111, Secton 29.115-9: Dstrbuton T. D. 6019
n redempton or canceaton of stock ta abe
as a dvdend.
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 sectons 20 and 209 of
the Revenue ct of 1950 and secton 320 of the .Revenue ct of 1951.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and
Others Concerned:
On May , 1952, notce of proposed ruemakng was pubshed n
the Federa Regster (17 F. R. 2 0) conformng Reguatons 111
26 CFR, pt. 29 to secton 20 (reatng to treatment of certan
redemptons of stock as dvdends) and secton 209 (reatng to re-
dempton of stock to pay death ta es) of the Revenue ct of 1950,
approved September 23, 1950, and to secton 320 of the Revenue ct
of 1951, approved October 20, 1951. fter consderaton of a such
reevant matter as was presented by nterested persons reatng to the
rues proposed, the amendments to Reguatons 111 set forth beow
are hereby adopted.
Paragraph 1. There s nserted mmedatey precedng secton
29.115-1 26 CFR 29.115-1 the foowng:
S C. 20 . TR TM NT OF C RT IN R D MPTIONS OF STOC
S DI ID NDS R NU CT OF 1950, PPRO D
S PT M R 23, 1950 .
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Regs. I, 29.115-9.
1G0
(a) mendment of Secton 115(g) Secton 115(g) (reatng to re-
dempton of stock) s hereby amended to read as foows:
(g) Redempton of Stock.
(1) In genera. If a corpornton cances or redeems ts stock
(whether or not such stock was Issued as a stock dvdend) at such
tme and n such manner as to make the dstrbuton and cancea-
ton or redempton n whoe or n part essentay equvaent to
the dstrbuton of a ta abe dvdend, the amount so dstrbuted
n redempton or canceaton of the stock, to the e tent that t
represents a dstrbuton of earnngs or profts accumuated after
February 2 , 1913, sha be treated as a ta abe dvdend.
(2) Redempton through use of subsdary corporaton. If
stock of a corporaton (herenafter referred to as the ssung cor-
poraton) s acqured by another corporaton (herenafter referred
to as the acqurng corporaton) and the Issung corporaton con-
tros (drecty or ndrecty) the acqurng corporaton, the amount
pad for the acquston of the stock sha consttute a ta abe
dvdend from the ssung corporaton to the e tent that the amount
pad for such stock woud have been consdered, under paragraph
(1), as essentay equvaent to a ta abe dvdend f such amount
had been dstrbuted by the acqurng corporaton to the ssung
corporaton and had been apped by the ssung corporaton n
redempton of ts stock. For the purposes of ths paragraph, con-
tro means the ownershp of stock possessng at east 50 per centum
of the tota combned votng power of a casses of stock entted
to vote or at east 50 per centum of the tota vaue of shares of a
casses of stock of the corporaton.
(b) ffectve Date. The amendment made by subsecton (a) sha
be appcabe to ta abe years endng after ugust 31, 1950, but sha
appy ony wth respect to amounts receved after snch date.
S C. 209. R D MPTION OF STOC TO P Y D T T S
R NU CT OF 1950, PPRO D S PT M R 23, 1950 .
(a) Certan Dstrbutons Not Treated as Dvdends. Secton
115(g) (reatng to redemptons of stock) Is hereby amended by addng
at the end thereof the foowng:
(3) Redempton of stock to pat death ta es. The provsons
of ths subsecton sha not appy to such part of any amount so
dstrbuted wth respect to stock the vaue of whch s Incuded n
determnng the vaue of the gross estate of a decedent n accordance
wth secton 11, as s dstrbuted after such decedent s death and
wthn the perod of mtatons for the assessment of estate ta
provded n secton 7 (a) (determned wthout the appcaton of
secton 75) or wthn 90 days after the e praton of such perod,
and as s not n e cess of the estate, Inhertance, egacy, and suc-
cesson ta es (ncudng any Interest coected as a part of such
ta es) mposed because of such decedent s death: Provded, That
the vaue of the stock n such corporaton for estate ta purposes
comprses more than 50 per centum of the vaue of the net estate
of such decedent.
(b) ffectve Date. The amendment made by subsecton (a) sha
be appcabe to ta abe years endng on or after the date of the enact-
ment of ths ct, but sha appy ony to amounts dstrbuted on or after
such date.
S C. 320. R D MPTION OF STOC TO P Y D T T S
R NU CT OF 1951, PPRO D OCTO R 20, 1951 .
(a) mendment of Secton 115(g) (3). Secton 115(g) (3) (reatng
to redempton of stock to pay death ta es) s hereby amended by strkng
out 50 per centum of the vaue of the net estate and Insertng n eu
thereof 35 per centum of the vaue of the gross estate .
(b) ffectve Date. The amendment made by subsecton (a) sha
be appcabe to ta abe years endng on or after the date of the enact-
ment of ths ct, but sha appy ony to amounts dstrbuted on or after
such date.
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161
Regs. I, 29.115-9.
Par. 2. Secton 29.115-9 26 CFR 29.115-9 s amended as foows:
( ) y strkng from the headng thereof Dvdend. and by
nsertng n eu thereof Dvdend. (a) In genera.
( ) y nsertng at the end of such secton the foowng:
(6) Redempton of stock through use of subsdary corporaton. If stock of
one corporaton (herenafter referred to ns the ssung corporaton ) s
acqured from a sharehoder of such corporaton by another corporaton (here-
nafter referred to as the acqurng corporaton ), and f the ssung corpora-
ton contros, drecty or ndrecty, the acqurng corporaton, the amount pad
for such stock f receved by the sharehoder after ugust 31,1950, may consttute
a ta abe dvdend to such sharehoder. For the purpose of ths paragraph,
the ssung corporaton s deemed to contro the acqurng corporaton f t owns,
drecty or ndrecty, stock possessng 50 percent or more of the tota combned
votng power of a casses of stock of the acqurng corporaton entted to vote
or 50 percent or more of the tota vaue of shares of aU casses of stock of such
corporaton.
Where stock of one corporaton s acqured by another corporaton and the
ssung corporaton contros the acqurng corporaton, the amount pad for the
stock sha be treated, under secton 115(g), as though such amount had frst
been dstrbuted to the ssung corporaton and mmedatey thereafter had been
dstrbuted by such corporaton n redempton of such stock, to the sharehoders
from whom such stock was acqured. If and to the e tent a dstrbuton by the
ssung corporaton under such crcumstances woud be treated as essentay
equvaent to the dstrbuton of a ta abe dvdend under the prncpes of (a)
of ths secton, the amount pad by the acqurng corporaton sha be consdered
a dvdend to the sharehoder from the Issung corporaton.
(c) Redempton of stock to pay death ta es. Secton 115(g) (3) of the Interna
Revenue Code provdes that In certan cases a dstrbuton n canceaton or
redempton of stock, the vaue of whch s ncuded In determnng the vaue of
the gross estate of a decedent, sha not be treated as a dvdend under secton
115(g). Secton 115(g)(3) s appcabe ony wth respect to dstrbutons n
canceaton or redempton of stock made on or after September 23,1950. In the
esse of such dstrbutons made on or after September 23,1950, and before October
20, 1951, secton 115(g) (3) appes ony where the dstrbuton s wth respect
to stock of a corporaton the vaue of whose stock n the gross estate of the
decedent, for the purpose of the Federa estate ta , s an amount n e cess of
50 percent of the vaue of the net estate of such decedent. For the purpose of
the precedng sentence the term net estate of the decedent means the net
estate as computed for purposes of the addtona estate ta mposed by secton
935 of the Code. In the case of dstrbutons made on or after October 20,
1951, secton 115(g)(3) appes ony where the dstrbuton s wth respect to
stock of a corporaton the vaue of whose stock n the gross estate of the decedent
for purposes of the Federa estate ta s an amount n cess of 35 percent of
the gross estate of such decedent.
For the purpose of secton 115(g) (3), the term gross estate Tneans the gross
estate as computed n accordance wth secton 11 of the Code. See sectons
1.10 to 1.2 , ncusve, and 1.3 of Reguatons 105.
In determnng whether the estate of the decedent a comprsed of stock of a
corporaton of suffcent vaue to satsfy the percentage requrements of secton
115(g) (3) the tota vaue, n aggregate, of a casses of stock f a corporaton
ncudbe n the gross estate s taken nto account. Thus, f the gross estate of
the decedent, vaued for purposes of the Federa estate ta at 1,000,000, n-
cudes common stock of Corporaton vaued at 250,000, preferred stock of
Corporaton vaued at 110,000, preferred stock of Corporaton vaued at
370,000, and common stock of Corporaton C vaued at 50,000, secton 115(g) (3)
s appcabe to dstrbutons, after October 20,1951, n canceaton or redempton
of ether common or preferred stock of Corporaton (comprsng 3 0,000/
1,000,000 or 30 percent of the gross estate) or preferred stock of Corporaton ,
(comprsng 370,000/ 1,000,000 or 37 percent of the gross estate) but not to
dstrbutons n canceaton or redempton of stock of Corporaton C (comprsng
ony 5 percent of the gross estate).
Secton 115(g) (3) appes to dstrbutons made after the death of the decedent
and pror to the e praton of the 3-year perod of mtatons for the assessment
of estate ta provded n secton 7 (a) (determned wthout the appcaton of
any provson of aw e tendng or suspendng the runnng of such perod of
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Regs. I, 29.116-1.
162
mtatons) or wthn 90 days after the e praton of such perod. Snce the
perod for assessment of estate ta prescrbed n secton 7 (a) s a perod of
three years after the fng of the estate ta return, secton 115(g) (3) appes
ony to dstrbutons made not ater than three years and 90 days after the fng
of the estate ta return.
Whe secton 115(g)(3) w most frequenty have appcaton In the case
where stock s canceed or redeemed from the e ecutor or admnstrator of an
estate, the secton s aso appcabe to dstrbutons n canceaton or redemp-
ton of stock ncuded n the decedent s gross estate and hed at the tme of the
redempton by any person who acqured the stock by any of the means compre-
hended by the subdvsons of secton 11, ncudng the her, egatee, or donee of
the decedent, a survvng |ont tenant, survvng spouse, appontee, or taker n
defaut of appontment, or a trustee of a trust created by the decedent Thus,
secton 115(g) (3) may appy wth respect to a dstrbuton n canceaton or
redempton of stock from a donee to whom the decedent has transferred stock
n contempaton of death where the vaue of such stock s ncuded n the
decedent s gross estate under secton 11(c) (1) ( ). Smary, secton 115(g)
(3) may appy to the redempton of stock from a benefcary of the estate to
whom an e ecutor has dstrbuted the stock pursuant to the terms of the w
of the decedent. owever, secton 115(g) (3) s not appcabe to the case where
stock s redeemed from a stockhoder who has acqured the stock by gft or
purchase from any person to whom such stock has parsed from the decedent.
The tota appcaton of secton 115(g) (3) wth respect to stock ncuded n
the gross estate of any decedent can ne er e ceed the amount of the estate,
nhertance, egacy, and successon ta es (n-udng any nterest coected as a
part of such ta es) mposed because of the decedent s death. In determnng
whether the tota dstrbutons n redempton of such stock made wthn the
perod of tme prescrbed n secton 115(g) (3) e ceed the amount of such ta es
and Interest, account sha be taken of a such dstrbut .ons wthout regard to
whether any dstrbuton woud be treated as a dvdend were t not for secton
115(g)(3).
For the purpose of secton 115(g) (3), the Federa estate ta or any other
estate, nhertance, egacy, or successon ta sha be ascertaned after the
aowance of any credt, reef, dscount, refund, remsson, or reducton of ta .
The soe effect of secton 115(g) (3) s to e empt from ta as a dvdend a
dstrbuton to whch such secton s appcabe when made n redempton of stock
ncudbe n a decedent s gross estate. Such secton does not, however, n any
other manner affect the prncpes set forth n (a) of ths secton. Thus, f
stock of a corporaton s owned equay by , , and the C estate, and the corpora-
ton redeems one-haf of the stock of each sharehoder, the determnaton of
whether the dstrbutons to and are essentay equvaent to dvdends
sha be made wthout regard to the effect whch secton 115(g)(3) may have
upon the ta abty of the dstrbuton to the C estate.
(Ths Treasury Decson s ssued under the authorty contaned n
sees. 62 and 3791 of the Interna evenue Code (53 Stat. 32, 67;
26U.S.C.62,3791).)
O. Gordon Dek,
ctng Commssoner of Interna Revenue.
pproved une 12, 1953.
M. . Fosom,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster une 17,1953, 3:5 a. m.)
S CTION 116. CLUSIONS FROM GROSS INCOM
Reguatons 111, Secton 29.116-1: arned T. D. 6039
ncome from sources wthout the Unted
States.
( so Secton 1 7, Secton 29.1 7-3.)
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163
Regs. I, 29.116-1.
TITL I INT RN L R NU . C PT R I, SU C PT R , P RT 29.
INCOM T ; T L T RS GINNING FT R D C M R 31, 10 1
Reguatons 111 amended to conform to secton 321 of the Revenue
ct of 1951 and to secton 20 of the Technca Changes ct of 1953.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and
Others Concerned:
On December 13, 1952, there was pubshed n the Federa Reg-
ster (17 F. R. 113 1) a notce of proposed ruemakng to conform
Reguatons 111 26 CFR, pt. 29 to secton 321 of the Revenue ct
of 1951, reatng to earned ncome from sources wthout the Unted
States, approved October 20, 1951. fter consderaton of a such
reevant matter as was presented by nterested persons regardng the
rues proposed, the amendments set forth beow, ncudng such sup-
pementa amendments as are necessary to conform Reguatons 111
to secton 20 of the Technca Changes ct of 1953 p. 50 , ths
uetn , approved ugust 15,1953. are hereby adopted:
Paragraph 1. There s nserted mmedatey precedng secton
29.116-1 the foowng:
S C. 321. RN D INCOM FROM SOURC S WIT OUT T
UNIT D ST T S R NU CT OF 1051, PPRO D OC-
TO R 20, 1951 .
(a) cuson Feom Gross Income. Secton 110(a) (reatng to
earned ncome from sources wthout the Unted States) s hereby
amended by strkng out paragraphs (1) and (2) and nsertng n eu
thereof the foowng:
(1) ona fde resdent op foreon country. In the case of
an ndvdua ctzen of the Unted States, who estabshes to the
satsfacton of the Secretary that he has been a bona fde res-
dent of a foregn country or countres for an unnterrupted perod
whch Incudes an entre ta abe year, amounts receved from
sources wthout the Unted States (e cept amounts uad by the
Unted States or any agency thereof) f such amounts consttute
earned ncome (as defned n paragraph (3)) attrbutabe to such
perod; 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 gros ncome under ths paragraph.
(2) Presence n foregn country for t monts. In the case
of an ndvdua ctzen of the Unted States, who durng any pe-
rod of 1 consecutve months s present n a foregn country or
countres durng at east 510 fu days n such perod, amounts re-
ceved from sources wthout the Unted States (e cept amounts pad
by the Unted States or any agency thereof) f such amounts con-
sttute earned ncome (as defned n paragraph (3)) attrbutabe
to such perod; but such Indvdua sha not be aowed as a de-
ducton from hs gross ncome any deductons propery aocabe to
or chargeabe aganst amounts e cuded from gross Income under
ths paragraph.

(c) ffectve Dates. The amendment made by subsecton (a) sha
be appcabe to ta abe years begnnng after December 31, 11)50.
S C. 20 . RN D INCOM FROM SOURC S WIT OUT T
UNIT D ST T S T C NIC L C NG S CT OF 1953, P-
PRO D UGUST 15, 1953 .
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Regs. I, 29.116-1.
16
(a) mendment of Secton 116(a) (2). Secton 116(a) (2) (reatng
to e cuson from gross ncome of earned Income from sources wthout
the Unted States) s hereby amended by addng at the end thereof the
foowng new sentences:
If the 1 -month perod Incudes the entre ta abe year, the amount
e cuded under ths paragraph for such ta abe year sha not e ceed
20,000. If the 1 -month perod does not ncude the entre ta abe year,
the amount e cuded under ths paragraph for such ta abe year sha
not e ceed an amount whch bears the same rato to 20,000 as the
number of days n the part of the ta abe year wthn the 1 -month
perod bears to the tota number of days In such year.

(c) ffectve Date. The amendment made by subsecton (a) sha
appy wth respect to ta abe years endng after December 31, 1952, but
ony to amounts receved after such date. In the case of any ta abe
year begnnng In 1952 and endng In 1953 the e cuson of amounts re-
ceved after December 31,1952, sha not e ceed an amount whch s the
same proporton of 20,000 as the number of days n such ta abe year
after December 31,1952, s of 365 days.
Par. 2. Secton 29.116-1, as amended by Treasury Decson 5373
C. . 19 , 1 3 , approved May 23, 19 , s further amended as
foows:
( ) y revsng so much thereof as precedes the frst sentence there-
of to read as foows:
Sec. 20.116-1. arned Income Fbom Sources Wthout the Unted States.
(a) Resdent of a foregn country.
( ) y nsertng mmedatey after December 31, 19 2, n the
frst sentence thereof and before anuary 1,1951, .
(C) y deetng from the frst paragraph thereof the ast two
sentences, whch commence wth the words owever, once bona fde
resdence and Whether the ndvdua ctzen , respectvey.
(D) y nsertng after the frst paragraph thereof the foowng
new paragraphs:
For ta abe years begnnng after December 31, 1950, amounts consttutng
earned ncome as denned n secton 116(a) (3) sha be e cuded from gross
Income n the case of an ndvdua ctzen of the Unted States who estabshes
to the satsfacton of the Commssoner that he has been a bona fde resdent of
a foregn country or countres for an unnterrupted perod whch ncudes an
entre ta abe year, f such amounts are (1) from sources wthout the Unted
States, (2) attrbutabe to such unnterrupted perod, and (3) not pad by the
Unted States or any agency or nstrumentaty thereof. The e empton from
ta thus provded s appcabe to such amounts as are attrbutabe to that
porton of an unnterrupted perod of bona fde foregn resdence whch fas
wthn a ta abe year durng the course of whch the ctzen begns or termnates
bona fde resdence n a foregn country, provded that such perod ncudes at
east 1 entre ta abe year. If attrbutabe to an unnterrupted perod n
respect of whch the ctzen quafes for the e empton from ta thus provded,
the amounts sha be e cuded from gross ncome rrespectve of when they
are receved, f receved n ta abe years begnnng after December 31, 1950.
The perod durng whch the ctzen was a bona fde resdent of a foregn country
or countres pror to the commencement of hs frst ta abe year begnnng after
December 31, 1950, may be taken nto account n determnng whether such
ctzen has been a bona fde resdent of a foregn country or countres for an
unnterrupted perod whch ncudes an entre ta abe year.
Though the perod of bona fde foregn resdence must, n the appcaton of
ether of the above rues, be contnuous and unnterrupted, once bona fde res-
dence n a foregn country or countres has been estabshed, temporary vsts
to the Unted States or esewhere on vacaton or busness trps w not neces-
sary deprve the ctzen of hs status as a bona fde resdent of a foregn coun-
try. Whether the ndvdua ctzen of the Unted States Is a bona fde resdent
of a foregn country sha be determned by the appcaton, to the e tent feasbe,
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165
Regs. I, 29,116-1.
of the prncpes of sectons 29.211-2, 29.211-3, 29.211- , and 29.211-5, reatng
to what consttutes resdence or nonresdence, as the case may be, n the Unted
States n the case of an aen ndvdua.
( ) y nsertng mmedatey after December 31, 19 1, n the
frst sentence of the second paragraph thereof and before anuary 1,
1951, .
(F) y addng at the end of the thrd paragraph thereof, whch
commences wth the words In any case n whch any amount , the
foowng new sentence:
The apportonment and aocaton of such e penses, osses, or deductons as
between ncome from sources wthn, and ncome from sources wthout, the
Unted States sha be determned n accordance wth the prncpes of secton 119
and the reguatons thereunder.
(G) y addng at the end thereof the foowng new matter:
n amount consttutng earned ncome as defned n secton 110(a) (3) whch
s derved from sources wthout the Unted States sha not be ncuded n gross
ncome soey because t s receved wthn the Unted States, snce the pace
of recept s mmatera n determnng whether any tems sha be e cuded
from gross ncome under the provsons of secton 116(a). No amounts receved
for servces performed wthn the Unted States sha be e cuded from gross
ncome by such secton. For the aocaton or segregaton as between sources
wthn, and sources wthout, the Unted States n the case of compensaton for
abor or persona servces, see secton 119 and the reguatons thereunder.
ny return fed before the competon of the perod necessary to quafy a
ctzen for the e empton under secton 116(a) sha be fed wthout regard
to the e empton provded by that secton, but cam for credt or refund of any
overpayment of ta may be fed f the ta payer subsequenty quafes for
the e empton under secton 110(a). ta payer desrng an e tenson of tme
(n addton to that granted by secton 29.53-3) for fng the return unt after
the competon of the quafyng perod under secton 116(a) sha make appca-
ton therefor wth the dstrct drector of nterna revenue, settng forth the
facts reed upon to |ustfy the e tenson of tme requested and ncudng a
statement as to the earest date he e pects to be n a poston to determne
whether he w be entted to the e cuson provded by secton 110(a). n
e tenson of tme may be granted for more than 0 months n the case of ta -
payers who are abroad. For e tensons of tme for fng returns, see secton
53(a)(2) and secton 29.53-2.
Iu estmatng hs gross ncome for the purpose of makng a decaraton of
estmated ta for any ta abe year begnnng after December 31, 1950, a ctzen
of the Unted States s not requred to take Into account Income whch t s
reasonabe to beeve w be e cuded from gross ncome under the provsons
of secton 116(a) and the reguatons thereunder.
The term foregn country means terrtory under the soveregnty of a gov-
ernment other than that of the Unted States. It does not ncude a possesson
or Terrtory of the Unted States.
(6) Presence n a foregn country. For ta abe years begnnng after Decem-
ber 31, 1950, amounts consttutng earned ncome as defned n secton 116(a) (3)
sha he e cuded from gross ncome n the case of an ndvdua ctzen of the
Unted States who durng any perod of 1 consecutve months s present n a
foregn country or countres durng a tota of at east 510 fu days, f such
amounts are (1) from sources wthout the Unted States, (2) attrbutabe to
such perod, and (3) not pad by the Unted States or any agency or nstrumen-
taty thereof. If attrbutabe to a perod of 1 consecutve months n respect
of whch the ctzen quafes for the e empton from ta thus provded, the
amounts sha be e cuded from gross Income rrespectve of when they are
receved, f receved n t: abe years begnnng after December 31, 1950.
For ta abe years endng before anuary 1, 1953, there Is no mtaton upon
the amount whch may be e cuded from gross ncome pursuant to the precedng
paragraph. For ta abe years endng after December 31, 1952, but ony wth
respect to amounts receved after such date, the amount e cuded from gross
ncome under the provsons of secton 116(a)(2) sha not e ceed 20,000 f
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Regs. I, 29.116-1.
166
the 1 -month perod ncudes the entre ta abe year. If the S-month perod
does not ncude the entre ta abe year, the amount e cuded from gross Income
under such secton for such ta abe year sha not e ceed an amount whch
bears the same rato to 20,000 as the number of days n the part of the ta abe
year wthn the 1 -month perod bears to the tota number of days n such year.
In the case of a fsca year begnnng n 1052 and endng n 1953 the e cuson
of amounts receved after December 31, 1952, sha not e ceed the esser of the
amount determned under the two precedng sentences or an amount whch s
the same proporton of 20,000 as the number of days n such ta abe year after
such date s of 365 days. There s no mtaton as to the tota amount of the
e cuson for amounts receved pror to anuary 1, 1953, n the case of such a
fsca year.
The perod durng whch the ctzen was present In a foregn country or coun-
tres pror to the commencement of hs frst ta abe year begnnng after Decem-
ber 31, 1950, may be taken Into account n determnng whether such ctzen s
present n a foregn country or countres durng at east 510 fu days durng
any perod of 1 consecutve months.
ny return fed before the competon of the perod necessary to quafy a
ctzen for the e empton under secton 116(a) sha be fed wthout regard to
the e empton provded by that secton, but cam for credt or refund of any
overpayment of ta may be fed If the ta payer subsequenty quafes for the
e empton under secton 116(a). ta payer desrng an e tenson of tme (n
addton to that granted by secton 29.53-3) for fng the return unt after the
competon of the quafyng perod under secton 116(a) sha make appcaton
therefor wth the dstrct drector of nterna revenue, settng forth the facts
reed upon to |ustfy the e tenson of tme requested and ncudng a statement
as to the earest date he e pects to be n a poston to determne whether he w
be entted to the e cuson provded by secton 116(a). n e tenson of tme
may be granted for more than 6 months n the case of ta payers who are abroad.
For e tensons of tme for fng returns, see secton 53(a) (2) and secton 29.53-2.
In estmatng hs gross Income for the purpose of makng a decaraton of est-
mated ta for any ta abe year begnnng after December 31, 1950, a ctzen of
the Unted States s not requred to take nto account Income whch It s reason-
abe to beeve w be e cuded from gross Income under the provsons of secton
116(a) and the reguatons thereunder.
The provsons of paragraph (a) hereof respectng the dsaowance of certan
deductons, the defnton of earned ncome, the source of Income, and the mmate-
raty of the pace of recept of amounts consttutng earned ncome are equay
effectve n the appcaton of ths paragraph.
The term foregn country means terrtory under the soveregnty of a goT-
ernment other than that of the Unted States and ncudes the arspace oveff
such terrtory. It does not ncude a possesson or Terrtory of the Unted
States.
The e cuson granted by secton 116(a) (2) appes to Income attrbutabe to
any perod of 1 consecutve months durng whch the ctzen satsfes the 510
fu-day requrement, even though such perod consttutes a part of e onger perod
of presence n a foregn country or countres. For ths purpose, the term 1
consecutve months means any perod of such duraton, that Is, any perod
commencng wth the begnnng of any day of a caendar month and termnatng
(1) wth the cose of the day whch precedes that day n the eghteenth succeed-
ng caendar month numercay correspondng to the day of the perod s be-
gnnng, or, If there Is no such correspondng day, (2) wth the cose of the ast
day of such eghteenth succeedng month. Such perod need not necessary
commence wth the day of arrva In a foregn country, nor termnate wth the
day of departure therefrom. In no event w the 510 fu-day requrement be
prorated over a perod of ess than 1 consecutve months.
Thus, a ctzen who arrves n a foregn country on anuary 1, 1952, makes
severa return trps to the Unted States, and then fnay departs from the
foregn country on February 1 , 195 , may not be present n such country for
510 fu days durng the 1 -month perod commencng wth anuary 1, 1952,
and endng wth the cose of une 30, 1953, because of hs vsts to the Unted
States durng such perod, but may satsfy the 510 fu-day requrement durng
the 1 -month perod commencng wth February 15, 1952, and endng wth the
cose of ugust 1 , 1953. In such event, the e cuson w appy to Income
attrbutabe to the atter perod, but not to Income attrbutabe to the perod
commencng wth anuary 1, 1952, and endng wth the cose of February 1 ,
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167
Regs. I, 29.116-1.
1952. For such purpose, It Is assumed that no part of the perod endng wth
the cose of February 1 ,1952, Is ncuded n any 1 -month perod durng whch
the 510 fu-day requrement s satsfed. Furthermore, the mere fact that the
510 fu-day requrement has been satsfed wth respect to the perod endng
wth the cose of ugust 1 , 1953, does not mean that ncome earned thereafter
w be e cuded under secton 116(a) (2) uness such Income Is attrbutabe to
another 1 -month perod durng whch there s compance wth the 510 fu-day
requrement. Thus, the 510 fu-day requrement cannot be prorated over the
6-month perod commencng wth ugust 15, 1953, and endng wth the cose of
February 1 , 195 , n order to determne whether the e cuson aowed by
secton 116(a)(2) appes to ncome attrbutabe to such 6-month perod.
Therefore, assumng that the ctzen s present n the foregn country 170 fu
days ( of 510 fu days) durng such 6-month perod ( of 1 consecutve
months), the e cuson w not be appcabe to ncome attrbutabe to any part
of such 6-month perod f no part thereof s ncuded n any 1 -mouth perod
durng whch the 510 fu-day requrement s satsfed.
The term fu day means, not any 2 -consecutve-hour perod, but a con-
tnuous perod of 2 hours commencng from mdnght and endng wth the
foowng mdnght In computng the mnmum of 510 fu days of presence
In a foregn country or countres, a separate perods of such presence durng
the perod of 1 consecutve months are to be aggregated. The 510 fu days
need not be consecutve, but may be nterrupted by a number of short perods
durng whch the ctzen s not present In a foregn country. Tme spent n a
foregn country n the empoyment of the Unted States Government w count
toward satsfacton of the 510 fu-day requrement, even though amounts pad
by such Government are not e empt from ta under secton 116(a)(2).
In each of the foowng e ampes t s assumed that the facts are such that
the mtatons upon the amount to be e cuded, whch were added by secton
20 of the Technca Changes ct of 1953, are not appcabe.
ampe (/). On February 1,1953, Mr. Whte, a ctzen of the Unted States
prvatey empoyed, arrved n Puerto Rco on a busness assgnment. Upon
competon of the assgnment he departed for a new assgnment n enezuea.
On une 1, 1953, at 9 a. m. he arrved n enezuea, where he remaned unt 2
p. m. on October 25, 195 , at whch tme he departed for another assgnment
In Puerto Rco. On anuary 10,1955, he eft Puerto Rco for a new assgnment
n the Unted States. Durng the 1 -month perod commencng wth pr 25,
1953, and endng wth the cose of October 2 ,195 , the ta payer was n a foregn
country an aggregate of 510 fu days; n addton, durng the 1 -month perod
commencng wth une 2, 1953, and endng wth the cose of December 1, 195 ,
he was n a foregn country an aggregate of 510 fu days. The e empton
from ta granted by secton 116(a)(2) w thus appy to ncome attrbutabe
to the entre perod whch commences wth pr 25,1953, and ends wth the cose
of December 1,195 , a perod of appro matey 19 consecutve months.
ampe (2). t 2 p. m. on anuary 1 , 1952, Mr. rown, a ctzen of the
Unted States prvatey empoyed, arrved n ngand on a busness trp from
the Unted States. On May 19, 1952, at 10 p. m. he departed from ngand
by steamer and arrved n the Unted States on May 25,1952. fter spendng a
perod theren on offca busness, he eft the Unted States by steamer on
une 9, 1952, and arrved In France at 3 p. n., une 1 , 1952. t a. m. on
February 3, 1953, he departed from France by arpane for a bref vst to Puerto
Rco, arrvng there on February ; and thence went to ngand, arrvng there
at 1 a. m. on February 12,1053, where he remaned unt mdnght, uy 1 , 1953,
at whch tme the 510 fu-day requrement was satsfed n respect of the perod
of 1 consecutve months whch began wth anuary 19, 1952. Mr. rown con-
tnued hs presence n ngand, not eavng such country unt 5 a. m. on Novem-
ber 1 , 1953, at whch tme he departed for the Unted States. Durng the
1 -month perod commencng wth anuary 19, 1952, and endng wth the cose
of uy 1 ,1953, the ta payer was n a foregn country or countres an aggregate
of 510 fu days; n addton, durng the 1 -month perod commencng wth une
16, 1952, and endng wth the cose of December 15, 1953, he was n a foregn
country or countres an aggregate of 510 fu days. The e empton from ta
granted by secton 116(a) (2) w thus appy to ncome attrbutabe to the entre
perod whch commences wth anuary 19,1952, and ends wth the cose of De-
cember 15,1953. The computaton wth respect to each perod may be Iustrated
as foows:
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Regs. I, 29.116-1. 16
Fu days
Frst n
1 month perod foregn
( an. 19, 19S through u / 1 , 19SS) country
an. 19, 1952 to May 1 , 1952 121
May 19,1952 to une 1 ,1952 0
une 15, 1952 to Feb. 2, 1953 233
Feb. 3,1953 to Feb. 12,1953 0
Feb. 13,1953 to uy 1 ,1953 156
Tota fu days 510
Fu days
Second n
1 month perod foregn
une 16, 195 through Dec. IS, 1953) country
une 16,1952 to Feb. 2, 1953 232
Feb. 3,1953 to Feb. 12,1953 0
Feb. 13, 1953 to Nov. 17, 1953 27
Nov. 1 ,1953 to Dec. 15,1953 0
Tota fu days 510
ampe (3). On March 6,1952, at 3 p. m. Mr. Green, a ctzen prvatey em-
poyed, arrved In Cuba where he remaned unt 9 p. m., une 25,1952, at whch
tme he departed from Cuba for a short busness trp to Puerto Rco. Upon
competon of hs negotatons n that possesson, he departed for Me co, ar-
rvng there at 2 p. m. on uy 2 ,1952, where he remaned unt 10 a. m., ugust
22,1953, at whch tme he departed from such country for a vacaton n the Unted
States. e arrved agan n Me co at 9 a. m. on September 5, 1953, where he
remaned unt a. m., anuary 1, 195 , at whch tme he departed from such
country for a new assgnment n the Unted States. Durng the 1 -month perod
commencng wth March 7,1952, and endng wth the cose of September 6,1953,
the ta payer was n a foregn country or countres an aggregate of 50 fu
days; durng the 1 -month perod commencng wth uy 1, 1952, and endng
wth the cose of December 31,1953, he was In a foregn country an aggregate of
510 fu days. The e empton from ta granted by secton 116(a) (2) w thus
not appy to ncome attrbutabe to any part of the perod begnnng wth March
6, 1952, and endng wth the cose of une 30, 1952; t w appy to ncome
attrbutabe to the perod commencng wth uy 1, 1952, and endng wth the
cose of December 31, 1953. The computaton wth respect to each perod may
be ustrated as foows:
1 month perod foregn
(Mar. 7, 19St through Sept. I, 1953) country
Mar. 7, 1952 to une 2 , 1952 110
une 25,1952 to uy 2 ,1952 0
uy 25, 1952 to ug. 21, 1953 393
ug. 22, 1953 to Sept. 5, 1953 0
Tota fu days 50
Fu dags
Second n
1 month perod foregn
( uy 1,195 through Dec. 1, 1953) country
uy 1, 1952 to uy 2 , 1952 0
uy 25,1952 to ug. 21,1953 393
ug. 22, 1953 to Sept 5, 1953 0
Sept. 6, 1953 to Dec. 31, 1953 117
Tota fu days 510
Par. 3. Secton 29.1 7-3, as amended by Treasury Decson 5907,
C. . 1952-1, 107 approved May 29, 1952, s further amended as
foows:
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169
Regs. I, 29.117- .
( ) y nsertng mmedatey after wthout the Unted States
made n (e) of the frst paragraph thereof before anuary 1,1951, .
( ) y nsertng mmedatey precedng the ast paragraph thereof
the foowng:
( ) Payments representng earned Income for servces rendered wthout the
Unted States made on or after anuary 1,1951, to a ctzen of the Unted States,
f t s reasonabe to beeve that such amounts w be e cuded from gross
ncome under the provsons of secton 116(a) and the reguatons thereunder.
(Ths Treasury Decson s ssued under the authorty contaned n
sees. 62 and 3791 (53 Stat. 32, 67 ; 26 U. S. C. 62, 3791) of the
Interna Revenue Code.)
O. Gordon Dek,
ctng Commssoner of Interna Revenue.
pproved ugust 27, 1953.
. Chapman Rose,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster ugust 31,1953, : 5 a. m.)
Reguatons 111, Secton 29.116-1: arned
ncome from sources wthout the Unted
States.
INT RN L R NU COD
Oknawa s a foregn country. (See Rev. Ru. 199, p. 225.)
S CTION 117. C PIT L G INS ND LOSS S
Reguatons 111, Secton 29.117-7: Gans Rev. Ru. 195
and osses from nvountary conversons
and from the sae or e change of certan
property used n the trade or busness.
( so Secton 23(e), Secton 29.23(e)-5.)
INT RN L revenue code
Where vestock hed by a ta payer for draft, breedng, or dary
purposes, and hed for 12 months or more from the date of acqus-
ton, s subsequenty ked by a destructve force, such as ghtnng,
or by order of governmenta authorty (because of dsease), any oss
sustaned thereby consttutes a oss from nvountary converson wth-
n the purvew of secton 7(|) of the Interna Revenue Code. ow-
ever, f the death of such vestock s the resut of natura causes,
such as od age or sckness, the oss consttutes an ordnary busness
oss. See secton 23(e) of the Code and secton 29.23(e)-5 of Regua-
tons 111.
Reguatons 111, Secton 29.117- : Gan or T. D. 6021
oss upon the cuttng and dsposa of
tmber and the dsposa of coa.
( so Sectons 29.117-3, 29.117-7; Secton
23(m), Secton 29.23(m)-; Secton 102,
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Regs. I, 29.117- .
170
Secton 29.102- ; Secton 113(a), Secton
29.113(a) (1 )-1; Secton 1, Secton
29. 1-1.)
TITL 26 INT RN L R NU . C PT R L SU C PT R , P RT 29.
INCOM T ; T L T RS GINNING FT R D C M R 1, 1 1
Reguatons 111 amended to conform to secton 325 of the Revenue
ct of 1 61.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 26, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
On December , 1952, notce of proposed ruemakng conformng
Reguatons 111 26 CFR, pt. 29 to secton 325 of the Revenue ct
of 1951, approved October 20, 1951, was pubshed n the Federa
Regster (17 F. R. 10969). No ob|ecton to the rues proposed havng
been receved, the amendments set forth beow are hereby adopted.
Paragraph 1. Secton 29.23(m)-, as amended by Treasury Dec-
son 5 61 C. . 19 5,2 , approved uy 9,19 5 26 CFR 29.23(m)-
1 , s further amended as foows:
( ) y amendng the second sentence of the second paragraph
thereof to read as foows:
owever, no depeton deducton sha be aowed the owner wth respect to any
tmber or coa whch such owner has dsposed of under any form of contract by
vrtue of whch he retans an economc nterest n such tmber or coa, f such
dsposa s consdered a sae of tmber or coa under secton 117(k) (2) of the
Code.
( ) y addng at the end of (/) thereof the foowng paragraph:
Rents and royates pad or Incurred by a ta payer wth respect to coa sha
be e cuded from the gross Income from the property wthout regard to the
treatment under secton 117(k) (2) of such rents and royates n the hands of the
recpent.
Par. 2. Secton 29.102- , as amended by Treasury Decson 59 9
C. . 1953-1,1191, approved February 16, 1953 26 CFR 29.102- ,
s further amended by nsertng mmedatey precedng the ast para-
graph thereof the foowng paragraph:
In determnng secton 102 Let ncome , secton 117(k) (2), n the case of
coa, sha have no appcaton. See secton 20.117- (c).
Par. 3. Secton 29.113(a) (1 )-1, as amended by Treasury Decson
539 O . 19 , 27 , approved uy 27, 19 26 CFR 29.113(a)
(1 )-1 , s further amended by nsertng n the second sentence of the
second paragraph thereof after determnaton of oss upon tmber
the foowng: or coa .
Par. . There s nserted mmedatey precedng secton 29.117-1
26 CFR 29.117-1 the foowng:
S C. 325. T TR TM NT OP CO L ROY LTI S R NU
CT OF 1051, PPRO D OCTO R 20, 1951 .
(a) Defnton of Property Used n the Trade or usness. Sec-
ton 117( ) (1) (reatng to the defnton of property used n the trade or
busness) s hereby amended by addng after the word tmber n the
second sentence thereof the foowng: or coa .
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171
Regs. I, 29.117- .
(b) Gan or Loss Upon Certan Dsposas of Tmber or Coa. Sec-
ton 117(k) (2) (reatng to the dsposa of tmber) s hereby amended to
read as foows:
(2) In the case of the dsposa of tmber or coa (ncudng
gnte), hed for more than 6 months pror to such dsposa, by the
owner thereof under any form or type of contract by vrtue of whch
the owner retans an economc nterest n such tmber or coa, the
dfference between the amount receved for such tmber or coa and
the ad|usted depeton bass thereof sha be consdered as though t
were a gan or oss, as the case may be, upon the sae of such tmber
or coa. Such owner sha not be entted to the aowance for per-
centage depeton provded for n secton 11 (b) ( ) wth respect to
such coa. Ths paragraph sha not appy to Income reazed by the
owner as a co-adventurer, partner, or prncpa n the mnng of such
coa. The date of dsposa of such coa sha be deemed to be the
date such coa s mned. In determnng the gross ncome, the ad-
|usted gross ncome, or the net Income of the essee, the deductons
aowabe wth respect to rents and royates sha be determned
wthout regard to the provsons of ths paragraph. Ths paragraph
sha have no appcaton, n the case of coa, for the purposes of
appyng secton 102 or subchapter of chapter 2 (Incudng the
computaton under secton 117(c)(1) of a ta n eu of the ta
mposed by secton 500).
(c) Cerca menument. The headng to secton 117(k) (reatng
to the gan or oss upon the cuttng of tmber) s hereby amended to read
as foows: (k) Gan or Loss n the Case of Tmber or Coa.

(f) ffectve Date. the amendments made by ths secton
sha be appcabe ony wth respect to ta abe years endng after
December 31, 1050 (whether the contract was made on, before, or after
such date), but sha appy ony wth respect to amounts receved or
accrued after such date.
Par. 5. Secton 29.117-3 as amended by Treasury Decson 5951
C. . 1952-2, 1 , approved December 2, 1952 26 CFR 29.117-3 ,
s further amended by addng at the end thereof the foowng:
Where amounts are receved or accrued after December 31, 1950, from the
dsposa of coa to whch the provsons of secton 117(k)(2) are appcabe,
the computaton under secton 117(c) (1) of a ta n eu of the ta Imposed by
secton 500 sha be made wthout regard to secton 117(k)(2); that s, the
parta ta under secton 117(c)(1) ( ), nsofar as t nvoves the ta under
secton 500, Is computed wthout regard to secton 117(k) (2).
Pah. 6. Secton 29.117-7 as amended by Treasury Decson 59 0
C. . 1953-1, 65 , approved February 3, 1953 26 CFR 29.117-7 .
s further amended by addng after the word tmber n () of
(a) (1) thereof, the phrase , or dsposa of coa, .
Pak. 7. Secton 29.117- , as added by Treasury Decson 539 , ap-
proved uy 27,19 26 CFR 29.117- , s amended as foows:
( ) y amendng the headng to read as foows:
Sec. 29.117- . Gan or Loss Upon the Cuttng and Dsposa of Tmber and
the Dsposa of Coa.
( ) y addng at the end thereof the foowng:
(c) Gan or oss upon the dsposa of coa. Wth respect to ta abe years end-
ng after December 31, 1950, but ony wth respect to amounts receved or ac-
crued after such date, If a ta payer dsposes of coa (ncudng gnte), hed
for more than 6 months pror to such dsposa, under any form or type of con-
tract whereby he retans an economc nterest In such coa, the dfference be-
tween the amount receved for such coa and the ad|usted depeton bass thereof
under secton 11 (b) (1) sha be consdered to be a gan or oss upon the sae of
such coa.
2 670 12
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Regs. I, 29.117- .
172
The ad|usted depeton bass under secton 11 (b) (1), for the purpose of ths
secton, Incudes ad|ustments for deveopment and e poraton e pendtures and
for deductons under secton 113(b) (1) ( ) and (M). For the purpose of ths
secton, the date of dsposa of the coa sha be deemed to be the date the coa
s mned. If the coa has been hed for more than 6 months on the date that
t s mned, t Is Immatera that It had not been hed for more than 6 months
on the date of the contract. For the purpose of secton 117(|), such coa sha
be consdered to be property used n the trade or busness, aong wth other
property of the ta payer used n the trade or busness as denned In secton
117( ) (1). Whether gan or oss resutng from the dsposton of the coa w
be deemed to be gan or oss resutng from the sae of a capta asset hed for
more than 6 months w depend upon the appcaton of secton 117( ) to that
and other transactons of the ta payer.
There sha be no aowance for percentage depeton provded for n secton
11 (b)( ) wth respect to amounts receved any part of whch s consdered
to be receved from the sae of coa under secton 117(k) (2). In computng
the gross Income, ad|usted gross ncome, or the net ncome of the essee, te de-
ductons aowabe wth respect to rents and royates sha be determned wth-
out regard to the provsons of secton 117(k)(2). Secton 117(k)(2) sha
have no appcaton wth respect to amounts receved by a ta payer as a coad-
venturer, partner, or prncpa In the mnng of coa.
To the e tent any advance payments are treated, under secton 117(k) (2) as
receved from the sae of coa for any ta abe year, and the grant of the coa
rghts for whch such payments are made e pres, termnates, or s abandoned
n a ater ta abe year before the coa whch has been pad for has been mned,
the grantor sha recompute the ta abty for the pror ta abe year and
treat such payments to such e tent as not receved from the sae of the coa;
such recomputaton shoud be n the form of an amended return f necessary.
Par. . There s nserted mmedatey precedng secton 29. 1-1
26 CF 29. 1-1 the foowng:
S C. 325. T TR TM NT OF CO L ROY LTI S R NU
CT OF 1961, PPRO D OCTO R 20, 1951 .

(d) Technca mendment. Secton 1(a)( ) s hereby amended
by strkng out cuttng or dsposa of tmber and nsertng In eu
thereof cuttng of tmber, or the dsposa of tmber or coa, .

(f) ffectve Date. the amendments made by ths secton
sha be appcabe ony wth respect to ta abe years endng after De-
cember 31, 1950 (whether the contract was made on, before, or after
such date), but sha appy ony wth respect to amounts receved or
accrued after such date.
Par. 9. Secton 29. 1-1, as added by Treasury Decson 5 55
C. . 1951-2,1 1 , approved September 13,1951 26 CFR 29. 1-1 ,
s amended by addng after tmber, n (c)( )() thereof, the
phrase or dsposa of coa, .
(Ths Treasury Decson s ssued under the authorty contaned
n sees. 62 and 3791 of the Interna Revenue Code (53 Stat. 32: 26
U.S.C. 62,3791).)
T. Coeman ndrews,
Commssoner of Interna Revenue.
pproved une 1 ,1953.
M. . Fosom,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster une 23, 1953, : 50 a. m.)
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173
Regs. I, 29.117-13-
Reguatons 111, Secton 29.117-10: Gans and ev. Ru. 15
osses from certan short saes of capta
assets.
INT RN L R NU COD
Certan bonds traded n on the New York Stock change are
convertbe, at the opton of the hoder, nto common stock of the
ssung corporaton. The market prce of the bonds tends to fuctuate
n drect reaton to the market prce of the stock. t tmes, how-
ever, there s a sght dfference n the reatve market prces of the
bonds and stock. When the prce of the bonds s down, n reaton
to the prce of the stock, members of the change buy the bonds at
the market prce and as neary smutaneousy as possbe se the
stock nto whch the bonds are convertbe. The bonds purchased are
then converted and the stock so receved s used to cose the sae.
These transactons are known as arbtrage operatons. ed saes
of stock n the manner descrbed consttute short saes wthn the
purvew of secton 117(1) of the Interna Revenue Code.
Reguatons 111, Secton 29.117-13: Gan from T.D.6022
sae or e change of certan property between
spouses or between an ndvdua and a con-
troed corporaton.
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 ST R D C M R 1. 19 1
Reguatons 111 amended to conform to secton 32 of the
Revenue ct of 1951.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
On November 22,1952, notce of proposed ruemakng wth respect
to amendments to conform Reguatons 111 to secton 32 of the
Revenue ct of 1951, approved October 20,1951, reatng to treatment
of gan on saes of certan property between spouses and between an
ndvdua and a controed corporaton, was pubshed n the Federa
Regster (17 F. R. 10G 9). No ob|ectons to the proposed rues havng
been receved, the amendments to Reguatons 111 26 CFR, pt. 29
set forth beow are hereby adopted:
Paragraph 1. There s nserted mmedatey precedng secton
29.117-1 the foowng:
S C. 32 . TR TM NT OF G IN ON S L S OF C RT IN PROP-
RTY TW N SPOUS S ND TW N N INDI IDU L
ND CONTROLL D CORPOR TION R NU CT OF 1951,
PPRO D OCTO R 20, 1951 .
(a) Dsaowance of Capta Gan Treatment. Secton 117 (reat-
ng to capta gans and osses) Is hereby amended by addng at the end
thereof the foowng new subsecton:
(o) Gan Fbom Sae of Certan Pkopebtt etween Spouses ob
etween an Indvdua and a Controed Cobpobaton.
(1) Treatment of gan as obdnaby ncome. In the case of a
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Regs. I, 29.117-1 .
17
sae or e change, drecty or ndrecty, of property descrbed n para-
graph (2)
( ) between a husband and wfe; or
( ) between an ndvdua and a corporaton more than SO
p r centum n vaue of the outstandng stock of whch s owned
by such ndvdua, hs spouse, and hs mnor chdren and mnor
grandchdren;
any gan recognzed to the transferor from the sae or e change of
such property sha be consdered as gan from the sae or e change
of property whch Is nether a capta asset nor property descrbed
n subsecton (|).
(2) Subsecton appcabe ony to saes ob e changes or de-
pbecabe pbopebty. Ths subsecton sha appy ony In the case of
a sae or e change of property by a transferor whch n the hands of
the transferee s property of a character whch Is sub|ect to the a-
owance for deprecaton provded n secton 23(1).
(b) ffectve Date. The amendment made by subsecton (a) sha
be appcabe wth respect to ta abe years endng after pr 30, 1951,
but sha appy ony wth respect to saes or e changes made nfter May
3,1951.
Pah. 2. There s added after secton 29.117-12, as added by Treasury
Decson 6013 C. . 1953-1, 195 , approved May 25,1953, the foow-
ng new secton:
Sec. 29.117-13. Gaw Fbom Sae ob change of Certan Property etween
Spouses ob etween an Indvdua and a Controed Corporaton. Secton
117(o) provdes that any gan recognzed to the transferor from the sae or e -
change, drecty or ndrecty, between a husband and wfe or between an nd-
vdua and a controed corporaton, of property whch, n the hands of the
transferee, s property of a character sub|ect to the aowance for deprecaton
provded n secton 23(1) (ncudng such property wth respect to whch a de-
ducton for amortzaton s aowabe under secton 23(t)) sha be consdered
as gan from the sae or e change of property whch s nether a capta asset
nor property descrbed n secton 117( ). Ths rue s appcabe for ta abe
years endng after pr 30, 1951, but ony wth respect to saes or e changes
made after May 3, 1951. For the purpose of secton 117(o), a corporaton s
controed when more than 0 percent n vaue of a outstandng stock of the
corporaton s owned (whether ega ownershp or benefca ownershp) by the
ta payer, hs spouse, and hs mnor chdren and mnor grandchdren. For the
purpose of ths rue, the terms chdren and grandchdren Incude step-
chdren and egay adopted chdren. The provsons of secton 117(o) are ap-
pcabe whether the property be transferred from the corporaton to the share-
boder or from the sharehoder to the corporaton.
(Ths Treasury Decson s ssued under the authorty contaned n
sees. 62 and 3791 of the Interna evenue Code (53 Stat. 32, 67:
26 U. S. C. 62, 3791).)
T. Coeman ndrews,
Commssoner of Interna Revenue.
pproved une 19,1953.
M. . Fosom,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster une 23,1953, :51 a. m.)
Reguatons 111, Secton 29.117-1 : Capta gans T. D. 6036
treatment of certan termnaton payments.
TITL 2 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 SI, 1911
Reguatons 111 amended to conform to secton 329 of the Revenue
ct of 1951 reatng to capta gans treatment of certan termna-
ton payments to empoyees.
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175
Regs. I, 29.117-1 .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 26, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
On November 15, 1952, notce of proposed ruemakng regardng
amendments to conform Reguatons 111 26 CFR, pt. 29 to secton
329 of the Revenue ct of 1951, approved October 20, 1951, reatng
to capta gans treatment of certan termnaton payments to em-
poyees, was pubshed n the Federa Regster (17 F. R. 10 65). fter
consderaton of a reevant matter presented by nterested persons
regardng the rues proposed, the amendments to Reguatons 111
set forth beow are hereby adopted.
Paragraph 1. There s nserted mmedatey precedng secton
29.117-1 the foowng:
S C. 320. R C IPTS OF C RT IN T RMIN TION P YM NTS Y
MPLOY R NU CT OF 1051, PPRO D OCTOI1 R
20,1051 .
(a) Ta awty to mpoyee as Capta Gan. Secton 117 of the
Interna Revenue Code s hereby amended by addng at the end thereof
the foowng subsecton:
(p) Ta abty to mpoyee of Termnaton Payments. mounts
receved from the assgnment or reease by an empoyee, after more than
twenty years empoyment, of a bs rghts to receve, after termnaton
of hs empoyment and for a perod of not ess than fve years (or for a
perod endng wth hs death), a percentage of future profts or recepts
of hs empoyer sha be consdered an amount receved from the sae or
e change of a capta asset hed for more than s months, f such rghts
were ncuded n the terms of the empoyment of such empoyee for not
ess than tweve years, and If the tota of the amounts receved for
such assgnment or reease are receved n one ta abe year and after
the termnaton of such empoyment.
(b) ffectve Date. The amendment mnde by ths secton sha be
appcabe wth respect to ta abe years begnnng after December 31,
1950.
Par. 2. There s nserted mmedatey after secton 29.117-13, as
added by Treasury Decson 6022, p. 173, ths uetn, approved une
19,1953, the foowng new secton:
Sec. 29.117-1 . Capta Gans Treatment of Cehtan Termnaton Pay-
ments. For ta abe years begnnng after December 31, 1950, certan amounts
receved by an empoyee pursuant to the assgnment or reease by the empoyee
of a hs rghts to receve, after termnaton of hs empoyment and for a perod
of not ess than 5 years or for a perod endng wth hs death, a percentage of
future profts or recepts of hs empoyer, that s, profts or recepts attrbutabe
to a perod subsequent to termnaton of empoyment, sha, under the provsons
of secton 117 (p), be consdered and treated as an amount receved from the
sae or e change of a capta asset hed for more than 6 months. The provsons
of secton 117 (p) sha have appcaton to such payments ony If the foowng
condtons are met:
(1) The empoyee was empoyed by the empoyer, n whose future profts
or recepts the empoyee has an nterest, for a perod of more than 20 years
pror to the assgnment or reease by the empoyee of hs rghts n such future
profts or recepts,
(2) The fu rghts of the empoyee to the percentage of the future profts
or recepts of such empoyer, whch rghts are the sub|ect of the assgnment
or reease, were Incorporated In the terms of the contract of empoyment
between the empoyee and the empoyer for a perod of at east 12 years,
(3) The assgnment or reease was made after the termnaton of the em-
poyee s empoyment wth such empoyer,
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Regs. I, 20.122- .
176
( ) The assgnment or reease conveyed a the rghts of the empoyee In
the future profts or recepts of such empoyer and conveyed no other rghts
of the empoyee, and
(5) The tota amount to whch the empoyee became entted pursuant
to the assgnment or reease was receved by the empoyee after the ter-
mnaton of hs empoyment wth such empoyer and n 1 ta abe year of the
empoyee.
It s mmatera whether the contract of empoyment Is ora or wrtten provded
the prescrbed condtons are met. The requrement that the assgnment or
reense be made after the termnaton of the empoyee s empoyment contem-
pates a compete and bona fde termnaton of the reatonshp of empoyer
and empoyee and not merey, for e ampe, a termnaton of such reatonshp
under the partcuar contract or contracts of empoyment pursuant to whch the
empoyee acqured hs rghts n the future profts or recepts of the empoyer.
The contract need not e pressy provde that the empoyee sha share n the
future profts or recepts of the empoyer for a mnmum perod of 5 years.
owever, f the contract does not e pressy so provde and the assgnment or
reease Is made pror to the e praton of 5 years foowng the termnaton
of empoyment, the terms of the contract consdered n con|uncton wth the facts
n the partcuar stuaton must estabsh that the rghts of the empoyee to a
percentage of future profts or recepts, n a probabty, w e tend to a
perod of not ess than 5 years from the date of termnaton of empoyment or
for a perod endng wth hs death. Secton 117(p) has appcaton ony to an
assgnment or reease made by the empoyee who acqured the rght to a per-
centage of future profts or recepts of the empoyer, and has no appcaton to
amounts receved other than as payment for assgnment or reease of such
rght. Secton 117(p) has no effect upon the determnaton of the ncome ta
of the empoyer makng the payment to the empoyee.
(Ths Treasury Decson s ssued under the authorty contaned
n sees. 62 and 3791 of the Interna Revenue Code (53 Stat. 32, 67;
26 U. S. C. 62,3791).)
T. Coeman ndrews,
Commssoner of nterna Revenue.
pproved ugust , 1953.
M. . Fosom,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster ugust 7,1053, : (52 a. m.)
S CTION 122. N T OP R TING LOSS D DUCTION
Reguatons 111, Secton 29.122- : Computa- Rev. Ru.21
ton of net operatng oss carryovers and net
operatng oss carrybacks.
( so Secton 322, Secton 29.322-7.)
INT RN L R NU COD
Net operatng osses carred back or carred over to a partcuar
ta abe year are consdered to be apped n reducton of the net ncome
of such year n the order of the ta abe years from whch such osses
are earned over or carred back, begnnng wth the oss for the earest
ta abe year, wthout regard to the statute of mtatons. (See sees.
29.122-1,29.122- of Reguatons 111.) Thus, where a ta payer faed
to ava tsef of a 19 6 net operatng oss carryover on ts 19 7 return
and ater sustaned a net operatng oss n 19 9 whch s carred back
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177
Regs. I, 5 29.125-1.
to 19 7, that net operatng oss s absorbed n the year 19 7 ony to the
e tent of the net ncome remanng after appcaton of the 19 6 net
operatng oss carryover. Where the perod n whch a tmey cam
for refund or credt of 19 7 ta , based on a net operatng oss carryover
from 19 6, has e pred but a tmey cam for refund or credt wth
respect to the 19 9 net operatng oss carryback has been fed, the
amount of the refund or credt whch can be made may not e ceed the
overpayment attrbutabe to the 19 9 net operatng oss carryback.
(See sec. 29.322-7, Reguatons 111; G. C. M. 9 00, C. . -2, 271
(1931).) In determnng the net ncome for 19 7 aganst whch the
net operatng oss carryback for 19 9 may be apped, such ncome must
be frst reduced by the net operatng oss carryover from 19 6 whch
was avaabe as a deducton from 19 7 ncome.
S CTION 12 . MORTIZ TION D DUCTION FOR
GR IN STOR G F CILITI S
Rev. Ru. 227
INT RN L R NU COD
The amortzaton deducton aowabe under secton 12 of the
Interna evenue Code may be taken n respect of a gran storage
facty for whch a certfcate under secton 12 (e) was made
provded that the certfcate s canceed by the certfyng authorty
pror to the makng of any eecton to take the amortzaton deduc-
ton aowabe under secton 12 (a) wth respect to such facty.
dvce s requested whether the amortzaton deducton under
secton 12 of the Interna Revenue Code s aowabe n the case
of a gran storage facty for whch a certfcate was ssued under
secton 12 (e) but whch certfcate was ater canceed by the cert-
fyng authorty pror to the makng of any eecton to take the amort-
zaton aowabe under secton 12 (a) wth respect to such facty.
Secton 12 (d) provdes that the term gran storage facty
sha not ncude any facty any part of whch s an emergency
facty under secton 12 .
The ssuance of a certfcate under secton 12 (e) wth respect to
any structure w not prevent the cassfcaton of such structure as a
gran storage facty wthn the meanng of secton 12 (d), nor
the aowance of the deducton provded Dy secton 12 (a) wth
respect to such structure, provded that, pror to makng any eecton
to take the amortzaton deducton aowabe under secton 12 (a)
wth respect to such structure, such certfcate has been canceed by
the certfyng authorty.
S CTION 125. MORTIZ L OND PR MIUM
Reguatons 111, Secton 29.125-1: In genera.
INT RN L R NU COD
Premums pad for Federa ousng dmnstraton nsured mort-
gage oans. (See Rev. Ru. 25 , p. 1 3.)
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Regs. I, 29.126-1.
17
S CTION 126. INCOM IN R SP CT OF
D C D NTS
Reguatons 111, Secton 29.126-1: Incuson Rev. Ru. 196
n gross ncome of ncome n respect of a
decedent.
( so Secton 11, Secton 1.13, Reguatons
105.)
INT RN L R NU COD
The amount receved by the estate of a decedent-empoyee upon
the surrender to the empoyer of optons to purchase empoyer s
stock Is compensatory ncome the rght to whch was acqured by the
estate from the decedent wthn the purvew of secton 126 of the
Interna Revenue Code.
The amount of the dfference between the far market vaue of
the empoyer s stock, as of the appcabe vauaton date for Federa
estate ta purposes, and the prce at whch such stock coud have
been purchased under the optons s ncudbe n the decedent s gross
estate. The estate Is entted to the aowabe deducton for the
estate ta pad on account of the vaue of the optons n accordance
wth the provsons of secton 126(c).
dvce s requested as to the Federa ncome ta consequences n
respect to the amount receved by the estate of a deceased empoyee
upon the surrender to the empoyer corporaton of une ercsed optons
to purchase stock, and whether the vaue of such optons shoud be
ncuded n the gross estate of the decedent for Federa estate ta
purposes.
In the nstant case, the empoyer corporaton adopted a pan whch
was approved by ts board of drectors and stockhoders, under whch
pan varous empoyees were granted optons to purchase stock of the
corporaton. The optons may ony be e ercsed by an empoyee at a
tme when he s empoyed by the corporaton, e cept n the case of hs
retrement wth the consent of the empoyer. The optons are not
transferabe e cept n the event of the optonee s death whe an em-
poyee, n whch case the optons pass to the decedent s estate, hers,
egatees, or ne t of kn, and f the proper party, wthn a certan
perod after the optonee s death, requests the corporaton to do so,
t w purchase any une ercsed optons at a prce per share not
greater than the amount by whch the cosng prce of the corpora-
ton s shares of the stock on the New York Stock change, on the dav
ast precedng the date of such purchase, e ceeds the opton prce per
share. t the date of death of the optonee n the case under consdera-
ton, he hed une ercsed optons coverng a arge number of shares,
whch optons passed to hs ega representatve.
I. T. 3705, C. . 19 6-1, 15, hods that f an empoyee receves an
opton on or after February 26,19 5, to purchase stock of the empoyer
corporaton and the empoyee transfers such opton for consderaton
n an arm s-ength transacton, the empoyee reazes ta abe ncome
by way of compensaton on the date he receves such consderaton to
the e tent of the vaue of such consderaton. ccordngy, f the
opton n the nstant case had been transferred to the empoyer cor-
poraton by the empoyee, he woud have reazed ta abe ncome by
way of compensaton to the e tent of the consderaton receved.
Secton 130 of the Code, reatng to the treatment of restrcted stock
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179
Regs. I, 29.126-1.
optons, does not appy to cases where optons are transferred by the
empoyee.
Secton 126(a) (1) ( ) of the Interna Revenue Code provdes that
a amounts to whch a decedent s entted as gross ncome and whch
are not ncudbe n computng hs net ncome for hs ast ta abe year
or any pror ta abe year, sha be ncuded, when receved, n the gross
ncome of the estate of the decedent or of the person recevng such
amounts f such amounts are receved n a ta abe year endng after
December 31, 19 2. (Sec. 29.126-1 of Reguatons 111.) Secton
126(a) provdes that the rght to receve an amount sha be treated
n the hands of the estate as f t had been acqured by the estate n
the transacton by whch the decedent acqured such rght, and that
the amount ncudbe n gross ncome sha have the character n the
hands of the estate as t woud have had n the hands of the decedent
had he receved such ncome.
In the Ta Court decson n state of dgar . O Dane v. Com-
mssoner, 10 T. C. 631, affrmed, 173 Fed. (2d) 966, nvovng the pay-
ment of a bonus under a pan n whch the decedent had partcpated,
the court stated The amount here n queston was not earned by the
estate by vrtue of ts own actvty or nvestments, but was ncome
earned by the decedent. It was pad for servces rendered by hm to
hs empoyer and was receved by the pettoner, as hs representatve,
oey because of servces rendered by hm. It remaned ncome when
receved by the estate. The rght of the estate to receve t was acqured
from, by reason of the death of, the decedent wthn the purpose and
ntended meanng of secton 126(a) (1) ( ). In the nstant case, the
optons represented ncome earned by the decedent-empoyee as a re-
sut of servces rendered by hm, athough unreazed unt such op-
tons were surrendered for a consderaton. ccordngy, the rght
of the estate to reaze earned ncome s derved from the decedent-
empoyee upon acquston of the opton by the estate, and, therefore,
such opton consttutes a rght to ncome n respect of the decedent
wthn the meanng of secton 126(a) (1) ( ) of tne Code.
Secton 11 of the Interna Revenue Code provdes that there sha
be ncuded n the gross estate of a decedent the vaue at the tme of
hs death of a property, rea or persona, tangbe or ntangbe,
wherever stuated, e cept rea property stuated outsde of the Unted
States. Optons to purchase stock are ncudbe n the gross estate
of a decedent, at the far market vaue thereof. Snce the nstant case
s governed by secton 126 of the Code, the provsons of secton
113(a) (5) wth respect to the bass of property acqured by bequest,
devse, or nhertance do not appy to the amounts receved by the
estate. (Sec. 29.126-1 of Reguatons 111.) owever, the estate
s aowed a deducton for the estate ta pad on account of the vaue
of the optons n accordance wth the provsons of secton 126(c) of
the Code.
In vew of the foregong, t s hed that the amount receved by the
estate of a decedent-empoyee upon the surrender to the empoyer of
optons to purchase empoyer s stock s compensatory ncome the rght
to whch was acqured by the estate from the decedent wthn the pur-
vew of secton 126 of the Interna Revenue Code. The amount of
the dfference between the far market vaue of the empoyer s stock, as
of the appcabe vauaton date for Federa estate ta purposes, and
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Regs. I, 5 29.130-1.
1 0
the prce at whch such stock coud have been purchased under the op-
tons s ncudbe n the decedent s gross estate. The estate s entted
to the aowabe deducton for the estate ta pad on account of the
vaue of the optons n accordance wth the provsons of secton 126 (c)
of the Code.
S CTION 130. LIMIT TION ON D DUCTIONS LLOW-
L TO INDI IDU LS IN C RT IN C S S
Reguatons 111, Secton 29.130-1: Lmtaton Rev. Ru. 155
on deductons aowabe to ndvduas n cer-
tan cases.
( so Secton 1 2, Secton 29.1 2-1.)
INT RN L R NU COD
ppcaton of secton 130 of the Code to a trade or busness
carred on n the form of a partnershp.
dvce s requested as to whether secton 130 of the Interna Reve-
nue Code s appcabe n cases where the trade or busness of the n-
dvdua s carred on n the form of a partnershp. If so, advce s
aso requested as to whether the 50,000 oss test provded by secton
130 shoud be apped to the operatng resuts of the partnershp or
ony to the ndvdua partner s dstrbutve share of the partnershp
oss.
Secton 130(a) of the Interna Revenue Code provdes as foows:
If the deductons (other than ta es and nterest) aowabe to an Indvdua
(e cept for the provsons of ths secton) and attrbutbe to a trade or busness
carred on by hm for fve consecutve ta abe years have. In each of such years,
e ceeded by more than 50,000 the gross ncome derved from such trade or
busness, the net ncome of such ndvdua for each of such years sha be
recomputed. For the purpose of such recomputaton In the case of any such
ta abe year, such deductons sha be aowed ony to the e tent of 50,000 pus
the gross ncome attrbutabe to such trade or busness, e cept that the net
operatng oss deducton, to the e tent attrbutabe to such trade or busness sha
not be aowed.
Secton 1 1 of the Code provdes, as foows:
Sec. 1 1. Partnershp Not Ta abe. Indvduas carryng on busness In
partnershp sha be abe for Income ta ony n ther ndvdua capacty.
In vew of the foregong provsons of secton 130 of the Code,
such secton appes ony to a trade or busness carred on by an n-
dvdua ta payer. Where an ndvdua s a member of a partner-
shp the partnershp busness s the ndvdua s busness to the e tent
of hs proportonate nterest n such busness. It s beeved that ths
vew s consstent wth the purpose of secton 130 of the Code.
ccordngy, t s hed that secton 130 s appcabe to a trade or
busness carred on n the form of a partnershp by ndvduas. ow-
ever, as secton 130 s appcabe ony f an ndvdua s oss from a
trade or busness carred on by hm s n e cess of 50,000, t s further
hed that such secton shoud be apped to a busness of an ndvdua
operated n partnershp form ony where the ndvdua partner s
dstrbutve share of a partnershp oss s n e cess of 50,000, e -
cusve of nterest and ta es.
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1 1
IRegs. I, 29.130-1.
Wth respect to a trade or busness operated by an ndvdua n the
form of a bona fde partnershp, ths rung, pursuant to the authorty
of secton 3791(b) of the Interna Revenue Code, sha be apped
wthout retroactve effect to any ta abe year of an ndvdua n
whch there are ncuded partnershp osses attrbutabe to the part-
nershp s frst ta abe year endng after ths Revenue Rung s pub-
shed, e cept that, f wth the appcaton of ths rung the mmedate
succeedng ta abe year or any subsequent ta abe year of such nd-
vdua woud be the 5th consecutve ta abe year, whch woud brng
nto operaton the provsons of secton 130, then ths rung sha be
appcabe to a of such 5 consecutve years. For e ampe, assume
that both the partner and the partnershp report on the bass of a
caendar year. In such case, f as of December 31,1953, the partner s
dstrbutve share of the partnershp osses e ceeds 50,000 for each
of 5 consecutve years, the rung w not appy wth respect to such
seres of years. If, however, as of December 31, 195 , the partner s
dstrbutve share of the partnershp osses e ceeds 50,000 for each
cf 5 consecutve ta abe years, the rung w be apped wth respect
to such seres of years.
Reguatons 111, Secton 29.130-1: Lmtaton Rev. Ru. 219
on deductons aowabe to ndvduas n cer-
tan cases.
INT RN L R NU COD
The appcaton of secton ISO of the Code to certan stuatons
arsng n the o and gas busness.
dvce s requested whether, for the purpose of secton 130 of the
Interna Revenue Code, (1) the ncome or osses from the sae of an
o or gas property consttute ncome derved from or osses attrb-
utabe to the o and gas busness; (2) ncome from o and gas roya-
tes shoud be ncuded n the gross ncome of the o and gas busness;
and (3) the word deductons ncudes ntangbe drng costs and
osses due to worthessness or abandonment of o or gas propertes.
Secton 130 (a) of the Code provdes as foows:
If the deductons (other than ta es and Interest) aowabe to an ndvdua
(e cept for the provsons of ths secton) and attrbutabe to a trade or busness
carred on by hm for fve consecutve ta abe years have, n each of such years,
e ceeded by more than 50,000 the gross ncome derved from such trade or
busness, the net ncome of such Indvdua for each of such years sha be recom-
puted. For the purpose of such recomputaton n the case of any such ta abe
year, such deductons sha be aowed ony to the e tent of 50,000 pus the gross
Income attrbutabe to such trade or busness, e cept that the net operatng oss
deducton, to the e tent attrbutabe to such trade or busness sha not be aowed.
Wth respect to the frst queston, t s hed that for the purpose of
secton 130 of the Code, gams from the sae of o or gas propertes
beongng to the busness shoud be ncuded n the gross ncome
derved from the busness and osses from such saes shoud be ncuded
n the deductons attrbutabe to the busness. If by vrtue of secton
117(|) of the Code gans from the sae of such propertes are treated
for ta purposes as gans from the sae of capta assets, then for years
to whch the Revenue ct of 1951 appes the whoe of sad gans are
ncudbe n gross ncome for the purposes of secton 130, but the
deductons attrbutabe to the trade or busness for the purpose of sec-
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Regs. I, 29.130-1.
1 2
ton 130 ncude the deducton provded by secton 117(b) of the Code
that s attrbutabe to such gross ncome. For pror years ony one-
haf of such gans are ncudbe n gross ncome. See Unted States v.
een W. enedct et a, 33 U. S. 692, Ct. D. 1730, C. . 1950-1,70.
Wth respect to the second queston, t s hed that ncome from o
and gas royates may be ncuded as part of the gross ncome of the
o and gas busness, t beng understood that aowabe deductons
attrbutabe to such royates shoud kewse be taken nto account n
appyng secton 130.
Wth respect to the thrd queston, t shoud be noted that n ts use
of the word deductons the anguage of secton 130 s defnte and
unquafed. It does not dstngush between dfferent types of de-
ductons. When t has been determned that a deducton, other than
ta es and nterest, s aowabe to an ndvdua and s attrbutabe to
a trade or busness carred on by hm for 5 consecutve ta abe years
the aw s specfc n requrng that t be taken nto account n deter-
mnng whether the deductons have e ceeded the gross ncome by
more than 50,000.
The deducton for ntangbe drng costs s aowabe under the
rovsons of secton 23 of the Code and secton 29.23(m)-16 of Regu-
atons 111. Deductons for osses due to worthessness or abandon-
ment of propertes used n a trade or busness by an ndvdua are
aowabe under secton 23(e) of the Code. ccordngy, t s hed
that deductons for ntangbe drng costs and osses due to worth-
essness or abandonment of o or gas propertes are deductons
wthn the meanng of secton 130.
Reguatons 111, Secton 29.130-1: Lmtaton Rev. Ru. 221
on deductons aowabe to ndvduas n cer-
tan cases.
INT RN L R NU COD
ppcaton of secton 130 of the Code to a trade or busness
carred on In more than one form such as an ndvdua propretor-
shp and a partnershp or two or more partnershps.
dvce s requested whether for the purpose of determnng what
consttutes a trade or busness under secton 130 of the Interna
Revenue Code a of an ndvdua s ncome or osses from partnershp
nterests n a partcuar busness, such as the catte busness or the on
busness, are to be consodated and combned wth ncome or osses
from the ndvdua s persona operatons n the s m ne of actvty.
It s recognzed that an ndvdua may be engaged n severa trades
or busnesses. owever, the provsons of secton 130 of the Code
appy to a partcuar trade or busness carred on by an ndvdua.
s stated n Rev. Ru. 155, on page 1 0, ths uetn, a busness car-
red on n partnershp s consdered to be the busness of the ndvdua
partners. It foows that f a busness of the ndvdua partner s the
catte busness or the o busness, he may be carryng on that busness
n more than one partnershp. e may be the partner of n one part-
nershp and the partner of n another but he s carryng on ony one
busness for the purpose of secton 130. In addton to beng a member
of one or more partnershps engaged, for e ampe, n the catte bus-
ness he may aso be carryng on that busness as an ndvdua pro-
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1 3 Regs. 110, 33.31(c)(6).
pretor. For the purposes of secton 130 a of such actvtes are but
one trade or busness. ccordngy, t s hed that where a partcuar
busness of an ndvdua s conducted n one or more forms such as a
partnershp, |ont venture, or ndvdua propretorshp, the ndvd-
ua s share of the profts and osses from each busness unt must be
aggregated to determne the appcabty of secton 130 of the Code.
See Rev. Ru. 155, page 1 0, ths uetn, as to the nonretroactve
effect of secton 130 of the Code to an ndvdua s share of profts and
osses from a partnershp.
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
Reguatons 111, Sf ton 29.131-1: nayss
of credt for ta es.
INT RN L R NU COD
Oknawa s a foregn country. (See Rev. Ru. 199, p. 225.)
Reguatons 111, Secton 29.131-3: Condtons
of aowance of credt.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. 60 1, p. 1 5.)
SUPPL M NT D. R TURNS ND P YM NT OF T
S CTION 1 1.-CONSOLID T D R TURNS
Reguatons 110, Secton 33.31 (c) (6): Con- Rev. Ru. 222
sodated e cess-profts credt carryover.
( so Secton 33.31(b) ( 7) of Reguatons
110, and Secton 2 .31(b) (21) of Regua-
tons 129.)
INT RN L R NU COD
In appyng the mtaton contaned n secton 33.31(c)(6) of
Reguatons 110, the same prncpe s to be foowed as s foowed
n computng the mtaton mposed by secton 33.31(b) ( 7) ()
of such reguatons. Under the rue of secton 33.31(b) ( 7) (tn
an unused e cess-profts credt s ad|usted, n the ater year to whch
t may be carred, to the e tent that t s benefcay aowabe n
ntervenng years. Ths same rue s equay appcabe to secton
33.31(c)(6) snce the mtaton, n each nstance, has the same purpose.
Ths purpose s to prevent the offsettng of a member s unused e cess-
profts credt from a separate return year aganst that porton of
the consodated e cess-profts net ncome attrbutabe to other mem-
bers of the group. Thus, where an affated group fed a conso-
dated return for 19 n whch the consodated e cess-profts credt
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Regs. 129, 2 .31 (a) (90).
1
was computed under the genera average method, such group s en-
tted to carryback and ncude n ts 19 consodated unused e cess-
profts credt ad|ustment the 19 6 unused e cess-profts credt of one
of ts subsdares, computed n the subsdary s separate return under
the growth formua, to the e tent of the 19 consodated e cess-
profts net ncome attrbutabe to that subsdary and not prevousy
offset by any e cess-profts credt attrbutabe to that subsdary.
Reguatons 129, Secton 2 .11: Consodated Rev. Ru. 152
returns for subsequent years.
INT RN L R NU COD
ffated corporatons whch fed consodated Federa Income ta
returns for pror years may, notwthstandng the fng of such
returns, eect to fe separate Federa ncome ta returns wth re-
spect to the frst return due to be fed after uy 16, 11 53, the date
of the enactment of Pubc Law No. 125, ghty-thrd Congress, frst
sesson, page 73, ths uetn.
Secton 1 1(a) of the Interna Revenue Code provdes n part that
the makng of a consodated return sha be upon the condton that
a corporatons whch were members of the affated group consent
to a the consodated return reguatons prescrbed under secton
1 1(b) pror to the ast day prescrbed by aw for the fng of such
returns.
Secton 2 .11(a) of Reguatons 129 provdes that f a consodated
return s made for any ta abe year, a consodated return must be
made for each subsequent ta abe year durng whch the affated
group remans n e stence uness certan condtons are met. One
such condton set forth n cause (2) s that, subsequent to the
e ercse of the eecton to make consodated returns, chapter 1 of the
Interna Revenue Code to the e tent appcabe to corporatons, or
the consodated return reguatons whch have been consented to,
have been so amended as to make ess advantageous to affated groups
as a cass the contnued fng of consodated returns, regardess of the
effectve date of such amendment.
It s hed that chapter 1 of the Interna Revenue Code has been so
amended by Pubc Law No. 125, ghty-thrd Congress, frst sesson,
page 73, ths uetn, as to make ess advantageous to affated groups
as a cass the contnued fng of consodated returns, wthn the
meanng of secton 2 .11(a) of Reguatons 129. ccordngy, aff-
ated groups whch fed consodated returns n pror years, may eect
to fe separate returns wth respect to the frst return due to be fed
after uy 16, 1953, the date of the enactment of Pubc Law No. 125.
Rev. Ru. 17, C. . 1953-1, 227, s hereby modfed to the e tent
that t s nconsstent wth the foregong.
Reguatons 129, Secton 2 .31(a) (90) : Con-
sodated unused e cess-profts credt.
nterna revenue code
Reguatons 129 amended. (See T. D. 60 6, p. 231.)
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1 5
IRegs. I, 29.1 3-1.
Reguatons 129, Secton 2 .31 (b) (20): Compu-
tatons under secton .
INT RN L R NU COD
uafcaton of the Securtes and change Commsson as an
approprate reguatory body. (See Rev. u. 123, p. 235.)
I
S CTION 1 3. WIT OLDING OF T T SOURC
Reguatons 111, Secton 29.1 3-1: Wthhodng T. D. 6030
ta at source.
( so Secton 1 , Secton 29.1 -1.)
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 7.
T TION PURSU NT TO TR TI S. SU P RT FINL ND, R GUL TIONS
FF CTI NU RY 1, 1953
Reease or refund of e cess ta wthhed, and e empton from,
or reducton n rate of, wthhodng under sectons 1 a and 1 of
Interna Revenue Code n the case of resdents of Fnand and of
Fnnsh corporatons, as affected by the ncome ta conventon be-
tween the Unted States and the Repubc of Fnand procamed
by the Presdent of the Unted States on December 22, 1952.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 5, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
Tabe of Contents
Secton
7.700. Introductory.
7.701. Dvdends.
7.702. Interest.
7.703. Copyrght royates.
7.70 . Natura resources royates and rea property rentns.
7.705. Pensons and fe annutes.
7.706. Reease of e cess ta wthhed at source.
7.707. ddressee not actua owner.
7.70 . Informaton to be furnshed n ordnary course.
7.709. enefcares of a domestc estate or trust.
7.710. Refund of e cess ta wthhed durng 1952.
Secton 7.700. Introductory. The ncome ta conventon between
the Unted States and Fnand, sgned March 3, 1952, procamed by
the Presdent of the Unted States on December 22,1952, and effectve
for ta abe years begnnng on or after anuary 1, 1952, herenafter
referred to as the conventon, provdes n part as foows:
btce I
(1) The ta es referred to In ths conventon are:
(a) In the case of the Unted States of merca: The Federa ncome ta .
Incudng surta es and e cess profts ta es.
(b) In the case of Fnand: The State (Natona) ncome ta .
(2) The present conventon sha aso appy to any other ta es of a sub-
stantay smar character mposed by ether contractng State subsequenty to
the date of sgnature of the present conventon.
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Regs. I, 29.1 3-1.
1 6
rtce II
(1) s used n ths conventon:
(a) The term Unted States means the Unted States of merca, and
when used n a geographca sense ncudes ony the States, the Terrtores
of aska and awa, and the Dstrct of Coumba.
(b) The term Fnand means the Repubc of Fnand.
(c) The term permanent estabshment means a branch offce, factory,
warehouse or other f ed pace oft busness, but does not Incude the casua
and temporary use of merey storage factes, nor does t ncude an agency
uness the agent has and e ercses a genera authorty to negotate and
concude contracts on behaf of an enterprse or has a stock of merchandse
from whch he reguary fs orders on ts behaf. n enterprse of one of
the contractng States sha not be deemed to bare a permanent estabsh-
ment n the other State merey because t carres on busness deangs n such
other State through a bona fde commsson agent, broker or custodan act-
ng n the ordnary course of hs busness as such. The fact that an enter-
prse of one of the contractng States mantans n the other State a f ed
pace of busness e cusvey for the purchase of goods or merchandse sha
not of Itsef consttute such f ed pace of busness a permanent estabsh-
ment of such enterprse. The fact that a corporaton of one contractng
State has a subsdary corporaton whch s a corporaton of the other State
or whch s engaged n trade or busness n the other State sha not of t-
sef consttute that subsdary corporaton a permanent estabshment of ts
parent corporaton.
(d) The term enterprse ncudes every form of undertakng whether
carred on by an ndvdua, partnershp, corporaton, or any other entty.
(e) The term enterprse of one of the contractng States means, as the
case may be, Unted States enterprse or Fnnsh enterprse .
(f) The term Unted States enterprse means an enterprse carred on
n the Unted States by a resdent or partnershp of the Unted States or
by a Unted States corporaton or other entty; the term Unted States
corporaton or other entty means a corporaton or other entty created or
organzed n the Unted States or under the aw of the Unted States or of
any State or Terrtory of the Unted States.
(g) The term Fnnsh enterprse means an enterprse carred on n
Fnand by a resdent or partnershp of Fnand or by a Fnnsh corporaton
or other entty; the term Fnnsh corporaton or other entty means a
corporaton or other entty created or organzed n Fnand or nnder Fnnsh
aw.
(h) The term competent authortes means, n the case of the Unted
States the Commssoner of Interna Revenue as authorzed by the Secretary
of the Treasury; and n the case of Fnand, the Ta aton Department of
the Mnstry of Fnance.
(2) In the appcaton of the provsons of the present conventon by one of
the contractng States any term not otherwse defned sha, uness the conte t
otherwse requres, have the meanng whch such term has under the ta aws
of that State.

rtce I
(1) The rate of Unted States ta on dvdends derved from a Unted States
corporaton by a resdent or corporaton or other entty of Fnand, not engaged
n trade or busness n the Unted States through a permanent estabshment
theren, sha not e ceed 15 percent: provded that such rate of ta sha not
e ceed 5 percent f such Fncsh corporaton contros, drecty or Indrecty, at
east 95 percent of the entre votng power In the corporaton payng the dv-
dend, and not more than 25 percent of the gross ncome of such payng corpora-
ton Is derved from nterest and dvdends, other than nterest and dvdends
from ts own subsdary corporaton. Such reducton of the rate to 5 percent
sha not appy If the reatonshp of the two corporatons bns been arranged
or s mantaned prmary wth the ntenton of securng such reduced rate
(2) The rate of Fnnsh ta on dvdends derved from a Fnnsh corporaton
by a resdent or corporaton or other entty of the Unted States, not engaged
n trade or busness n Fnand through a permanent estabshment theren, sha
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1 7
Regs. I, 29.1 3-1.
not e ceed 15 percent: provded that such rate of ta sha not e ceed 5 percent
f such Unted States corporaton contros, drecty or ndrecty, at east 1)5 per-
cent of the entre votng power n the corporaton payng the dvdend, and not
more than 25 percent of the gross ncome of such payng corporaton s derved
from Interest and dvdends, other than nterest and dvdends from ts own
subsdary corporaton. Such reducton of the rate to 5 percent sha not appy
If the reatonshp of the two corporatons as been arranged or s mantaned
prmary wth the ntenton of securng such reduced rate. For the purposes of
ths paragraph the combned Fnnsh ta on such dvdends and the Fnnsh
property ta on the capta stock of a Fnnsh corporaton owned by such res-
dent or corporaton of other entty sha not e ceed an amount computed at
such rates as apped to dvdends, f any, so derved.
rtce II
(1) Interest on bonds, securtes, notes, debentures, or on any other form of
Indebtedness derved from sources wthn one of the contractng States by a res-
dent or corporaton or other entty of the other contractng State, not havng a
permanent estabshment n the former State, sha be e empt from ta by such
former State.
(2) onds, bank deposts and trade baances benefcay owned by a resdent
or corporaton or other entty of the Unted States sha be e empt from the
Fnnsh property ta .
rtce III
Royates for the rght to use copyrghts or n respect of the rght to produce
or reproduce any terary, dramatc, musca, or artstc work (but not ncusve
of rents or royates n respect of moton pcture fms) derved from sources
wthn one of the contractng States by a resdent or corporaton or other entty
of the other contractng State, not engaged n trade or busness n the former
State through a permanent estabshment theren, sha be e empt from ta m-
posed by such former State.
rtce I
(1) Income from rea property (not ncudng nterest derved from mortgages
and bonds secured by rea property) and royates n respect of the operaton
of mnes, quarres, or other natura resources, sha be ta abe ony n the con-
tractng State n whch such property, mnes, quarres, or other natura re-
sources are stuated.
(2) resdent or corporaton or other entty of one of the contractng States
dervng any such ncome from sources wthn the other contractng State
may, for any ta abe year, eect to be sub|ect to the ta of such other contractng
State as f such resdent or corporaton or other entty were engaged n trade
or busness wthn such other contractng.State through a permanent estabsh-
ment theren dnrnz such ta abe year.
rtce

(2) Prvate pensons and fe annutes derved from wthn one of the con-
tractng States and pad to ndvduas resdng n the other contractng State
sha be e empt from ta aton n the former State.
(3) The terra pensons , as used n ths rtce, means perodc payments
made n consderaton for servces rendered or by way of compensaton for n-
|ures receved.
( ) The term fe annutes as used n ths rtce means a stated sum
payabe perodcay at stated tmes durng fe, or durng a specfed number
of years, under an obgaton to make the payments n return for adequate and
fu consderaton n money or money s worth.

rtce II
(1) Dvdends and nterest pad by a Fnnsh corporaton sha be e empt
from Unted States ta e cept where the recpent s a ctzen, resdent or cor-
poraton or other entty of the Unted States.
2 G70 5 13
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Regs. I, 29.1 3-1
1
(2) Dvdends and nterest pad by a Unted States corporaton sha be e empt
from Fnnsh ta e cept where the recpent Is a resdent or corporaton or
other entty of Fnand.

rtce II
The competent authortes of the contractng States sha e change such
Informaton (beng nformaton avaabe under the respectve ta aton aws
of the contractng States) as s necessary for carryng out the provsons of the
present conventon or for the preventon of fraud or the admnstraton of
statutory provsons aganst ta avodance n reaton to the ta es whch are
the sub|ect of the present conventon. ny nformaton so e changed sha
be treated as secret and sha not be dscosed to any person other than those con-
cerned wth the assessment and coecton of the ta es whch are the sub|ect
of the present conventon. No nformaton sha be e changed whch woud
dscose any trade secret or trade process.
rtce III
ach of the contrat ng States may coect ta es, whch are the sub|ect of ths
conventon, mposed by the other contractng State (as though such ta were
a ta mposed by the former State) as w ensure that the e empton or reduced
rate of ta granted under the present conventon by such other State sha not
be en|oyed by persons not entted to such benefts.
rtce I
The State to whch appcaton s made for Informaton or assstance sha
compy as soon as possbe wth the request addressed to t e cept that such State
may refuse to compy wth the request for reasons of pubc pocy or f com-
pance woud nvove voaton of a trade, busness, ndustra, or professona
secret or trade process.

rtce I
(1) The provson of ths conventon sha not be construed to deny or affect
In any mauuer the rght of dpomatc and consuar offcers to other or addtona
e emptons now en|oyed or whch may hereafter be granted to such offcers.
(2) The provsons of the present conventon sha not be construed to restrct
any manner any e empton, deducton, credt or other aowance accorded by
the aws of one of the contractng States n the determnaton of the ta mposed
by such State.
(3) Shoud any dffcuty or doubt arse as to the nterpretaton or appcaton
of the present conventon, or ts reatonshp to conventons between one of the
contractng States and any other State, the competent authortes of the con-
tractng States may sette the queston by mutua agreement.
rtce II
(1) The competent authortes of the two contractng States may prescrbe
reguatons necessary to nterpret and carry out the provsons of ths conven-
ton. Wth respect to the provsons of ths conventon reatng to e change
of nformaton and mutua assstance n the coecton of ta es, such authortes
may, by common agreement, prescrbe rues concernng matters of procedure,
forms of appcaton and repes thereto, converson of currency, dsposton of
amounts coected, mnmum amounts sub|ect to coecton and reated matters.
(2) The competent authortes of the two contractng States may commun-
cate wth each other drecty for the purpose of gvng effect to the provsons
of ths conventon.
rtce III
(1) The present conventon sha be ratfed and the nstruments of ratf-
caton sha be e changed at esnk as soon as possbe. It sha have effect
for the ta abe years begnnng on or after the frst day of anuary of the year
n whch such e change takes pace.
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ISO
Regs. 111. 29.1 3-1.
(2) The present conventon sha contnue effectve for a perod of fve
years and ndefntey after that perod, but may be termnated by ether of the
contractng States at the end of the fve-year perod, or at any tme thereafter,
provded that at east she months pror notce of termnaton has been gven and,
n such event, the present conventon sha cease to be effectve for the ta abe
years begnnng on or after the frst day of anuary ne t foowng the e pra-
ton of the s -month perod.

s used n ths Treasury Decson, any term defned n the conven-
ton sha have the meanng so assgned to t; any term not so defned
sha, uness the conte t otherwse requres, have the meanng whch
such term has under the Interna Revenue Code.
Sec. 7.701. Dvdends. (a) Genera. The rate of Unted States
ta mposed by the Interna Revenue Code upon dvdends derved
from a domestc corporaton and receved n ta abe years begnnng on
or after anuary 1,1952, by a nonresdent aen (ncudng a nonres-
dent aen ndvdua, fducary, and partnershp) who s a resdent
of Fnand, or by a Fnnsh corporaton or other entty, sha not
e ceed 15 percent under the provsons of rtce I of the conventon
f such aen, corporaton, or other entty at no tme durng the ta abe
year n whch such dvdends are derved has engaged n trade or bus-
ness wthn the Unted States through a permanent estabshment
stuated theren. s to what consttutes a permanent estabshment,
see rtce 11(1) (c) of the conventon.
Thus, f a nonresdent aer. ndvdua who s a resdent of Fnand
performs persona servces wthn the Unted States durng the ta -
abe year, but has at no tme durng such year a permanent estab-
shment wthn the Unted States, he s entted to the reduced rate
of ta wth respect to dvdends derved n that year from a domestc
corporaton, as provded n rtce I of the conventon, even though
under the provsons of secton 211(b) of the Interna Revenue Code
he has engaged n trade or busness wthn the Unted States durng
such year by reason of hs havng performed persona servces theren.
(b) Dvdends pad by reated corporaton. Under the provso of
rtce I (1) of the conventon, dvdends derved from a domestc
corporaton by a Fnnsh corporaton whch contros, drecty or n-
drecty, at the tme the dvdend s pad 95 percent or more of the
entre votng power n the corporaton payng the dvdend are, when
receved n ta abe years begnnng on or after anuary 1, 1952, sub-
|ect to Unted States ta at a rate not n e cess of 5 percent f (1)
not more than 25 percent of the gross ncome of the payng corpora-
ton for the 3-yea perod mmedatey precedng the ta abe year n
whch the dvdend s pad conssts of dvdends and nterest (other
than dvdends and nterest receved by such payng corporaton from
ts own subsdary corporatons, f any), (2) the reatonshp between
the payng corporaton and the Fnnsh corporaton has not been ar-
ranged or mantaned prmary wth the ntenton of securng the
reduced rate of 5 percent, and (3) the Fnnsh corporaton at no tme
durng the ta abe year n whch such dvdends are derved has en-
gaged n trade or busness wthn the Unted States through a per-
manent estabshment stuated theren.
ny domestc corporaton whch cams or contempates camng
that dvdends pad or to be pad by t are sub|ect to a rate not n
e cess of 5 percent sha fe the foowng nformaton wth the Com-
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feas. I, 29.1 3-1.
190
mssoner of Interna Revenue as soon as practcabe: (1) the date
and pace of ts organzaton; (2) the number of outstandng shares of
stock of the domestc corporaton havng votng power and the votng
power thereof; (3) the person or persons benefcay ownng such
tock of the domestc corporaton and ther reatonshp to the Fn-
nsh corporaton; ( ) the amount of the gross ncome by years of
the domestc corporaton for the 3-year perod mmedatey precedng
the ta abe year n whch the dvdend s pad; (5) the amount of n-
terest and dvdends by years ncuded n the gross ncome of the
domestc corporaton, and the amount of nterest and dvdends by
years receved by such corporaton from ts own subsdary corpora-
tons, f any; and (6) the reatonshp between the domestc corpora-
ton and the Fnnsh corporaton dervng the dvdend.
s soon as practcabe after such nformaton s fed, the Comms-
soner w determne whether the dvdends concerned fa wthn
the scope of the provso of rtce I (1) of the conventon and may
authorze the reease or refund of e cess ta wthhed wth respect to
dvdends whch come wthn such provso. For addtona requre-
ments respectng the refund of e cess ta wthhed durng 1952, see
secton 7.710.
In any case n whch the Commssoner has notfed the domestc
corporaton that the dvdends fa wthn the scope of the provso of
rtce I (1) of the conventon, the reduced wthodng rate of 5
percent, to the e tent wthhodng of Unted States ta s requred,
sha appy to any dvdends subsequenty pad by such corporaton
and derved by the Fnnsh corporaton, uness the stock ownershp
of the domestc corporaton, or the character of ts ncome, materay
changes; or uness the Commssoner determnes that the reatonshp
between the two corporatons concerned s beng mantaned prmary
wth the ntenton of securng the reduced rate of ta . In such
nstance, f such change n stock ownershp or character of ncome
occurs, the domestc corporaton sha prompty notfy the Comms-
soner of the then e stng facts wth respect thereto. The contnued
appcaton of the rate not n e cess of 5 percent s aso dependent
upon the contnued fufment of condton (3) of the frst paragraph
of (b) of ths secton.
(c) ffect of address n Fnand on wthhodng n the case of
dvdends. For the purpose of wthhodng of Unted States ta n
the case of dvdends every nonresdent aen (ncudng a nonresdent
aen ndvdua, fducary, and partnershp) whose address s n Fn-
and sha be deemed by Unted States wthhodng agents to be a
nonresdent aen who s a resdent of Fnand not engaged n trade
or busness wthn the Unted States through a permanent estabsh-
ment stuated theren; and every foregn corporaton whose address s
n Fnand sha be deemed by such wthhodng agents to be a Fnnsh
corporaton not engaged n trade or busness wthn the Unted States
through a permanent estabshment stuated theren.
(d) ate of wthhodng. Wthhodng at source n the case of
dvdends derved from a domestc corporaton and pad on or after
anuary 1, 1953, to nonresdent aens (ncudng a nonresdent aen
ndvdua, fducary, and partnershp) and to foregn corporatons,
whose addresses are n Fnand, sha be at the rate of 15 percent n
every case e cept that n whch, pror to the date of payment of such
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191
Regs. I, 29 1 3-1.
dvdends, the Commssoner of Interna Revenue has (1) pursuant
to (b) of ths secton notfed the domestc corporaton that such
dvdends fa wthn the scope of the provso of rtce I (1) of the
conventon or (2) notfed the wthhodng agent that the reduced rate
of wthhodng sha not appy.
The precedng provsons respectng the appcaton of the reduced
wthhodng rate n the case of dvdends pad to nonresdent aens
and foregn corporatons wth addresses n Fnand are based upon
the assumpton that the payee of the dvdend s the actua owner of
the capta stock from whch the dvdend s derved and consequenty
s the person abe to Unted States ta upon such dvdend. s to
acton by the recpent who s not the owner of the dvdend, see
secton 7.707.
The rate at whch Unted States ta has been wthhed from any
dvdend pad at any tme after the e praton of the 30th day after
the date on whch ths Treasury Decson s pubshed n the Federa
Regster to any person whose address s n Fnand at the tme the
dvdend s pad sha be shown ether n wrtng or by approprate
stamp on the check, draft, or other evdence of payment, or on an
accompanyng statement.
In the case of dvdends pad on or after anuary 1, 1952, by a Fn-
nsh corporaton no wthhodng of Unted States ta s requred.
See rtce II() of the conventon.
Sec. 7.702. Interest. (a) Genera. Interest on bonds, securtes,
notes, debentures, or on any other form of ndebtedness, ncudng n-
terest on obgatons of the Unted States, obgatons of nstrumenta-
tes of the Unted States, and mortgages and bonds secured by rea
property, whch s derved from sources wthn the Unted States and
receved n ta abe years begnnng on or after anuary 1, 1052, by
a nonresdent aen (ncudng a nonresdent aen ndvdua, fdu-
cary, and partnershp) who s a resdent of Fnand, or by a Fnnsh
corporaton or other entty, s e empt from Unted States ta under
the provsons of rtce II of the conventon f such aen, corpora-
ton, or other entty at no tme durng the ta abe year n whch such
nterest s derved has a permanent estabshment n the Unted States.
Such nterest s, therefore, not sub|ect to the wthhodng of Unted
States ta at source. s to what consttutes a permanent estabsh-
ment, see rtce 11(1) (c) of the conventon.
(b) ppcaton of e empton from wthhodng. To avod wth-
hodng of Unted States ta at source n the case of coupon bond
nterest the nonresdent aen who s a resdent of Fnand, or the
Fnnsh corporaton or other entty, sha for each ssue of bonds fe
Form 1001-FIN n dupcate when presentng the nterest coupons for
payment. Ths form sha be sgned by the owner of the nterest,
trustee, or agent and sha show the name and address of the obgor,
the name and address of the owner of the nterest, and the amount of
the nterest. It sha contan a statement that the owner (1) s a
resdent of Fnand, or s a Fnnsh corporaton or other entty, and
(2) has no permanent estabshment n the Unted States.
The e empton from Unted States ta contempated by rtce II
of the conventon, nsofar as t concerns coupon bond nterest, s ap-
pcabe ony to the owner of the nterest. The person presentng
the coupon or on whose behaf t s presented sha, for the purpose
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Regs. I, 5 29.1 3-1.
192
of the e empton from ta , be deemed to be the owner of the nterest
ony f he s, at the tme the coupon s presented for payment, the
owner of the bond from whch the coupon has been detached. If the
person presentng the coupon or on whose behaf t s presented s
not the owner of the bond, Form 1001, and not Form 1001-FIN, sha
be e ecuted.
The orgna and dupcate of Form 1001-FIN sha be forwarded
by the wthhodng agent to the Commssoner of Interna Revenue,
Unform udt ranch, en Returns Secton, Washngton 25, D. C,
wth the quartery return on Form 1012, as provded n secton
29.1 ,3-7 of ths chapter wth respect to Form 1001. Form 1001-FIN
need not be sted on Form 1012.
For genera provsons pertanng to the use, wthout reference to
the provsons of the conventon, of ownershp certfcate, Form 1001,
by nonresdent aens and nonresdent foregn corporaton, see secton
29.1 3- and secton 29.1 3-6 of ths chapter 20 CFR 29.1 3- and
29.1 3-6 .
To avod wthhodng of Unted States ta at source n the case of
nterest, other than coupon bond nterest, the nonresdent aen who
s a resdent of Fnand, or the Fnnsh corporaton or other entty,
sha notfy the wthhodng agent by etter n dupcate that such
ncome s e empt from Unted States ta under the provsons of
rtce II of the conventon. The etter of notfcaton sha be
sgned by the owner of the nterest, trustee, or agent and sha show
the name and address of the obgor and the name and address of the
owner of the nterest. It sha contan a statement (1) that the owner
s nether a ctzen nor a resdent of the Unted States but s a resdent
of Fnand, or, n the case of a corporaton or other entty, (2) that
the owner s a Fnnsh corporaton or other entty; and, n addton,
a statement that the owner has at no tme durng the current ta abe
year had a permanent estabshment n the Unted States.
Ths etter of notfcaton, whch sha consttute authorzaton for
the payment of such nterest wthout wthhodng of Unted States
ta at source, sha be fed wth the wthhodng agent for each
successve 3-caendar-year perod durng whch such ncome s
pad. For ths purpose, the frst such perod sha commence wth the
begnnng of the caendar year n whch such ncome s frst pad on or
after anuary 1, 1953. ach such etter fed wth any wthhodng
agent sha be fed not ater than 20 days precedng the date of the
frst payment wthn each successve perod, or, f that s not possbe
because of speca crcumstances, as soon as possbe after such frst
payment.
If such etter s aso to be used as authorzaton for the reease, pur-
suant to secton 7.706(a), of e cess ta wthhed from nterest, other
than coupon bond nterest, t sha aso contan a statement that, at the
tme when the nterest was derved from whch the e cess ta was
wthhed, (1) the owner was nether a ctzen nor a resdent of the
Unted States but was a resdent of Fnand, or, n the case of a cor-
poraton or other entty, (2) the owner was a Fnnsh corporaton or
other entty; and, n addton, a statement that the owner at no tme
durng the ta abe year n whch such nterest was derved had a per-
manent estabshment n the Unted States.
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193
egs. I, 29.1 3- 1.
Once a etter has been fed n respect of any 3-caendar-year pe-
rod, no addtona etter need be fed n respect thereto uness the
Commssoner of Interna Revenue notfes the wthhodng agent that
an addtona etter sha be fed by the ta payer. If, after fng a
etter of notfcaton, the ta payer ceases to be egbe for the e emp-
ton from Unted States ta provded by the conventon n respect to
such nterest, he sha prompty notfy the wthhodng agent by et-
ter n dupcate. When any change occurs n the ownershp of the
nterest as recorded on the books of the payer, the e empton from
wthhodng of Unted States ta sha no onger appy uness a etter
of notfcaton s duy e ecuted and fed wth the wthhodng agent
by the new owner of record of such nterest.
ach etter of notfcaton, or the dupcate thereof, sha be mme-
datey forwarded bv the wthhodng agent to the Commssoner of
Interna Revenue, Unform udt ranch, en Returns Secton,
Washngton 25, D. C.
In the case of nterest pad on or after anuary 1, 1052, by a Fn-
nsh corporaton no wthhodng of Unted States ta s requred
See rtce II (1) of the conventon.
Sec. 7.703. Copyrght Royates. (a) Genera. Royates for the
rght to use copyrghts or n respect of the rght to produce or repro-
duce any terary, dramatc, musca, or artstc work whch are de-
rved from sources wthn the Unted States and receved n ta abe
years begnnng on or after anuary 1, 1952, by a nonresdent aen
(ncudng a nonresdent aen ndvdua, fducary, and partnershp)
who s a resdent of Fnand, or by a Fnnsh corporaton or other
entty, are e empt from Unted States ta under the provsons of
rtce III of the conventon f such aen, corporaton, or other
entty at no tme durng the ta abe year n whch such royates are
derved has engaged n trade or busness wthn the Unted States
through a permanent estabshment stuated theren. Such royates
are, therefore, not sub|ect to the wthhodng of Unted States ta at
source. s to what consttutes a permanent estabshment, see rtce
11(1) (c) of the conventon.
The provsons of ths secton sha have no appcaton to rents or
royates n respect of moton pcture fms.
(b) ppcaton of e empton from wthhodng. To avod wth-
hodng of Unted States ta at source n the case of the royates to
whch (a) of ths secton s appcabe, the nonresdent aen who s
a resdent of Fnand, or the Fnnsh corporaton or other entty,
sha notfy the wthhodng agent by etter n dupcate that such
royates are e empt from Unted States ta under the provsons of
rtce III of the conventon. The provsons of secton 7.702(6)
reatng to the e ecuton, fng, and effectve perod of the etter of
notfcaton prescrbed theren wth respect to nterest, ncudng ts
use for the reease of e cess ta wthhed, are equay appcabe wth
respect to the ncome fang wthn the scope of ths secton.
ach etter of notfcaton, or the dupcate thereof, sha be mmed-
atey forwarded by the wthhodng agent to the Commssoner of
Interna Revenue, Unform udt ranch, en Returns Secton,
Washngton 25, D. C.
Sec. 7.70 . Natura Resource Royates and Rea Property
Rentas. The conventon does not change the rate of Unted States
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Regs. I, 29.1 3-1.
19
ta mposed pursuant to sectons 211 and 231 of the Interna Revenue
Code upon natura resource royates and rea property rentas. The
wthhodng of Unted States ta wth respect to such tems derved
from sources wthn the Unted States by nonresdent aens who are
resdents of Fnand, or by Fnnsh corporatons or other enttes, s
not changed by the conventon. See sectons 1 3(b) and 1 of the
Interna Revenue Code and rtce I of the conventon.
Sec. 7.705. Pensons and Lfe nnutes. (a) Genera. Prvate
pensons and fe annutes, as defned n rtce (3) and ( ) of the
conventon, derved from sources wthn the Unted States and pad
n ta abe years begnnng on or after anuary 1, 1952, to a non-
resdent aen ndvdua who s a resdent of Fnand are e empt from
Unted States ta under the provsons of rtce (2) of the con-
venton. Such tems of ncome are, therefore, not sub|ect to the wth-
hodng of Unted States ta at source.
(b) ppcaton of e empton from wthhodng. To avod wth-
hodng of Unted States ta at source n the case of the tems of
ncome to whch (a) of ths secton s appcabe, the nonresdent aen
ndvdua who s a resdent of Fnand sha notfy the wthhodng
agent by etter n dupcate that such ncome s e empt from Unted
States ta under the provsons of rtce of the conventon. The
etter of notfcaton sha be sgned by the owner of the ncome, sha
show the name and address o both the payer and the owner of the
ncome, and sha contan a statement that the owner, an ndvdua,
s nether a ctzen nor a resdent of the Unted States but s a
resdent of Fnand.
If such etter s aso to be used as authorzaton for the reease,
pursuant to secton 7.700(a), of e cess ta wthhed from such tems
of ncome, t sha aso contan a statement that the owner was, at the
tme when the ncome was pad from whch the e cess ta was wth-
hed, nether a ctzen nor a resdent of the Unted States but was a
resdent of Fnand.
Ths etter sha consttute authorzaton for the payment of such
tems of ncome wthout wthhodng of Unted States ta at source
uness the Commssoner of Interna Revenue subsequenty notfes
the wthhodng agent that the ta sha be wthhed wth respect to
payments of such tems of ncome made after recept of such notce.
If, after fng a etter of notfcaton, the owner of the ncome ceases
to be egbe for the e empton from Unted States ta provded by
the conventon n respect to such ncome, he sha prompty notfy
the wthhodng agent by etter n dupcate. When any change occurs
n the ownershp of such ncome as recorded on the books of the payer,
the e empton from wthhodng of Unted States ta sha no onger
appy uness a etter of notfcaton s duy e ecuted and fed wth the
wthhodng agent by the new owner of record of such ncome.
ach etter of notfcaton, or the dupcate thereof, sha be m-
medatey forwarded by the wthhodng agent to the Commssoner
of Interna Revenue, Unform udt ranch, en Returns Secton,
Washngton 25, D. C.
Sec. 7.706. Reease of cess Ta Wthhed at Source. (a) Gen-
era. In order to gve the conventon effectve appcaton at the
earest practcabe date, the e emptons from, and reductons n rate
of, wthhodng of Unted States ta at source granted by ths Treas-
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195
Regs. I, 29.1 3-1.
ury Decson are hereby made effectve begnnng anuary 1,1953, con-
tngent upon compance wth the appcabe provsons of secton
7.701 through secton 7.705.
In the case of dvdends derved from a domestc corporaton and
ad to a nonresdent aen (ncudng a nonresdent aen ndvdua,
ducary, and partnershp) or to a foregn corporaton, whose address
at the tme of payment was n Fnand, where Unted States ta at
the statutory rate (30 percont as of the date of approva of ths Treas-
ury Decson) has been wthhed from such dvdends on or after an-
uary 1,1953, there sha be reeased (e cept as provded n (6) of ths
secton) by the wthhodng agent and pad over to the person from
whom t was wthhed an amount whch s equa to the amount ob-
taned by substractng 15 percent of such dvdends from the ta so
wthhed.
In the case of every ta payer whose address at the tme of payment
was n Fnand and who furnshes to the wthhodng agent the etter
of notfcaton prescrbed n secton 7.702(6), secton 7.703(6), and
secton 7.705(6) as authorzaton for the reease of e cess ta wthhed,
where Unted States ta at the statutory rate (30 percent as of the date
of approva of ths Treasury Decson) has been wthhed on or after
anuary 1, 1953 from nterest (other than coupon bond nterest),
copyrght royates and the ke, and from prvate pensons and fe
annutes as defned n rtce , there sha be reeased by the wth-
hodng agent and pad over to the person from whom t was wth-
hed an amount equa to the ta so wthhed from such tems.
In the case of evey ta payer whose address at the tme of payment
was n Fnand and who furnshes to the wthhodng agent Form
1001-FIN ceary marked SU STITUT and e ecuted n accord-
ance wth secton 7.702(6), where Unted States ta at the statutory
rate (2 percent or 30 percent, as the case may be, as of the date of
approva of ths Treasury Decson) has been wthhed from coupon
bond nterest on or after anuary 1,1953, there sha be reeased by the
wthhodng agent and pad over to the person from whom t was
wthhed an amount equa to the ta so wthhed from such nterest.
One such substtute form sha be fed n dupcate wth respect to
each ssue of bonds and w serve wth respect to that ssue to repace
a Forms 1001 prevousy fed by the ta payer n the caendar year
n whch the e cess ta was wthhed and wth respect to whch such
e cess s reeased.
The orgna and dupcate of substtute Form OO-FIN sha be
forwarded by the wthhodng agent to the Commssoner of Inter-
na evenue, Unform udt ranch, en Returns Secton, Wash-
ngton 25, D. C, wth the quartery return on Form 1012, as provded
n secton 29.1 3-7 of ths Chapter wth respect to Form 1001. Sub-
sttute Form OO-FIN need not be sted on Form 1012.
The provsons of ths secton sha have no appcaton to e cess
ta wthhed at source whch has been pad by the wthhodng agent
to the dstrct drector of nterna revenue pursuant to secton
29.1 3-7 of ths chapter.
(6) Dvdends pad oy reated corporaton. In the case of every
domestc corporaton recevng notfcaton from the Commssoner of
Interna Revenue under the provsons of secton 7.701(6) that dv-
dends pad or to be pad by t fa wthn the scope of the provso of
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Regs. I, 29.1 3-1.
196
rtce I (1) of the conventon, where Unted States ta n e cess
of the appcabe rate of 5 percent has been wthhed on or after an-
uary 1, 1953, from dvdends whch come wthn the scope of such pro-
vso, the wthhodng agent sha, f so authorzed n such notfcaton,
reease and pay over to the corporaton from whch t was wthhed
the e cess ta wthhed wth respect to such dvdends.
(c) mounts wthhed durng 1952. For provsons respectng the
refund of e cess ta wthhed durng the caendar year 1952, see sec-
ton 7.710.
Sec. 7.707. ddressee Not ctua Owner. (a) Genera. If the
recpent n Fnand of any dvdend from a Unted States corpora-
ton, wth respect to whch Unted States ta at the reduced rate of
15 percent has been wthhed at source pursuant to secton 7.701 (d), s
a nomnee or representatve through whom such dvdend fows to a
person other than one descrbed n secton 7.701(a) as beng entted
to such reduced rate, such recpent n Fnand sha wthhod an ad-
dtona amount of Unted States ta equvaent to the Unted States
ta whch woud have been wthhed f the conventon had not been n
effect (30 percent of such dvdend as of the date of approva of ths
Treasury Decson mnus the 15 percent whch has been wthhed at
the source.
In any case n whch a fducary or partnershp wth an address n
Fnand receves, otherwse than as a nomnee or representatve, a dv-
dend from a Unted States corporaton wth respect to whch Unted
States ta at the reduced rate of 15 percent has been wthhed at source
pursuant to secton 7.701(d), f a benefcary of such fducary or a
partner n such partnershp s not entted to the reduced rate of ta
granted by rtce I (1) of the conventon, the fducary or partner-
shp sha wthhod an addtona amount of Unted States ta wth
respect to the porton of such dvdend ncuded n such benefcary s
share of the dstbuted or dstrbutabe ncome, or n such partner s
dstrbutve share of the ncome, of such fducary or partnershp, as
the case may be. The amount of the addtona ta s to be cacuated
n the same manner as under the mmedatey precedng paragraph.
If any amount of Unted States ta s reeased pursuant to secton
7.706(a) by the wthhodng agent n the Unted States wth respect
to a dvdend pad to such a person (nomnee, representatve, fducary,
or partnershp wth an address n Fnand, the atter sha aso wth-
hod from sucn reeased amount any addtona amount of Unted
States ta , otherwse requred to be wthhed by the precedng prov-
sons of ths secton n respect of such dvdend, n the same manner as
f at the tme of payment of such dvdend Unted States ta at the
rate of ony 15 percent had been wthhed at source therefrom.
(b) Returns fed by Fnnsh wthhodng agents The amount3
so wthhed pursuant to (a) of ths secton by such wthhodng agents
n Fnand sha be deposted, wthout convertng such amounts nto
Unted States doars, wth the Fnnsh Ta aton Department of the
Mnstry of Fnance on or before the 15th day after the cose of the
quarter of the caendar year n whch such wthhodng n Fnand
occurs. ach wthhodng agent makng such depost sha render
therewth the approprate Fnnsh form as prescrbed by the Ta aton
Department of the Mnstry of Fnance. That Department has ar-
ranged that the amounts so deposted w be remtted by draft n
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Regs. I, 29.1 3-1.
Unted States doars to the Dstrct Drector of Interna Revenue,
atmore, Maryand, U. S. ., on or before the end of the caendar
month n whch the deposts are made, such draft to be accompaned
by the Fnnsh form rendered by the wthhodng agents n Fnand
n connecton wth such deposts.
Sec. 7.70 . Informaton To e Furnshed n Ordnary Course.
In compance wth the provsons of rtce II of the conventon
the Commssoner of Interna Revenue w transmt to the Fnnsh
Ta aton Department of the Mnstry of Fnance, as soon as pract-
cabe after the cose of the caendar year 1953 and of each subsequent
caendar year durng whch the conventon s n effect, the foowng
nformaton reatng to such precedng caendar year:
(a) The name and address of each person, whose address as
dscosed on each avaabe Form 1012 and Form 10 2 s n
Fnand, dervng from sources wthn the Unted States dv-
dends, nterest, rent, royates, saares, wages, pensons, annutes,
and other f ed or determnabe annua or perodca ncome; and
the amount of such ncome as dscosed on such form wth respect
to each such person; and
(b) The dupcate copy of each avaabe ownershp certfcate,
Form 1001-FIN, fed pursuant to secton 7.702(b), and sub-
sttute Form 1001-FIN, fed pursuant to secton 7.706(a), n
connecton wth coupon bond nterest.
To factate compance wth rtce II of the conventon,
every Unted States wthhodng agent sha report on Form 10 2
for the caendar year 1953 and each subsequent caendar year, n
addton to the tems of ncome requred to be sted on such form
pursuant to secton 29.1 3-7 of ths chapter, a other tems of f ed
or determnabe annua or perodca ncome derved from sources
wthn the Unted States and pad to nonresdent aens (ncudng
nonresdent aen ndvduas, fducares, and partnershps) and to
nonresdent foregn corporatons, whose addresses at the tme of pay-
ment were n Fnand, ncudng such tems of ncome upon whch,
n accordance wth ths Treasury Decson, no wthhodng of Unted
States ta s requred; e cept that any tem of nterest n respect of
whch Form 1001-FIN or substtute Form 1001-FIN has been fed
n dupcate wth the wthhodng agent s not requred to be reported
on such form.
Sec. 7.709. enefcares of a Domestc state or Trust. non-
resdent aen who s a resdent of Fnand and who s a benefcary of
a domestc estate or trust sha be entted to the e empton from, or
reducton n the rate of, Unted States ta granted by rtces I,
II, III, and II of the conventon wth respect to dvdends,
nterest, and copyrght royates and the ke, to the e tent such tem
or tems are ncuded n hs share of the dstrbuted or dstrbutabe
ncome of such estate or trust. In order to be entted n such nstance
to the e empton from, or reducton n the rate of, wthhodng of
Unted States ta such benefcary must otherwse satsfy the requre-
ments of these respectve artces of the conventon and sha, where
appcabe, e ecute and submt to the fducary of such estate or trust
n the Unted States the approprate etter of notfcaton prescrbed
n secton 7.702( ) and secton 7.703(Z ).

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Rega. I, 29.1 3-1.
Sec. 7.710. Refund of cess Ta Wthhed Durng 1952. If
Unted States ta wthhed at the source durng the year 1952 from
dvdends, nterest, copyrght royates and the ke, pensons, or
fe annutes s n e cess of the ta mposed by chapter 1 (reatng
to the ncome ta ) of the Interna Revenue Code, as modfed by the
conventon, a cam by the ta payer for the refund of any overpay-
ment sha be made under secton 322 of the Interna Revenue Code by
fng Form 3 together wth Form 10 0N , Form 10 0N -a, Form
10 0 , Form 1120, or Form 1120N , whchever s appcabe, or
wth an amended return.
The ta payer s tota gross ncome from sources wthn the Unted
States, ncudng every tem of capta gan sub|ect to ta under the
provsons of secton 211(a) (1) ( ) or211(c) of the Interna Revenue
Code, sha be dscosed on the return. In the event that securtes
are hed n the name of a person other than the actua or benefca
owner, the name and address of such person sha be furnshed wth
the cam. There sha aso be ncuded n such cam for refund:
(a) statement that, at the tme when the tem or tems of
ncome were derved (or pad, n the case of prvate pensons
and fe annutes) from whch the e cess ta was wthhed, (1)
the ta payer was nether a ctzen nor a resdent of the Unted
States but was a resdent of Fnand, or, n the case of a corpora-
ton or other entty, (2) the ta payer was a Fnnsh corporaton
or other entty; and
(6) statement that the ta payer at no tme durng the ta -
abe year n whch the ncome was derved was engaged n trade
or busness wthn the Unted States through a permanent estab-
shment stuated theren.
If, however, the ta payer s an ndvdua who durng the ta abe
year derved from sources wthn the Unted States ncome whch con-
ssts e cusvey of pensons or fe annutes entted to the beneft of
rtce of the conventon, the statement specfed n (6) above sha
not be requred.
s to addtona nformaton requred n the case of a Fnnsh corpo-
raton camng the beneft of the 5 percent rate on dvdends pad by
a domestc corporaton, see secton 7.701(6).
ecause t s necessary to brng nto effect at the earest practcabe
date the rues of ths Treasury Decson respectng reease or refund
of e cess ta wthhed and e empton from, or reducton n rate of,
wthhodng of ta , t s hereby found that t s mpractcabe to ssue
ths Treasury Decson wth notce and pubc procedure thereon under
secton (a) of the dmnstratve Procedure ct, approved une 11,
19 6, or sub|ect to the effectve date mtaton of secton (c) of
that ct.
(Ths Treasury Decson s ssued under the authorty contaned n
sees. 62 and 3791 (53 Stat. 32, 67; 26 U. S. C. 62,3791) of the Interna
Revenue Code and n rtce II of the conventon.)
T. Coeman ndrews,
Commssoner of Interna Revenue.
pproved uy 10, 1953.
M. . Fosom,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster uy 15 ,1953, :52 a. m.)
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199
Regs. I, 5 29.1 7-2.
S CTION 1 . P YM NT OF CORPOR TION INCOM
T T SOURC
Reguatons 111, Secton 29.1 -1: Wthhodng
n the case of nonresdent foregn corporatons.
INT RN L R NU COD
Reease or refund of e cess ta wthhed, and e empton from, wth-
hodng n case of Fnnsh corporatons, as affected by the recproca
ncome ta conventon between the Unted States and Fnand. (See
T. D. 6030, p. 1 5.)
S CTION 1 7. INFORM TION T SOURC
Reguatons 111, Secton 29.1 7-2: Return of Rev. Ru. 13
nformaton as to payments to empoyees.
nterna revenue code
The report whch an arne captan s requred to fe at the
concuson of each fght dentfyng the members of hs crew, the
pane, the trp, and ndcatng the number of hours the crew was
away from ther base staton, by whch the arne computes the
amount of the e pense rembursement of the pot at the houry am
per dem rates provded for under a unon agreement reatve to the
compensaton and other empoyment condtons of pots n the
empoy of the arne does not consttute an accountng of ordnary
and necessary e pense ncurred n the busness of the empoyer
wthn the meanng of Mmeograph 50 7, C. . 10 5, 235, and such
rembursements not sub|ect to wthhodng, are requred to be re-
ported by the empoyer on Form 1090.
dvce s requested whether the tme report whch an arne captan
s requred to fe wth hs empoyer for the purpose of computng the
pot s rembursement e penses consttutes an accountng of ordnary
and necessary e pense ncurred n the busness of the empoyer wthn
the meanng of Mmeograph 5917, C. . 19 5, 235.
Secton 29.1 7-2 of Reguatons 111, provdes that f an empoyee
recevng an aowance as an advance or rembursement of e penses s
pad an aggregate (n wages pus aowances) of G00 or more n a
caendar year, hs aowances not sub|ect to wthhodng must be re-
ported by the empoyer on Form 1099, n addton to the usua report-
ng of wages sub|ect to wthhodng on Form W-2.
Mmeograph 59 7, supra, dated November 19, 19 5 was ssued for
the purpose of carfyng the provsons of secton 29.1 7-2 of Regu-
atons 111, as amended by Treasury Decson 5 0, C. . 1915, 23 ,
wth respect to the reportng on Form 1099 of advances or rembursed
e penses. It reeves an empoyer of reportng on Form 1099 ad-
vances or rembursements for e penses wth respect to whch de-
taed e pense accounts are submtted to the empoyer by the empoyee
showng that the e penses are ordnary and necessary e penses n-
curred n the busness of the empoyer.
In accordance wth the terms of a unon agreement pots of an
arne company receve certan houry aowances for absences for
operatons away from the base and for attendance at the company s
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egs. I, 29.1 7-3.
200
tranng schoo. In addton pots n nternatona operatons receve
per dem aowances to cover msceaneous e penses. paragraph
of the agreement specfcay provdes that the stated amounts are n-
tended to remburse pots for ony reasonabe actua e penses. The
amounts are determned e acty upon the number of hours or fractons
thereof of the absences from base.
The report prepared by the captan at the concuson of a trp nd-
cates the number of hours away from base and serves as a bass for
computaton by the company of rembursements at the houry and per
dem rates, fowever, such report does not show that the e penses
were actuay ncurred by the empoyees n the busness of the
empoyer.
ccordngy, the report whch an arne captan s requred to fe
at the concuson of each fght dentfyng the members of hs crew,
the pane, the trp, and ndcatng the number of hours the crew was
away from ther base staton, by whch the arne computes the
amount of the e pense rembursement of the pot at the houry and
per dem rates provded for under a unon agreement reatve to the
compensaton and other empoyment condtons of pots n the em-
poy of the arne does not consttute an accountng of ordnary and
necessary e pense ncurred n the busness of the empoyer wthn the
meanng of Mmeograph 59 7, C. . 19 5, 235, and such remburse-
ments not sub|ect to wthhodng, are requred to be reported by the
empoyer on Form 1099.
Regu,atons 111, Secton 29.1 7-2: Return of
nformaton as to payments to empoyees.
INT RN L R NU COD
Premum pad on mpoyees nnutes by an empoyer e empt
from Federa ncome ta under secton 101 (6) of the Interna Revenue
Code. (See Rev. Ru. 1 1, p. 111.)
Reguatons 111, Secton 29.1 7-2: Return of
nformaton as to payments to empoyees.
INT RN L R NU COD
Transportaton aowances pad to empoyees workng un s tem-
porary constructon pro|ect ocated at a dstance from ther reguar
pace of empoyment. (See Rev. Ru. 190, p. 303.)
Reguatons 111, Secton 29.1 7-3: Cases
where no return of nformaton requred.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. 6039, p. 162.)
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201
Regs. I, 1 29.1 -1.
S CTION 1 . INFORM TION Y CORPOR TIONS
Reguatons 111, Secton 29.1 -1: Return of T. D. 60 2
nformaton as to payments of dvdends.
TITL 2 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 wth respect to the requrements for f-
ng nformaton returns reportng dvdends pad by savngs and oan
assocatons and smar organzatons for caendar years after 1052.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
Secton 29.1 -1 of Reguatons 111 20 CFR, pt. 29 , as amended
by Treasury Decson 591 C. . 1952-2,169 , approved une 2 ,1952,
s further amended as foows:
( ) y strkng out the ast sentence of (b) whch reads as foows:
In the case of a budng and oan assocaton, a cooperatve bank,
a homestead assocaton, a credt unon, a savngs and oan assocaton,
or a corporaton descrbed n secton 101 (10), (11), (12), or (13),
makng a payment of a dvdend or a dstrbuton to any sharehoder,
the nformaton returned on Forms 1096 and 1099 sha be rendered
ony n the case of payments amountng to 100 or more durng the
caendar year.
( ) y nsertng n eu of such ast sentence the foowng:
In the ease of a corporaton descrbed n secton 101 (10), (11), (12), or (13),
makng a payment of a dvdend or a dstrbuton to any sharehoder, the n-
formaton return on Forms 1096 and 109: sha be rendered ony n the case
of payments amountng to 100 or more durng the caendar year. In the case
of a savngs and oan assocaton, a cooperatve bank, a homestead assocaton,
a credt unon, or a budng and oan assocaton an nformaton return s
requred to be fed wth respect to dvdends or dstrbutons to a sharehoder
ony f an nformaton return woud have been requred under the provsons
of secton 29.1 7-1 had the dvdends or dstrbutons been payments of nterest,
e cept that, for years pror to 1903, such an organzaton s requred to fe an
Informaton return where the payments to a sharehoder amount to 100 or
more durng the caendar year.
ecause the purpose of ths Treasury Decson s to reduce the
burden of fng nformaton returns wth respect to payments made
by certan organzatons for caendar years after 1952, t s found
that t s unnecessary to ssue ths Treasury Decson wth notce and
pubc precedure thereon under secton (a) of the dmnstratve
Procedure ct, approved une 11, 19 6, or sub|ect to the effectve
date mtaton of secton (c) of sad act.
(Ths Treasury Decson s ssued under the authorty contaned
n sees. 62, 1 , and 3791 of the Interna Revenue Code (53 Stat.
32, 65, 67; 26 U. S. C. 62,1 ,3791).)
T. Coeman ndrews,
Commssoner of Interna Revenue.
pproved September 16, 1953.
M. . Fosom,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster September 1 ,1953, : 9 a. m.)
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Regs. I, 29.165-1. 202
SUPPL M NT . ST T S ND TRUSTS
S CTION 165. MPLOY S TRUSTS
muatons 111, Secton 29.165-1: mpoyees Rev. Ru. 1 5
trusts.
( so Secton 22(b), Sectons 29.22(b) (2)-2,
29.22(b) (2)-5; Secton 23(p), Secton
29.23(p)-9.)
INT RN L R NU COD
penson pan whch otherwse meets the requrements of secton
fT (a) of the Interna Revenue Code (or secton 23(p)()( ) of
the Code If a nontrusteed pan s nvoved) and whch provdes
benefts that vary wth the ncrease or decrease n the market vaue
of the assets from whch such benefts are payabe, or whch vary
wth the fuctuatons of a specfed and generay recognzed cost-of-
vng nde , w be recognzed as a pan provdng for defntey
determnabe benefts wthn the meanng of secton 20.105-1 (o)
of Reguatons 111. Smar benefts receved under an annuty
contract purchased for an empoyee by an empoyer e empt under
secton 101(0) of the Code w be recognzed as annuty pay-
ments wthn the meanng of secton 22(b)(2)( ) of tbe Code.
so, amounts receved whch vary n the manner specfed and whch
otherwse meet the requrements of secton 22(b) (2) ( ) or secton
22(b)(2)(C) of the Code w be consdered amounts receved
as an annuty wthn the meanng of those sectons.
So. Op. 160, C. . III-2, 60 (102 ), modfed.
dvce s requested whether (1) a penson pan, n a other re-
spects meetng the requrements of secton 165(a) of the Interna
Revenue Code (or the requrements of secton 23(p) (1) ( ) thereof
f a trust s not nvoved), w fa of quafcaton under the app-
cabe Code secton or (2) the payments under an annuty contract
purchased for an empoyee by an empoyer e empt under secton
101(6) of the Code w fa to be recognzed as an annuty wthn
the meanng of secton 22(b) (2) ( ) of the Code, soey on the ground
that the benefts provded by such pan or contract w vary n doar
amount from tme to tme to the e tent of (a) the ncrease or decrease,
percentage-wse, n the market vaue of the assets from whch such
benefts are to be pad or ( ) the varaton n a specfed and generay
recognzed cost-of-vng nde or correcton factor by whch each
beneft under the pan or contract, after determnaton of the amount
thereof n accordance wth a other provsons of the pan or contract,
sha be ncreased or decreased n amount before t s pad.
Secton 29.165-1 (a) of Reguatons 111 provdes, n part, that, to be
entted to e empton under secton 165(a) of the Code, a trust Tnust
be formed and avaed of soey to ad n the proper e ecuton of a
stock bonus, penson, or proft-sharng pan whch s a defnte
wrtten program and arrangement communcated to the empoyees,
penson pan s defned theren as one estabshed and mantaned
by an empoyer prmary to provde systematcay for the payment
of defntey determnabe benefts to hs empoyees over a perod of
years, usuay for fe, after retrement (Itacs supped.) ene-
fts under a penson pan are defntey determnabe ony f funds
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203
Regs. I, 29.165-6.
arsng from forfetures are used to reduce the amount of contrbu-
tons by the empoyer and the amounts payabe from tme to tme can
be determned actuaray (n advance or at the tme of payment).
penson pan recognzed as otherwse meetng the requrements
of secton 165(a) of the Code (ncudng the requrements of secton
23 (p) (1) ( ) of the Code, f a nontrusteed pan s nvoved) but whch
provdes
(1) benefts payabe, not on the bass of a f ed number of doars
per month for the fe of the annutant, as provded by the more or
ess standard form of money purchase, f ed beneft or unt
beneft type of pan, but on the bass of a defntey determnabe
number of shares or unts of nterest n the tota assets from
whch the beneft s to be pad, wth the doar amount of the
beneft payabe varyng from tme to tme to the e tent of any
varaton n the market vaue (as of the date of the beneft pay-
ment, or as of a specfed date precedng the date of payment by
not more than 1 vear) of such tota assets, or
(2) benefts defntey determnabe as to amount, n accord-
ance wth methods generay acceptabe n the standard forms
or types of penson pans, but sub|ect to ncrease or decrease n
amount at the tme of payment to the e tent, f any, but ony to
such e tent, of the fuctuaton up or down of a specfed and gen-
eray recognzed cost-of-vng nde ,
w be recognzed as a pan provdng for defntey determnabe
benefts wthn the meanng of secton 29.165-1 (a) of Reguatons 111.
Smar benefts under an annuty contract purchased for
an empoyee by an empoyer e empt under secton 101 (6) of the Code
w be recognzed as annuty payments wthn the meanng of sec-
ton 22(b) (2) ( ) of the Code. so, amounts receved whch vary
n the manner specfed and whch otherwse meet the requrements
of secton 22(b) (2) ( ) or secton 22(b) (2) (C) of the Code w be
consdered amounts receved under an annuty contract wthn the
meanng of those sectons. So. Op. 160, C. . III-2, 60 (192 ),
modfed by G. C. M. 26595, C. . 1950-2, 16, s hereby further mod-
fed to the e tent that t s nconsstent wth the foregong.
Reguatons 111, Secton 29.165-6: Ta abty T. D. 6033
of benefcary under a trust whch meets the
requrements of secton 165(a).
( so Secton 29.165-1; Secton 22(b), Sec-
ton 29.22(b) (2)-5; Secton 23(p), Secton
29.23 (p)-.)
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 1, 10 1
Reguatons amended to conform to secton 335 of the Revenue
ct of 1051 and Pubc Law 5 9 ( 2d Cong.) C. . 1952-2, 36 re-
atng to ta aton of benefcares of certan trusts e empt under
secton 165(a) of the Interna Revenue Code, and to secton 3 of
the Revenue ct of 1951, reatng to treatment of fu-tme fe nsur-
ance saesmen as empoyees for certan purposes.
2 070 s 6 1
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Regs. I, 29.165-6.
20
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
On November 11, 1952, notce of proposed ruemakng regardng
amendments to conform Reguatons 111 26 CFR, pt. 29 to secton
335 of the Revenue ct of 1951 and Pubc Law 5 9 ( 2d Cong.) C. .
1952-2, 36 , approved uy 17, 1952, reatng to ta aton of benefc-
ares of certan trusts e empt under secton 105(a) of the Interna
Revenue Code, and to secton 3 3 of the Revenue ct of 1951, reatng
to treatment of fu-tme fe nsurance saesmen as empoyees for
certan purposes, was pubshed n the Federa Regster (17 F. R
10262). fter consderaton of a reevant matter presented by nter-
ested persons regardng the rues proposed, the amendments to Regu-
atons 111 set forth byow are hereby adopted.
Paragraph 1. Secton 29.22(b) (2)-5, as amended by Treasury De-
cson 6020 p. 106, ths uetn , approved une 17, 1953, s further
amended by addng at the end thereof the foowng:
s to ncuson of fu-tme fe nsurance saesmen wthn the cass of persons
consdered to be empoyees, see secton 3797(a) (20), as added by secton 3 3 of
the Revenue ct of 1051, set forth mmedatey precedng secton 29.3797-1.
Par. 2. Secton 29.23(p)-, as amended by Treasury Decson 5666
C. . 19 -2, 3 , approved November 2,19 , s further amended by
addng mmedatey after the second sentence thereof the foowng
new sentence:
( s to ncuson of fu-tme fe Insurance saesmen wthn the cass of persons
consdered to be empoyees, see secton 3797(a) (20), as added by secton 3 3 of
the Revenue ct of 1901, set forth mmedatey precedng secton 29.3797-1.)
Par. 3. There s nserted mmedatey precedng secton 29.165-1
the foowng:
S C. 335. MPLOY S TRUSTS R N U CT OF 1951, P-
PRO D OCTO R 20, 1951 .
(a) mendment of Secton 165(b). Secton 165(b) (reatng to
ta abty of beuefcary on dstrbutons from an empoyees trust) s
hereby amended by addng at the end thereof the foowng new sen-
tence: Where such tota dstrbutons ncude securtes of the empoyer
corporaton, there sha be e cuded from such e cess the net unreazed
apprecaton attrbutabe to that part of the tota dstrbutons whch
conssts of the securtes of the empoyer corporaton so dstrbuted.
The amount of such net unreazed apprecaton and the resutng ad-
|ustments to bass of the securtes of the empoyer corporaton so ds-
trbuted sha be determned n accordance wth reguatons whch sha
be prescrbed by the Secretary. For purposes of ths subsecton, the
term securtes means ony shares of stock and bonds or debentures
ssued by a corporaton wth nterest coupons or n regstered form, and
the term securtes of the empoyer corporaton ncudes securtes of
a parent or subsdary corporaton (as defned n secton 130 (d) (2)
and (3)) of the empoyer corporaton.
(b) ffectve Date. The amendment made by ths secton sha be
appcabe wth respect to dstrbutons made after December 31, 1950.
PU LIC L W 5 9 ( 2d CONG., 2d S SS.), PPRO D
ULY 17, 1952
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed. That secton 165(b)
of the Interna Revenue Code (reatng to empoyee stock purchase
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205
Regs. I, 29.165-6.
pans) Is hereby amended by addng at the end thereof the foowng:
In no event sha the amount actuay dstrbuted or made avaabe to
any dstrbutee Incude net unreazed apprecaton n securtes of the
empoyer corporaton attrbutabe to the amount contrbuted by the em-
poyee. Such net unreazed apprecaton and the resutng ad|ustments
to bass of such securtes sha aso be determned n accordance wth
reguatons whch sha be prescrbed by the Secretary.
Sec. 2. The amendment made by ths ct sha be appcabe wth re-
spect to ta abe years begnnng after December 31,1951.
Par. . Secton 29.165-1, as amended by Treasury Decson 5 22
C. . 19 , 31 , approved December 13,19 , s further amended by
addng after the second sentence thereof the foowng new sentence:
s to Incuson of fu-tme fe Insurance saesmen wthn the cass of persons
consdered to be empoyees, see secton 3797(a) (20), as added by secton 3 3 of
the Revenue ct of 1951, set forth mmedatey precedng secton 29.3797-1.
Par. 5. Secton 29.165-6, as amended by Treasury Decson 6020, s
further amended as foows:
( ) y changng the headng to read: Ta abtf of enkf-
caky Under a Trust Whch Meets the Requrements of Secton
165 (a). (a). In genera.
( ) y nsertng mmedatey after the second sentence thereof the
foowng new sentence:
(For rues provdng for e cuson from ncome In the year of dstrbuton of
amounts representng unreazed apprecaton n the vaue of securtes of the
empoyer corporaton, see (b) of ths secton.)
(C) y nsertng mmedatey precedng the ast sentence of the
ne t to the ast paragraph of such secton the foowng:
See, however, (6) of ths secton for rues reatng to e cuson from such e cess
of amounts representng net unreazed apprecaton n the vaue of securtes of
th empoyer corporaton dstrbuted after December 31,1950.
(D) y addng at the end of such secton the foowng:
(6) Dstrbuton ncudng securtes of the empoyer corporaton. (1) In
genera. If a trust e empt under secton fo(a) makes a dstrbuton to a ds-
trbutee, and such dstrbuton ncudes securtes of the empoyer corporaton,
there sha be e cuded for purposes of computng the amount of such dstrbuton
ncudbe n the dstrbutee s ncome n the year of dstrbuton net unreazed
apprecaton n such securtes to the foowng e tent:
(I) If the dstrbuton s made after December 31, 1950. and consttutes a
tota dstrbuton to whch the rues of the ne t to the ast paragraph of
(a) of ths secton are appcabe, the amount to be e cuded s the entre
net unreazed apprecaton attrbutabe to that part of the tota dstrbuton
whch conssts of securtes of the empoyer corporaton ; and
(II) If the dstrbuton s made n a ta abe year of the dstrbutee begn-
nng after December 31. 1951, and s other than a tota dstrbuton to whch
the ne t to the ast paragraph of (a) of ths secton s appcabe, the
amount to be e cuded s that porton of the net unreazed apprecaton n
the securtes of the empoyer corporaton whch s attrbutabe to the
amount consdered to be contrbuted by the empoyee to the purchase of
such securtes.
The amount of net unreazed apprecaton whch Is e cudabe under the rues
of (I) and () sha not be ncuded n the bass of the securtes n the hands of
the dstrbutee at the tme of dstrbuton for purposes of determnng gan or
oss on snbsequent dsposton. In the case of a tota dstrbuton the amount
of net unreazed apprecaton whch Is not ncuded n the bass of the securtes
n the hands of the dstrbutee at the tme of dstrbuton sha be consdered
to the e tent reazed In a subsequent ta abe transacton as a gan from the
sae or e change of a capta asset hed for more than 6 months. owever, f
the net gan reazed by the dstrbutee e ceeds the amount of the net unreazed
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Regs. I, 29.165-6.
206
apprecaton, such e cess sha consttute a ong-term or short-term capta gan
dependng upon the hodng perod of the securtes n the hands of the dstrbutee.
For purposes of secton 165(b) and of ths secton, the term securtes means
ony shares of stock and bonds or debentures ssued by a corporaton wth In-
terest coupons or n regstered form, and the term securtes of the empoyer
corporaton ncudes securtes of a parent or subsdary corporaton (as defned
In secton 130 (d) (2) and (3), reatng to empoyee stock optons) of the
empoyer corporaton.
(2) Determnaton of net unreased apprecaton. The amount of net un-
reazed apprecaton n securtes of the empoyer corporaton whch are dstrb-
uted by the trust s to be determned by reference to the cost or other bass
to the trust of such securtes and by reference to the market vaue of such
securtes at the tme of dstrbuton. Thus, If a dstrbuton conssts In part of
securtes whch have apprecated n vaue and n part of securtes whch have
deprecated n vaue, the net unreazed apprecaton sha be consdered to con-
sst of the net ncrease n vaue of a of the securtes Incuded n the dstr-
buton. For ths purpose, two or more dstrbutons made by a trust to a
dstrbutee n a snge ta abe year of the dstrbutee sha be treated as a snge
dstrbuton.
The determnaton of the cost or other bass to the trust of a dstrbuted
securty of the empoyer corporaton, for purposes of determnng net unreazed
apprecaton thereon, sha be made In accordance wth whchever of the foow-
ng rues s appcabe:
(1) If a securty was, at the tme of purchase by, or contrbuton to,
the trust, earmarked for the account of a partcuar empoyee so that tbe
cost or other bass of such securty to the trust s refected In the account
of such empoyee, such cost or other bass sha be used.
() If as of the cose of each ta abe year of the trust (or other specfed
perod of tme not n e cess of 12 consecutve caendar months) the trust
aocates among the accounts of partcpatng empoyees a securtes ac-
qured by the trust durng the perod (e cusve of securtes unaocated
under a pan provdng for aocaton n whoe shares ony), the cost or
other bass to the trust of any securtes aocnted as of the cose of a par-
tcuar aocaton perod sha be the average cost or other bass to the trust
of a securtes of the same type whch were purchased or otherwse ac-
qured by the trust durng such aocaton perod. (For purposes of de-
termnng the average cost to the trust of securtes ncuded n a subsequent
aocaton, the actua cost to the trust of the securtes unaocated as of
the cose of a pror aocaton perod sha be deemed to be the average
cost or other bass to the trust of securtes of the same type aocated
as of the cose of such pror aocaton perod.)
() In a case where nether (1) nor () s appcabe, f the trust fund,
or a specfed porton thereof, s nvested e cusvey n one partcuar type
of securty of the empoyer corporaton, and f durng the perod the ds-
trbutee partcpated n the pan none of such securtes has been sod e -
cept for the purpose of payng benefts under the trust or for the purpose
of enabng the trustee to obtan funds wth whch to e ercse rghts whch
have accrued to the trust, the cost or other bass to the trust of a securtes
dstrbuted to such dstrbutee sha be the tota amount credted to tbe
account of such dstrbutee (or such porton thereof as was avaabe f r
nvestment n such securtes) reduced by the amount avaabe for nvest-
ment but unnvested on the date of dstrbuton. (If at the tme of ds-
trbuton to a partcuar dstrbutee a porton of the amount credted to
hs account s forfeted, approprate ad|ustment sha be made wth respect
thereto n determnng the cost or other bass to the trust of the securtes
dstrbuted.)
(v) In a other cases, there sha be used the average cost or other bass
to the trust of a securtes of the empoyer corporaton of the type ds-
trbuted to the dstrbutee whch the trust has on hand at the tme of the
dstrbuton, or whch the trust had on hand on a specfed nventory date
whch date does not precede the date of dstrbuton by more than 12 caendar
months. If a dstrbuton ncudes securtes of the empoyer corporaton of
more than one type, the average cost or other bass to the trust of each type
of securty dstrbuted sha be determned. The average cost to the trust
of securtes of the empoyer corporaton on hand on a specfed nventory
date (or on hand at the tme of dstrbuton) sha be computed on the
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207
(Regs. I, 29.165-6.
bass of ther actua cost, consderng the securtes most recenty purchased
to be those on hand, or by means of a movng average cacuated by subtractng
from the tota cost of securtes on hand mmedatey precedng a partcuar
sae or dstrbuton an amount computed by mutpyng the number of se-
curtes sod or dstrbuted by the average cost of a securtes on band
precedng such sae or dstrbuton. These methods of computng average
cost may be ustrated by the foowng e ampes:
ampe (1). , a dstrbutee who makes hs Income ta renrns on the
bass of a caendar year, receves on ugust 1. 1 )52, n a tota dstrbuton,
to whch the ne t to the ast paragraph of (o) o ths secton s appcabe,
10 shares of cass D stock of the empoyer corporaton. On uy 1, 1952
(the specfed nventory date of the trust) the trust had on hand 0 shares
of cass D stock. The average cost of the 10 shares dstrbuted, on the
bass of the actua cost method, s 100 computed as foows:
Shares
Purchase date
Cost per shore
Tota cost
20
une ,1652
101
2,020
0
an. 10,19.
102
,0 0
20
Oct. 20, 1SI50
95
1.U0CI
0
,00C
ampe (2). , a dstrbutee who makes hs ncome ta returns on the
bass of a caendar year, receves on October 30,1952, n a tota dstrbuton,
to whch the ne t to the ast paragraph of (a) of ths secton s appcabe,
20 shares of cass stock of the empoyer corporaton. The specfed n-
ventory date of the trust s the ast day of each caendar year. The trust
had on hand on December 31, 1950, 1,000 shares of cass stock of the
empoyer corporaton. Durng the caendar year 1951 the trust dstrbuted
to four dstrbutees a tota of 100 shares of such stock and acqured, through
a number of purchases, a tota of 120 shares. The average cost of the 20
shares dstrbuted to , on the bass of the movng average method, s 52
computed as foows:
Shares
Tota cost
verage
cost
1,000
50,000
5,000
50
52
100
Purchased durng 1951
900
120
,000
,0 0
On hand December 31,1951
1,020
63,0 0
(3) Unreazed apprecaton attrbutabe to empoyee contrbutons. In any
case n whch t s necessary to determne the amount of net unreazed appre-
caton n securtes of the empoyer corporaton whch s attrbutabe to con-
trbutons made by an empoyee:
() The cost or other bass of the securtes to the trust and the amount of
net unreazed apprecaton sha frst be determned n accordance wth the
rues n (6) (2) of ths secton ;
(11) The amount contrbuted by the empoyee to the purchase of the secur-
tes sha be soey the porton of hs actua contrbutons to the trust propery
aocabe to such securtes, and sha not ncude any part of the ncrement
n the trust fund e pended n the purchase of the securtes;
() The amount of net unreazed apprecaton n the securtes ds-
trbuted whch s attrbutabe to the contrbutons of the empoyee sha be
that proporton of the net unreazed apprecaton determned under the
rues of (6) (2) of ths secton whch the contrbutons of the empoyee
propery aocabe to such securtes bear to the cost or other bass to the
trust of the securtes ;
(It) If a dstrbuton conssts soey of securtes of the empoyer cor-
poraton, the contrbutons of the empoyee e pended n the purchase of such
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Regs. I, 29.165-6.)
20
securtes sha be aocated to te securtes ( strbuted n a manner con-
sstent wth the prncpes set forth In (6) (2) (), (), (), or (v) of ths
secton, whchever s appcabe, that s, the amount of the empoyee s con-
trbuton whch can be dentfed as havng been e pended n the purchase
of a partcuar securty sha be aocated to such securty, and the amount
of such contrbuton whch cannot be so dentfed sha be aocated rataby
among the securtes dstrbuted. If a dstrbuton conssts n part of secur-
tes of the empoyer corporaton and n part of cash or other property, ap-
proprate aocaton of a porton of the empoyee s contrbuton to such cash
or other property sha be made uness such aocaton s nconsstent wth
the terms of the pan or trust.
ampe. trust dstrbutes 10 shares of stock ssued by the empoyer
corporaton each of whch has an average cost to the trust of 100, consstng
of empoyee contrbutons n the amount of 00 and empoyer contrbutons n
the amount of 0, and on the date of dstrbuton has a far market vaue
of 1 0. The porton of the net unreazed apprecaton attrbutabe to the
contrbutons of the empoyee wth respect to each of the shares of stock s
1 computed as foows:
(1) aue of one share of stock on dstrbuton date 1S0
(2) mpoyee contrbutons 00
(3) mpoyer contrbutons 0
( ) Tota contrbutons 100
(5) Net unreazed apprecaton 0
(6) Porton of net unreazed apprecaton attrbutabe to empoyee
contrbutons, 60/100 (amount of empoyee contrbutons (tem 2)
over tota contrbutons (tem )) of 0 (tem 5)
For the purpose of determnng gan or oss to the dstrbutee In the year
or years n whch any share of stock referred to n the precedng e umpe
Is sod or otherwse dsposed of n a ta abe transacton, the bass of each
such share n the bands of the dstrbutee at the tme of the dstrbuton by
the trust w be 132 computed as foows:
(a) mpoyee contrbutons 00
(6) mpoyer contrbutons (ta abe as ordnary ncome n the year
the securtes were dstrbuted) 0
(c) Porton of net unreazed apprecaton attrbutabe to empoyer
contrbutons (tem (5) muus tem (6)) (ta abe as ordnary ncome
n the year the securtes were dstrbuted) 32
(d) ass of stock 132
( ) Change n e empt status of trust. For prncpes appcabe n makng
approprate ad|ustments f the trust was not e empt for 1 or more years pror
to the year of dstrbuton, see (a) of ths secton.
Par. 6. There s nserted mmedatey precedng secton 29.3797-1
the foowng:
S C. 3 3. D FINITION OF MPLOY R NU CT OF
1051, PPRO D OCTO R 20, 1951 .
(a) mendment of Secton 3797(a). Secton 3797(a) s
amended by addng at the end thereof the foowng new paragraph :
(20) mpoyee. For the purpose of appyng the provsons
of chapter 1 wth respect to contrbutons to or under a stock
bonus, penson, proft-sharng, or annuty pan, and wth respect
to dstrbutons under such a pan or by a trust formng part of
such pan, the term empoyee sha ncude a fu-tme fe n-
surance saesman who Is consdered an empoyee for the purpose
of subchapter of chapter 9, or, In the case of servces per-
formed before anuary 1, 1951, who woud be consdered an
empoyee f hs servces were performed durng 1951.
(b) ffectve Date. The amendment made by ths secton sha
be appcabe wth respect to ta abe years begnnng after December
31,193 .
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209
egs. I, 29.1 2-1.
The amendments made to Reguatons 111 by paragraphs 1, 2, ,
and 6 are hereby made appcabe to ta abe years begnnng after
December 31,193 , and before anuary 1,19 2, such years beng cov-
ered by Reguatons 103 2G CFR, pt. 19 .
(Ths Treasury Decson s ssued under the authorty contaned n
sees. 62 and 3791 of the Interna Revenue Code (53 Stat. 32, 67;
26 U. S. C. 62, 3791) and under the authorty contaned n sec. 165(b)
of the Interna Revenue Code, as amended by sec. 335 of the Revenue
ct of 1951 and by Pubc Law 5 9, 2d Cong. (65 Stat. 507, 66 Stat.
766; 26 U. S. C. 165(b)).)
dstn F. Wnke,
ctng Commssoner of Interna Revenue.
pproved uy 27,1953.
M. . Fosom,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster uy 30, 1953, : 51 a. m.)
Reguatons 111, Secton 29.165-6: Ta abty
of benefcary under a trust whch meets the
requrements of secton 165(a).
INT RN L R NU COD
Reguatons 111 amended. (See T. D. 6020, p. 106.)
SUPPL M NT F. P RTN RS1I11 S
S CTION 1 1. P RTN RS IP NOT T L
Reguatons 111, Secton 29.1 1-1: Part-
nershps.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. 6037, p. 213.)
S CTION 1 2. T OF P RTN RS
Reguatons 111, Secton 29.1 2-1: Dstrbu- Rev. Ru. 121
tve share of partners.
( so Secton 2 , Secton 29.2 -6.)
INT RN L R NU COD
Where communty property Is nvested by the husband n a
partnershp, the wfe, who under the aws of the State of Washng-
ton has a vested nterest n the communty property equa to that
of her husband, s not precuded by secton 2 (b) of the Interna
Revenue Code from deductng n her separate Federa ncome ta
return one-haf of her husband s share of a partnershp oss resutng
from the sae of certan deprecabe assets by the partnershp to
a corporaton n whch the husband owned drecty or ndrecty
more than 50 percent of the stock.
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Regs. I, 29.1 2-1.
210
dvce s requested whether, under the crcumstances stated heren,
the ta payer, whose husband s a member of a partnershp n the State
of Washngton, a communty property State, s entted to deduct
n her separate Federa ncome ta return one-haf of her husband s
share of a partnershp oss resutng from the sae of deprecabe assets
by the partnershp to a corporaton n whch the husband owned
drecty or ndrect more than 50 percent of the stock.
In the nstant case the husband of the ta payer was a member of a
partnershp n the State of Washngton. s capta nvestment n
the partnershp was made wth communty funds. The partnershp
ncurred a oss wth respect to certan deprecabe assets t sod to a
corporaton n whch the ta payer s husband, together wth hs mother,
sster, and three brothe s, owned drecty or ndrecty 73.55 percent of
the stock. The ta payer s husband was precuded, under secton
2 (b) (1) ( ) of the Interna Revenue Code from deductng hs share
of the partnershp oss n hs separate return for the year n whch the
sae was made. The ta payer seeks to deduct n her separate return
one-haf of her husband s share of the partnershp oss nasmuch as
she does not own, drecty or ndrecty, 50 percent of the stock of the
corporaton.
In the State of Washngton a wfe has a vested nterest n the
communty property equa to that of her husband. The husband, the
manager of the communty property, s aso the agent of the com-
munty. (See ums Poe v. . G. Seaborn, 2 2 U. S. 101, Ct. D. 259,
C. . 1 -2, 202 (1930); n re: Coffey s state, 195 Wash. 379, 1 Pac.
(2d), 2 3.) property acqured after marrage n the State of
Washngton s presumed to be communty property. (In re: rown s
state, 12 Wash. 273, 21 Pac. 10; Seaton v. Smth et v ., 1 6 Wash.
7, 5 Pac. (2d), 30.) The fact that communty property s aso
part of property operated by a partnershp does not affect the wfe s
vested communty nterest n such property. (Mton . ack v.
Commssoner, 11 Fed. (2d) 355.)
Secton 1 1 of the Interna Revenue Code provdes that ndvduas
carryng on busness n partnershp sha be abe for ncome ta ony
n ther ndvdua capacty. ach partner, n computng hs net n-
come, s requred by secton 1S2 of the Code to report hs dstrbutve
share of the gan or oss of the partnershp, whether dstrbuted to
hm or not.
Secton 29.1S2-1 of Reguatons 111, reatng to the dstrbutve
share of partners, provdes n part as foows:
(b) If separate returns are made by the husband and wfe domced n a
communty property State, and the husband ony s a member of a partnershp,
the part of hs dstrbutve share of gans and osses of the partnershp from
saes or e changes of capta assets or the part of hs dstrbutve share of ord-
nary net ucome or ordnary net oss, whch s, or s derved from, communty
property shoud be reported by the husband and by the wfe n equa
protortons .
From the foregong t appears that, n cases nvovng communty
ncome, the ta s mposed on the ndvdua partner ony to the e tent
of hs ownershp of the ncome. The communty property contrb-
uted to the partnershp by the ta payer s husband contnued to be
communty property and the ta payer had a vested nterest theren.
In seng the property from whch the oss n the nstant case arses,
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211
Regs. I, 29.1 2-1.
the husband, n takng part n such sae, acted n a dua capacty, that
s, as agent of the communty wth respect to the communty nterest
and as a partner wth respect to the partnershp nterest. Therefore,
upon sae of the property at a oss t foows that there was aso a
oss by the communty. though the ta payer was not a partner n
the partnershp, she must share the profts and osses of the partner-
shp equay wth her husband because of the communty reatonshp.
Such profts and osses woud not come to her from or through her
husband, but are derved drecty from the communty.
In rzona Pubshng Company v. Commssoner, 9 T. C. 5, a
smar probem was nvoved. In that case a corporaton sustaned
a oss on the sae of certan rea property to one of ts stockhoders.
Such stockhoder owned 27 percent of the corporaton s outstandng
stock as communty property wth hs wfe. owever, for the pur-
pose of secton 2 (b)(1)( ) of the Code, he owned drecty or
ndrecty an addtona 27 percent of the corporate stock hed as
communty property by hs sster and brother-n-aw. The court hed
that snce the sae of the rea property was to a communty estate, the
porton of the oss attrbutabe to the property sod to the stockhoder
was not deductbe under secton 2 (b) of the Code. The porton of
the oss attrbutabe to the other one-haf of the property was hed
deductbe because that haf of the property was consdered as havng
been sod to the stockhoder s wfe and her actua and constructve
ownershp of the corporate stock represented ony the stock drecty
owned by her and the stock drecty owned by her husband whch was
ess than 50 percent of the tota outstandng stock of the corporaton.
It s beeved that the prncpe of the rzona Pubshng Company
case, supra, shoud be foowed n the nstant case n appyng secton
2 (b) of the Code, that s, that the ta payer s one-haf vested com-
munty nterest n the property nvested n the partnershp by her
husband shoud be recognzed. The resut woud be the same whether
the communty nvestment s n a corporaton or n a partnershp.
There s no doubt that the ta payer s husband suffered a oss
(athough the oss was not aowabe to hm under sec. 2 (b) of
the Code) as a resut of the partnershp transacton for t s we
setted that tems of partnershp ncome and deducton n the absence
of an e press provson to the contrary come down wthout oss of
dentty to the ndvdua partner. (See arry . Neuberger v.
Commssoner, 311 U. S. 3, Ct. D. 1 70, C. . 19 0-2, 22 ; and
everng v. state of ohn M. nrght, 312 U. S. 636, Ct. D. 1500,
C. . 19 1-1, 353.) Inasmuch as the ta payer owned a communty
nterest n the property contrbuted to the partnershp whch entted
her to part of the profts t woud appear that she woud aso share n
the osses.
In vew of the foregong, t s hed that where communty property
s nvested by a husband n a partnershp the wfe, who under the aws
of the State of Washngton has a vested nterest n communty prop-
erty equa to that of her husband, s entted to the deducton n her
separate Federa ncome ta return of one-haf of her husband s share
of a partnershp oss resutng from the sae of certan deprecabe
assets by the partnershp to a corporaton n whch her husband owned
drecty or ndrecty more than 50 percent of the stock.
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Regs. I, 29.1 7-1. 212
Reguatons 111, Secton 29.1 2-1: Dstrbu-
tve share of partners.
INT RN L R NU COD
Lmtaton on deducton for oss from trade or busness carred
on by a partnershp. (See Rev. Ru. 155, p. 1 0.)
S CTION 1S7.-P RTN RS IP R TURNS
Reguatons 111, Secton 29.1 7-1: Partner- Rev. Ru. 1
shp returns.
( so Secton 113(a), Sectons 29.113(a) (5)-,
29.113(a) (13)-1.)
nterna revenue code
change n the membershp of a partnershp resutng from the
death, wthdrawa, substtuton, or addton of a partner, or a shft
of nterests among e stng partners does not, n tsef, effect a
termnaton of a partnershp for Federa ncome ta purposes. Ord-
nary, a partnershp w be treated as contnung where the bus-
ness of the partnershp, or a substanta porton thereof, s con-
tnued. The returns of a contnung partnershp shoud contnue
to be fed on the bass of the annua accountng perod prevousy
estabshed by the partnershp. partnershp s bass In ts assets
s dstnct from the partners bases n ther partnershp nterests,
and s not affected by changes n such partnershp nterests. The
bases of the nterests of the partners n the partnershp may be
ncreased by the amount pad for a retrng partner s nterest, and
n the event of the death of a partner the bass of hs partnershp
nterest to hs estate s the far market vaue of such nterest at
the date of hs death.
O. D. 22 , C. . 1,190 (1919), revoked.
dvce s requested respectng the effect on a partnershp, for
Federa ncome ta purposes, of the death, wthdrawa, substtuton
or addton of a partner.
s defned n secton 3797(a) (2) of the Interna Revenue Code, the
term partnershp for ta purposes s broader than the term under
common aw, the Unform Partnershp ct, or ndvdua State aws.
ccordngy, the Federa ta consequences of transactons nvovng
partnershps and nterests n partnershps w be determned upon
the bass of ther substance and n accordance wth the Federa ta
aws wthout regard to the technca refnements of State aws. (See
Commssoner v. Francs . Tower, 327 U. S. 2 0; Ct. D. 1670, C. .
19 6-1, 11, and Iencr v. Meon, 30 U. S. 271; Ct. D. 13 5, C. .
193 -1, 3 9.)
Sectons 1 7 and 1S of the Code, whch refers to the ta abe year
of the partnershp, recognze a partnershp as a unt for the purpose
of fng returns. These sectons do not contempate that a partner-
shp may termnate ts ta abe year and thus change ts accountng
perod by the mere act of admttng or retrng a partner, nor that the
Commssoner may force a change of accountng perod under such
crcumstances.
In Mary D. Wash et a. v. Commssoner, 7 T. C. 205, the Ta
Court hed that the death of a partner dd not termnate the ta abe
year of the partnershp nsofar as the survvng partners were con-
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213
Regs. I, 29.191-1.
cerned. In Robert . Ford et a. v. Commssoner, 6 T. C. 99, and
state of Lo censten, Frst Natona ank of Mobe, r. v. Com-
mssoner, 12 T. C. 69 , affrmed Frst Natona ank of Mobe v.
Commssoner, 1 3 Fed. (2d) 172, certorar dened, 3 0 U. S. 911,
the courts, n hodng that a partnershp s bass n ts assets was not
affected by changes n the frm s membershp, recognzed that a part-
nershp may contnue beyond changes n ts membershp. See aso
Rener v. Meon, supra, and Ransohoffs, Inc. v. Commssoner, 9
T. C. 370.
G. C. M. 26379, C. . 1950-1, 5 , hods that a sae of a partnershp
nterest under certan crcumstances s treated as a sae of a capta
asset, dstnct from the partner s nterest n the partnershp assets,
and thereby recognzes that for ta purposes a partnershp may con-
tnue beyond changes n membershp.
ccordngy, t s hed that a change n the membershp of a
partnershp resutng from the death, wthdrawa, substtuton, or
addton of a partner, or a shft of nterests among e stng partners
does not, n tsef, effect a termnaton of a partnershp for Federa
ncome ta purposes. Ordnary, a partnershp w be treated as
contnung where the busness of the partnershp, or a substanta
porton thereof, s contnued. The returns of a contnung partner-
shp shoud contnue to be fed on the bass of the annua accountng
perod prevousy estabshed by the partnershp. partnershp s
bass n ts assets s dstnct from the partners bases n ther partner-
shp nterests, and s not affected by changes n such partnershp
nterests. The bases of the nterests of the partners n the partner-
shp nterests are ncreased by the amount pad for a retrng partner s
nterest, and n the event of the death of a partner the bass of hs
partnershp nterest to hs estate s the far market vaue of such
nterest at the date of hs death.
In vew of the foregong, 0. D. 22 , C. . 1, 190 (1919) s hereby
revoked.
It s not ntended heren to state that a partnershp s nvaraby to
be treated as a unt ntervenng between a partner and partnershp
transactons and ncome for Federa ta purposes. See Commssoner
v. Whtney, 169 F. (2d) 562; Ct. D. 1719, C. . 19 9-1, 70; Neuberger
v. Commssoner, 311 U. S. 3; Ct. D. 1 70, C. . 19 0-2, 22 .
S CTION 191.-F MILY P RTN S111PS
muatons 111, Secton 29.191-1: Famy T. D. 6037
partnershps.
( so Secton 29.191-2; Secton 113(a), Sec-
ton 29.113(a) (13)-1; Secton 1 1, Secton
29.1 1-1; Secton 3797, Secton 29.3797- .)
ITI.t 2 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 1, 19 1
Reguatons 111 amended to conform to secton 3-10 of the Reve-
nue ct of 1951.
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Regs. I, 29.191-1.
21
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
On December 20,1952, notce of proposed ruemakng wth respect
to secton 3 0 of the Revenue ct of 1951, approved October 20,1951,
was pubshed n the Federa Regster (17 F. R. 11663). fter con-
sderaton of a such reevant matter as was presented by nterested
persons regardng the rues proposed, the amendments to Regua-
tons 111 26 CFI , pt. 29 set forth beow are hereby adopted.
Paragraph 1. Secton 29.113(a) (13)-1 26 CFR 29.113(a) (13)-1
and secton 29.1 1-1 26 CFR 29.1 1-1 are each amended by addng at
the end thereof the foowng:
For rues as to aocaton of partnershp ncome n the case of famy partner-
shps, see secton 101 and the reguatons thereunder.
Par. 2. There s nserted mmedatey after secton 29.190-1, as
amended by Treasury Decson 5 51 C. . 1951-2, 63 , approved
ugust 10, 1951 26 CFR 29.190-1 , the foowng:
S C. 3 0. F MILY P RTN RS IPS R NU CT OF 1051,
PPRO D OCTO R 20, 1951 .
(a) Defnton of Partner. Secton 3797(a) (2) s hereby amended
by addng at the end thereof the foowng: person sha be recognzed
as a partner for ncome ta purposes f he owns a capta nterest n a
partnershp n whch capta s a matera ncome-producng factor,
whether or not such nterest was derved by purchase or gft from any
other person.
(b) ocaton of Partnershp Income. Suppement F of chapter
1 s hereby amended by addng at the end thereof the foowng new
secton:
S C. 191. F MILY P RTN RS IPS.
In the case of any partnershp nterest created by gft, the dstrbu-
tve share of the donee under the partnershp agreement sha be
ncudbe n hs gross ncome, e cept to the e tent that such share s
determned wthout aowance of reasonabe compensaton for servces
rendered to the partnershp by the donor, and e cept to the e tent that
the porton of such share attrbutabe to donated capta s proporton-
atey greater than the share of the donor attrbutabe to the donor s
capta. The dstrbutve share of a partner n the earnngs of the part-
nershp sha not bo dmnshed because of absence due to mtary
servce. For the purpose of ths secton, an nterest purchased by one
member of a famy from another sha be consdered to be created by
gft from the seer, and the far market vaue of the purchased nterest
sha be consdered to be donated capta. The famy of any nd-
vdua sha ncude ony Ins spouse, ancestors, and nea descendants,
and any trust for the prmary beneft of such persons.
(c) ffectve Date. The amendments made by ths secton sha be
appcabe wth respect to ta abe years begnnng after December 31,
1050. The determnaton as to whether a person sha be recoguzed as
a partner for ncome ta purposes for any ta abe year begnnng before
anuary 1, 1951, sha be made as f ths secton had not been enacted
and wthout nferences drawn from the fact that ths secton s not
e pressy made appcabe wth respect to ta abe years begnnng before
anuary 1, 1951. In appyng ths subsecton where the ta abe year
of any famy partner s dfferent from the ta abe year of the
partnershp
(1) If a ta abe year of the partnershp begnnng n 1950 ends
wthn or wth, as to a of the famy partners, ta abe years whch
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215
(Regs. I, 29.191-1.
begn In 1951, then the amendments made by ths secton sha be
appcabe wth respect to a dstrbutve shares of ncome derved
by the famy partners from such ta abe year of the parnershp
begnnng In 1950, and
(2) If a ta abe year of the partnershp endng n 1951 ends
wthn or wth a ta abe year of any famy partner whch began n
1950, then the amendments made by ths secton sha not be ap-
pcabe wth respect to any of the dstrbutve shares of ncome
derved by the famy partners from such ta abe year of the
partnershp.
Sec. 29.191-1. Famy Partnershps. (a) In genera (1) Introducton.
The producton of ncome by a partnershp s attrbutabe to the capta or
servces, or both, contrbuted by the partners. The provsons of suppement F,
whch govern the ta aton of the ncome of ndvdua carryng on busuess n
partnershp, are to be read n the ght of ther reatonshp to secton 22(a),
whch requres that ncome be ta ed to the person vho earns t through hs
own awr and sk and the utzaton of hs own capta.
(2) Recognton of donee as parser. Wth respect to partnershps n whch
capta s a matera ncome-producng factor, secton 3 0(a) of the Revenue ct
of 1951 amend. secton 3797(a) (2) (deang wth defnton of partnershp and
partner) to provde that a person sha be recognzed as a partuer for ncome
ta purposes for ta abe years begnnng after ecember 31. 1950, f he owns
a capta nterest n such a partnershp whether or not such nterest s derved
by purchase or gft from any other person. In the case of any partnershp n
whch capta s a matera ncome-producng factor, f any capta nterest n
such partnershp s created by gft, secton 191, as added by secton 3 0(b) of
the Revenue ct of 1951, provdes for aocaton of the partnershp ncome where
the dstrbutve share of a donee partner under the partnershp agreement s
determned wthout aowance of reasonabe compensaton for servces rendered
to the partnershp by the donor or s proportonatey greater than the share of
the donor attrbutabe to the donor s capta. For rues of aocaton, see
secton 29.191-2.
(3) Requrement of compete transfer to donee. donee or purchaser of a
capta nterest n a partnershp s not recognzed as a partner under the prnc-
pes of secton 3797(a) (2) uness the capta nterest s acqured n a bona fde
transacton, not a mere sham for ta avodance purposes or otherwse, and
the donee or purchaser s the rea owner of such nterest. To be recognzed,
a transfer must vest domnon and contro of the partnershp Interest n the
transferee. The e stence of such domnon and contro n the donee s to be
determned from a the pertnent facts and crcumstances. transfer s not
recognzed f the transferor retans such ncdents of ownershp that the trans-
feree has not acqured fu and compete ownershp of the partnershp nterest.
Transactons between members of a famy w be cosey scrutnzed, and n
the case of such transactons the crcumstances at the tme of a purported
transfer and durng the perods precedng and foowng t w be taken Into
consderaton n determnng the bona tdes or ack of bona rdes of the pur-
ported gft or sae. partnershp may be recognzed for ncome ta purposes
as to some aeged partners but not as to others.
( ) Capta as a matera ncome-producng factor. The determnaton as to
whether capta s a matera ncome-producng factor, for purposes of secton
3797(a) (2), must be made by reference to a the reevant facts of the ndvdua
case. Capta s a matera ncome-producng factor f a substanta porton of
the gross ncome of the busness s attrbutabe to the empoyment of capta
n the busness conducted by the partnershp. In genera, capta s not a matera
Income-producng factor where the ncome of the busness conssts prncpay
of fees, commssons or other compensaton for persona servces performed by
members or empoyees of the partnershp. On the other band, capta s ordnary
a matera ncome-producng factor f the operaton of the busness requres
substanta nventores or a substanta nvestment n pant, machnery, or
equpment.
(5) Capta nterest n a partnershp. For purposes of sectons 191 and
3797(a) (2), a capta nterest n a partnershp means an nterest n the capta
of th partnershp, ncudng accretons thereto, whch nterest s dstrbutabe
to the owner of the capta nterest upon hs wthdrawa from the partnershp
or upon dssouton or qudaton of the partnershp. The mere rght to partc-
pate n the earnngs and profts of a partnershp s not a capta nterest n the
partnershp.
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Reg . I, 29.191-1.
210
(6) Ta abe years affected. Secton 3-10 of the Revenue ct of 1051, whch
added secton 101 and amended secton 3707(a)(2), s effectve for ta abe
years begnnng after December 31, 1050, and e pressy provdes that no In-
ferences as to famy partnershps wth respect to ta abe years begnnng
pror to anuary 1, 1051, are to be drawn from the enactment of such secton.
If the ta abe year of any famy partner s dfferent from that of the partner-
shp, the amendments made by secton 3 0 w appy to a dstrbutve shares
of ncome derved by famy partners from a fsca year of the partnershp begn-
nng n 1050 If t ends wth or wthn ta abe years of a the famy partners
whch began In 1051, but w not appy In the case of a fsca year of the part-
nershp endng In 1951 whch ends wth or wthn a ta abe year of any famy
partner whch began n 1050.
(6) asc tests as to ownershp. ( ) In genera. Whether an aeged partner
In a gft capta case Is the tea owner of the capta Interest attrbuted to
hm and whether the donee has domuon and contro over hs or her nterest,
must be ascertaned from a the facts and crcumstances of the partcuar case.
Isoated facts shoud not be consdered determnatve; the reaty of the donee s
ownershp s to be determned n the ght of the transacton as a whoe. The
e ecuton of egay suffcent and rrevocabe deeds or other Instruments of
gft under State aw s a factor to be taken nto account but Is not determna-
tve of ownershp n the donee. The reaty of the transfer and of the donee s
ownershp of the property attrbuted to hm are to be ascertaned from the
conduct of the partes wth respect to the aeged gft and not by any mechanca
or formustc test. Some of the more mportant factors to be consdered n
determnng whether the donee has acqured ownershp of the capta nterest
n a partnershp are ndcated beow.
(2) Retaned contros. The donor may have retaned such contros of the
Interest whch he has purported to transfer to the donee that the donor shoud
be treated as remanng the substanta owner of the nterest. Contros of
partcuar sgnfcance Incude, for e ampe, the foowng:
() Retenton of contro of the dstrbuton of ncome or restrctons on
the dstrbuton of ncome other than amounts retaned n the partnershp
annuay wth the consent of the partners (ncudng the donee partner)
for the reasonabe needs of the busness. If there s a partnershp agree-
ment provdng for a managng partner, or partners, then, amounts of
ncome may be retaned n the partnershp wthout the acquescence of a
the partners f such amounts are retaned for the reasonabe needs of the
busness.
(I) Lmtaton of the rght of the donee to wthdraw or se hs nterest
In the partnershp at hs dscreton wthout fnanca detrment.
( ) Retenton of contro of assets essenta to the busness (for e ampe,
through retenton of assets eased to the aeged partnershp).
(v) Retenton of management powers nconsstent wth norma rea-
tonshps among partners. Retenton by the donor of contro of busness
management or of votng contro, such as s common n ordnnry busness
reatonshps, s not by tsef to be consdered as nconsstent wth norma
reatonshps among partners provded the donee s free to wthdraw hs
nterest wthout fnanca detrment at hs dscreton. The donee sha not be
consdered free to wthdraw hs nterest uness, consderng a the facts,
t s evdent that the donee s ndependent of the donor and has such
maturty and understandng of hs rghts as to be capabe of decdng to
e ercse, and of e ercsng, hs rght to wthdraw hs capta nterest from
the partnershp.
The e stence of some of the ndcated contros, though amountng to ess than
substanta ownershp retaned by the donor, may be consdered aong wth
other facts and crcumstances as tendng to show the ack of reaty of the
partnershp nterest of the donee.
(3) Indrect contros. Contros nconsstent wth ownershp by the donee may
be e ercsed Indrecty as we as drecty, for e ampe, through a separate bus-
ness organzaton, estate, trust, Indvdua, or other partnershp. Where such
Indrect contros e st, the reaty of the donee s nterest w be determned as f
such contros were e ercsabe drecty.
( ) Partcpaton n management. Substanta partcpaton by the donee In
the contro and management of the busness (ncudng partcpaton In the
ma|or pocy decsons nffectng the busness) s strong evdence of a donee part-
ner s e ercse of the domnon and contro over hs nterest. Such partcpaton
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217
Regs. I, 29.191-1.
presupposes suffcent maturty and e perence on the part of the donee to dea
wth the busness probems of the partnershp.
(5) Income dstrbutons. The actua dstrbuton to a donee partner of a
or the ma|or porton of hs dstrbutve share of the busness ncome for the soe
beneft and use of the donee s substanta evdence of the reaty of the donee s
Interest provded the donor has not retaned contros Inconsstent wth rea
ownershp n the donee. mounts dstrbuted are not consdered to be used for
the donee s soe beneft f, for e ampe, they are deposted, oaned, or nvested
In such ways thnt the donor contros or can contro the use or en|oyment of such
funds.
(C) Conduct of partnershp busness In determnng the reaty of the donee s
ownershp of a capta nterest n a partnershp, consderaton sha be gven to
whether the donee s actuay treated as a partner n the operaton of the bus-
ness. It s of prncpa mportance for ths purpose whether the donee has been
hed out pubcy as a partner n the conduct of the busness, In reatons wth
customers or wth credtors or other sources of fnancng. Other factors of sg-
nfcance n ths connecton ncude:
() Compance wth oca partnershp, fcttous name, and busness regs-
traton statutes.
() Contro of busness bank accounts.
() Recognton of the donee s nterest n approprate capta and draw-
ng accounts.
(v) Recognton of the donee s Interest n nsurance poces, eases, and
other busness contracts and n tgaton affectng busness.
(v) The e stence of wrtten agreements, records or memoranda, con-
temporaneous wth the ta abe year or years concerned, estabshng the
nature of the partnershp agreement and the rghts nnd abtes of the
respectve partners.
(v) Fng of partnershp ta returns as requred by aw.
owever, despte forma compance wth the above factors, other crcumstances
may Indcate that the donor has retaned substanta ownershp of the nterest
purportedy transferred to the donee.
(7) Trustees as partners. trustee may be recognzed as a partner for n-
come ta purposes under the prncpes reatve to famy partnershps generay
as apped to the partcuar facts of the trust-partnershp arrangement.
trustee who s unreated to and ndependent of the grantor, and who partcpates
as a partner and receves dstrbuton of the ncome dstrbutabe to the trust,
w ordnary be recognzed as the owner of the partnershp nterest whch he
hods for the trust uness the grantor has retaned contros nconsstent wth
such ownershp. owever, f the grantor s the trustee, or f the trustee s
amenabe to the w of the grantor, the provsons of the trust nstrument (par-
tcuary wth reaton to whether the trustee Is sub|ect to the responsbtes of
a fducary), the provsons of the partnershp agreement, and the conduct of
the partes must a be taken nto account n determnng whether the trustee
n a fducary capacty has become the rea owner of the partnershp nterest.
In a case where the grantor (or person amenabe to hs w) s the trustee, the
trust may be recognzed as a partner ony f the grantor (or such other person)
n hs partcpaton n the affars of the partnershp actvey represents and
protects the nterests of the benefcares n accordance wth the obgatons of a
fducary, and does not subordnate such nterests to the nterests of the grantor.
Furthermore, f the grantor (or person amenabe to bs w) s the trustee,
partcuar consderaton shoud be gven to the foowng factors:
() Whether the trust s recognzed as a partner n busness deangs wth
customers and credtors, nnd
() Whether, f the partnershp ncome s not propery retaned for the
reasonabe needs of the busness, the trust s share of the ncome s dstrb-
uted to the trust annuay and pad to the benefcares or renvested soey
n the nterest of the benefcares.
( ) Interests of mnor chdren (not hed n trust). cept where a mnor
chd s shown to be competent to manage hs own property and partcpate n the
partnershp actvtes n accordance wth hs nterest n the property, a mnor
chd generay w not be recognzed as a member of a partnershp uness
contro of the property and ts en|oyment s e ercsed by another person as
fducary for the soe beneft of the chd and uness there s such udca super-
vson of the conduct of the fducary, guardan or otherwse, as s requred by
aw. The use of the chd s property or Income for support for whch a parent
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Regs. I, 29.191-1.
21
Is egay responsbe w be consdered a use for the parent s beneft. udca
supervson of the conduct of a fducary ncudes fng of such accountngs and
reports as are requred by aw of the fducary who partcpates n the affars of
the partnershp on behaf of the mnor. mnor chd w be consdered as
competent to manage hs own property f he actuay has suffcent maturty and
e perence to be treated by dsnterested persons as competent to enter nto
busness deangs and otherwse to conduct hs affars on a bass of equaty wth
adut persons, notwthstandng ega dsabtes of the mnor under Sate aw.
(9) Donees as mted partners. The recognton of a donee s nterest n a
mted partnershp w depend, as n the case of other donated nterests, on
whether the transfer of property s rea and the donee has acqured domnon
and contro over the nterests purportedy transferred to hm. To be recog-
nzed for Federa ncome ta purposes, a mted partnershp must be organzed
and conducted n accordance wth the requrements of the appcabe State
mted partnershp aw. The absence of servces and partcpaton n manage-
ment by a donee n a mted partnershp s mmatera f the mted partner-
shp meets a the other requrements prescrbed n ths secton. If the mted,
partner s rght to wthdraw hs nterest s sub|ect to substanta restrctons
(for e ampe, where the nterest of the mted partner s not assgnabe In a
rea sense or where t may be requred to be eft n the busness for a ong term
of years), or f the genera partner retans any other contro whch substantay
mts any of the rghts whch woud ordnary be e ercsabe by unreated,
mted partners In norma busness reatonshps, such restrctons on the rght
to wthdraw or retenton of other contro w be consdered strong evdence of
ack of reaty of ownershp by the donee.
(10) Motve. If the reaty of the transfer of nterest s satsfactory estab-
shed, the motves for the transacton are mmntern. owever, the presence
or absence of a ta avodance motve s one of many factors to be consdered
u determnng the reaty of a gft capta transacton.
(c) Purchased nterest. (1) In genera. If a purported purchase of a capta
nterest n a partnershp does not meet the requrements of paragraph (2), beow,
the ownershp by the transferee of such capta nterest w be recognzed ony
f t quafes under the requrements appcabe to a transfer of a partnershp
nterest by gft. In a case not quafyng under paragraph (2), f payment of
any part of the purchase prce s made out of the partnershp earnngs, the
transacton may be regarded n the same ght as a purported grt sub|ect to
deferred en|oyment of the ncome. Such a transacton may be ackng n reaty
ether as a gft or as a bona fde purchase.
(2) Tests as to reaty of purchased nterests. purchase of a capta nterest
n a partnershp ether drecty or by means of a oan or credt e tended by a
member of the famy w be recognzed If t s shown to be bona fde under ether
of the foowng tests:
() That the purchase has the usua characterstcs of an arm s ength
transacton, consderng a reevant factors ncudng e terms of the
purchase agreement (as to prce, due date of payment, rate of nterest, and
securty, f any) an the terms of any oan or credt arrangement coatera
to the purchase agreement; the credt standng of the purchaser, apart
from reatonshp to the seer; and the capacty o the purchaser to ncur
a egay bndng obgaton ; or
() ssumng the ak of one or more of the usua characterstcs of
am s ength deang, that the transacton was genuney ntended to pro-
mote the success of the busness through securng partcpaton n the bus-
ness of the purchaser or the addton of hs or her credt to that of other
partcpants.
owever, f the aeged purchase prce or oan has not been pad or the obga-
ton otherwse dscharged the factors ndcated n () nnd (), above, sha be
taken nto account ony as an ad n determnng whether a bona fde purchase
or oan obgaton e sted.
Skc. 29.191-2. ocaton of Famy Partnershp Income for Ta are Years
I .eonnnq feb I kmhh 31, 1 )50. (a) In genera (1) In the case of any
partnershp n whch capta Is a matera ncome-producng factor, f any
capta Interest n such a partnershp Is created by gft before, on, or after Decem-
ber 31,19TO, the dstrbutve share of the donee under the partnershp agreement,
for ta abe years begnnng after December 31, 1950, sha be ncudbe n hs
gross ncome, e cept to the e tent that such share s determned wthout aow-
ance of reasonabe compensaton for servces rendered to the partnershp by
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219
Regs. I, 29.191-1.
the donor, and e cept to the e tent tmt the porton of such shnre nttrbutahe
to donated capta s proportonatey greater than the shnre attrbutabe to the
donor s capta. For the purpose of ths secton, a capta nterest n a partner-
shp purchased by one member of a famy from another sha be consdered to
be created by gft from the seer, and the far market vaue of the purchased
nterest sha be consdered to be donated capta. For the purpose of the
precedng sentence, the famy of any ndvdua sha ncude ony hs spouse,
ancestors, and nea descendants, and any trust for the prmary beneft of such
persons.
(2) To the e tent that the partnershp agreement does not so aocate the
partnershp ncome, the partnershp Income of the donor and donee sha be
reaocated by makng a reasonabe aowance for the servces of the donor and
by attrbutng the baance of such ncome (other than a reasonabe aowance
for the servces, f any, rendered by the donee) to the partnershp capta of
the donor and donee. The porton of ncome, f any, thus attrbutabe to partner-
shp capta for the ta abe year sha be aocated between donor and donee In
accordance wth ther respectve nterests n the partnershp capta.
(3) In determnng a reasonabe aowance for servces rendered by the
partners, consderaton sha be gven to a the crcumstances of the busness,
ncudng the fact that some of the partners may have greater managera
responsbty than others. mong other factors, there sha be consdered the
amount that woud ordnary be pad n order to obtan comparabe servces
trom a person not havng a capta nterest n the partnershp,
( ) In the case of a partner who rendered servces to a partnershp pror to
enterng servce n the rmed Forces of the Unted States, hs dstrbutve share
n the earnngs of the partnershp, determned under (21, above, sha not be
dmnshed because of absence due to mtary servce. Such dstrbutve share
sha be ad|usted to refect ncreases or decreases n the capta nterest of the
absent partner. owever, the partners may by agreement aocate a smaer
share to the absent partner due to hs absence.
(6) Speca rues. (1) The provsons of (a), above, reatng to aocaton,
are appcabe where the gft nterest n the partnershp s created ndrecty
as we as drecty. Where the partnershp nterest s created ndrecty, the
term donor may ncude persons other than the nomna transferor.
ampe (/). father gves property to hs son who shorty thereafter con-
veys the property to a partnershp consstng of the father and the son. The
partnershp nterest of the son may be consdered created by gft and the
father may be consdered the donor of the son s partnershp nterest.
ampe (2). father, the owner of a busness conducted as a soe pro-
pretorshp, transfers the busness to a partnershp consstng of hs wfe and
hmsef. The wfe subsequenty conveys such nterest to ther son. In such
case, the father, as we as the mother, may be consdered the donor of the son s
partnershp nterest.
ampe (3). father makes a gft to hs son of stock n the famy corpora-
ton. The corporaton s subsequenty qudated. The son ater contrbutes the
property receved n the qudaton of the corporaton to a partnershp consst-
ng of hs father and hmsef. In such case, the son s partnershp nterest may be
consdered created by gft and the father may be consdered the donor of hs
son s partnershp nterest.
(2) The aocaton rues set forth n secton 101 and (a) of ths secton appy
n any case n whch the transfer or creaton of the partnershp nterest has any
of the substanta characterstcs of a gft. Thus, aocaton may be requred
where transfer of a partnershp nterest s made between members of a famy
(ncudng coateras) under a purported purchase agreement, f the charac-
terstcs of a gft are ascertaned from te terms of the purchase agreement, the
terms of any oan or credt arrangements made to fnance the purchase, or from
other reevant data.
(3) In the case of mted partnershp, for the purpose of the aocaton pro-
vsons of ( ) of ths secton, proper weght sha be gven to the fact that a gen-
era partner, unke the mted partner, rsks hs credt n the partnershp
busness.
Far. 3. There s nserted mmedatey precedng secton 29.3797-1
2G CF 29.3797-1 the foowng:
S C. 3 0. F MILY P RTN RS IPS R NU CT OF 1051,
PPRO D OCTO R 20, 1951 .
2 070 5 15
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Regs. I, 29.201-7.
220
(a) Defnton of Paktnek. Secton 3797(a) (2) Is hereby amended
by addng at the end thereof the foowng: person sha be recog-
nzed as a partner for ncome ta purposes f he owns a capta nterest
In a partnershp n whch capta s a matera ncome-producng factor,
whether or not such nterest was derved by purchase or gft from any
other person.

(c) ffectve Date. The amendments made by ths secton sha be
appcabe wth respect to ta abe years begnnng after December 31,
1900. The determnaton as to whether a person sha be recognzed
as a partner for ncome ta purposes for any ta abe year begnnng
before anuary 1, 1951, sha be made as f ths secton bad not been en-
acted and wthout nferences drawn from the fact that ths secton Is
not e pressy made appcabe wth respect to ta abe years begnnng
before anuary 1, 1951. In appyng ths subsecton where the ta abe
year of any famy partner s dfferent from the ta abe year of the part-
nershp
(1) f a ta abe year of the partnershp begnnng n 1950 ends
wthn or wth, as to a of the famy partners, ta abe years
whch be n n 1901, then the amendments made by ths secton sha
be appcabe wth respect to a dstrbutve shares of ncome de-
rved by the famy partners from such ta nbe year of the partner-
shp begnnng n 1950, and
(2) f a ta abe year of the partnershp endng n 1951 ends
wthn or wth a ta abe year of any famy partner whch began n
1950, then the amendments made by ths secton sha not be app-
cabe wth respect to any of the dstrbutve shares of ncome de-
rved by the famy partners from such ta abe year of the
partnershp.
r.ut. . Secton 29.3797- 26 CFR 29.3797- s amended by nsert-
ng mmedatey foowng the ffth sentence thereof the foowng:
See secton 191 and the reguatons thereunder, for treatment as a partner,
for ta abe years begnnng after December 31, 1950, of any person who owns a
capta nterest n a partnershp n whch capta s a matera Income producng
factor, whether or not such Interest was derved by purchase or gft from any
other person.
(Ths Treasury Decson s ssued under the authorty contaned n
sees. 62 and 3791 of the Interna Revenue Code (53 Stat. 32, 67;
26 U. S.C. 62, 3791).)
T. Coeman ndrews,
Commssoner of Interna Revenue.
pproved ugust 1 , 1953.
. Chapman Rose,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster ugust 2 , 1953, : a. m.)
SUPPL M NT G. INSUR NC COMP NI S
S CTION 201. LIF INSUR NC COMP NI S
Reguatons 111, Secton 29.201-7: Net ncome Rev. Ru. 197
and deductons.
INT RN L R NU COD
Secton 202(b) and secton 203 (b) and (d) of the Interna
Revenue Code requre that nterest pad be ncuded as an eement
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221
Regs. I, 29.201 7.
n the computaton of the reserve and other pocy abty credt
and the reserve nterest credt, respectvey. Secton 201 (c) (7) (C)
provdes that certan ta es and other e penses pad durng the ta abe
year e cusvey upon or wth respect to rea estate owned are aow-
abe deductons to a fe nsurance company n determnng net ncome.
The nterest pad that s requred to be ncuded n the computaton of
the reserve and other pocy abty credt and the reserve nterest
credt reates to nterest pad on pocy obgatons. Secton 201 (f)
provdes that Nothng n ths secton or n sectons 202, 203, or 203
sha be construed to permt the same tems to be twce deducted.
ccordngy, t s hed that nterest pad on mortgages assumed by
nsurance companes n connecton wth the purchase of rea estate for
renta purposes s deductbe under secton 201(c) (7) (C) and s not
ncudbe n the computaton of the reserve and other pocy abty
credt and the reserve nterest credt referred to n secton 202(b)
and secton 203 (b) and (d) of the Code.
Rkgt|atons 111, Secton 29.201-7: Net ncome Rev. Ru. 19
and deductons.
( so Secton 22(a), Secton 29.22(a)-.)
INT RN L R NU COD
The entre amount pad by a fe nsurance company for accrued
dvdends wth respect to stock purchased, s an nvestment of cap-
ta and may not be aowed as an offset aganst dvdends receved
for Federa Income ta purposes.
dvce s requested whether, n the case of fe nsurance companes,
the amount pad for accrued dvdends wth respect to stock purchased
s aowabe as an offset aganst dvdends receved for Federa ncome
ta purposes.
Secton 201 of the Interna Revenue Code provdes:

(c) Other Defntons. In the case of a fe nsurance company
(1) Gross ncome. The term gross ncome means the gross amount
of ncome receved durng the ta abe year from nterest, dvdends, aad
rents.
Lfe nsurance companes are requred by the States n whch they
operate to prepare annua statements on a form that s n genera
use throughout the Unted States. In reportng dvdends on stock
on ths form for the year n queston the fe nsurance companes
were requred to e cude amounts pad for accrued dvdends on
purchases. It s hed that the amount shown as dvdends on stock
on the form n queston s not determnatve for Federa ncome ta
purposes.
Secton 29.22(a)- of Reguatons 111 provdes that an amount pad
by a purchaser of stock to the seer n contempaton of the ne t
dvdend payment s an nvestment of capta and may not be camed
by the purchaser as a deducton from gross ncome. In I. T. 25(39,
C. . -, 101 (1931), t s stated that athough the purchaser of
stock may have every reason to e pect the fu amount of the reguar
dvdend to be pad after the stock s purchased, the prce pad for
the stock s the cost of the stock to hm. I. T. 25G9, supra, hods that
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Regs. I, 29.20 -2.
222
n cases of stock sod between dvdend dates no dstncton s made
between common and preferred stock, and the ertre amount of the
dvdend receved by the vendee s ncome to hm. ccordngy, t
s hed that the entre amount pad by a fe nsurance company for
accrued dvdends wth respect to stock purchased, s an nvestment of
capta and may not be aowed as an offset aganst dvdends receved
for Federa ncome ta purposes.
Reguatons 111, Secton 29.201-9: mortza-
ton of premum and accrua of dscount.
INT UN L R NU COD
Premums pad for Federa ousng dmnstraton nsured mort-
gage .oans. (See Rev. Ru. 25 , p. 1 3.)
CTION 20 . INSUR NC COMP NI S OT R T N
LIF OR MUTU L,
Reguatons 111, Secton 29.20 -1: Ta on n-
surance companes other than fe or mutua
and mutua marne nsurance companes and
mutua tre nsurance companes ssung per-
petua poces.
INT UN L NU COD
Reguatons 111 amended. (See T. D. C02 , 91.)
R emuatons 111, Secton 29.20 -2: Gross ncome. Rev. Ru. 151
INT RN L NU COD
The ureau adheres to, and ampfes the reasons for, the hodng
n I. T. 3T9 , C. . 19 6-1, 127, that the portons of orgna pre-
mums estabshed and segregated as a rensurance reserve by a
tte nsurance company from une 1, 193 , to May 31, 19 5, under
secton 3 .a. of the New York State Insurance Law may not be
treated as unearned premums under secton 20 (b) (5) of the Code.
The queston has arsen as to the precse meanng of I. T. 379S,
C. . 19 6-1,127, n vew of the reference theren to the case of ary
v. Lawyers Tte Insurance Corporaton, (C - , 19 2) 132 F. (2d)
2. In that I. T., t was stated n part:
Secton 3 Lb. of the New York State Insurance Laws, supra, gves to the
portons of the premums whch t requres to be paced n the reserve a the
attrbutes that pertan to unearned premums, . e., It wthdraws them Iron
the power of the company to use them for ts genera purposes and mpress
them wth a trust n favor of the contract hoders unt the rsk sha have been
carred for the perod that the statute prescrbes. In that respect t s smar
to the provsons of the rgna statute nvoved In ary v. Lawyers Ttt
Insurance Corporaton, supra. owever, the provsons of secton 3 La. of the
aws of New York, supra, and ts, counterpart, secton 3 .a. of chapter 2 of
the consodated aws as enacted by chapter 2 of the aws of 1939, supra, re
smar to the Pennsyvana statutory provsons whch were nvoved n mer-
can Tte Co. v. Commssoner, supra. They merey provde for a sovency
reserve, and, unke the provsons of the rgna statute nvoved n ary v.
Lawyers Tte Insurance Corporaton, supra, they do not mpress the reserve
funds wth a tru|t n favor of the contract hoders.
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223
Regs. I, 29.20 -2.
In vew of the foregong, It s hed that the portons of orgna premums es-
tabshed and segregated as a rensurance reserve by a tte nsurance company
on and after une 1,19 5, under secton 3 .b. of the New York State Insurance
Law, supra, may be treated as unearned premums under secton 20 (b) (5) of
the Interna Revenue Code. The portons of orgna premums estabshed and
segregated as a rensurance reserve by a tte nsurance company from une
1, 193.S, to May 31, 19 5, under secton 3 .a. of the New York State Insurance
Law, supra, may not be treated as unearned premums under secton 20 (b) (5)
of the Code. (See Cty Tte Insurance Co. v. Commssoner, 152 Fed. (2d),
09, as to the atter concuson.)
ctuay, the court n ary v. Lawyers Tte Insurance Corporaton
made no dstncton, for Federa ncome ta purposes, under the r-
gna statute there nvoved between rensurance reserves set up out
of premums receved pror to the enactment of the rgna statute
ana rensurance reserves set up out of premums receved subsequent
to that tme. Under smar Oregon statutes, the Court of ppeas
for the Nnth Crcut hed, foowng ary v. Lawyers Tte Insur-
ance Corporaton, that rensurance reserves composed of and meas-
ured by earned premums receved n pror years consttuted un-
earned premums . Pacfc bstract Tte Co. v. Unted States
(C. .-9, 1951) 192 F. (2d) 9 ; and Tte and Trust Company v.
Commssoner (C. .-9, 1951) 192 F. (2d) 915 , decded together wth
Pacfc bstract.
owever, t was not the purpose of the ureau n I. T. 379 , supra,
to accept as correct the decson n ary v. Lawyers Tte Insurance
Corporaton that the rensurance reserves set up out of premums pre-
vousy receved shoud be treated as unearned premums n the com-
putaton of ta abty arsng after the passage of the rgna
statute.
Federa ncome ta es are mposed on the bass of annua perods.
See Securty Fow Ms Co. v. Commsoncr, Ct. D. 1603, C. . 19 ,
526; (19 ) 321U. S. 2 1 n whch t was stated n part:
The ratonae of the system s ths: It s the essence of any system of ta -
aton that t shoud produce revenue ascertanabe, and payabe to the govern-
ment, at reguar ntervas. Ony by such a system s t practcabe to produce
a reguar fow of ncome and appy methods of accountng, assessment, and co-
ecton capabe of practcabe operaton.
Ths ega prncpe has often been stated and apped. The unform resut
has been dena both to government and to ta payer of the prvege of aocatng
ncome or outgo to a year other than the year of actua recept or payment, or,
appyng the accrua bass, the year n whch the rght to receve, or the obga-
ton to pay, has become fna and defnte n amount.
Furthermore, Congress ntended to provde a system of ta aton
whch woud be unform n a the States and ntended that oca aw
shoud not be controng e cept where the Federa ta ng act by e -
press anguage or necessary mpcaton makes ts own operaton de-
pendent upon State aw. ur k-Wag goner O ssocaton v. op-
kns (1925) 269 U. S. 110, and urnet v. Iarwe, Ct. D. 611, C. .
I-2, 210; (1932) 2S7 I . S. - . n whch atter case the Supreme
Court stated:
ere we are concerned ony w h the meanng and appcaton of a statute
enacted by Congress, n the e ercse ot ts penary power under the Consttuton,
to ta ncome. The e erton of that power s not sub|ect to State contro. It
a the w of Congress whch contros, and the e presson of ts w In egsaton,
In the absence of anguage evdencng a dfferent purpose, s to be Interpreted so
as to gve a unform appcaton to a naton-wde scheme of ta aton, ctng
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Regs. I, 20.212-2.
22
cases State aw may contro ony when the operaton of the Federa ta ng act,
by e press anguage or necessary mpcaton makes ts own operaton dependent
upon State aw.
It s the poston of the ureau that there s no mpcaton n the
provsons of the Interna Revenue Code deang wth the computa-
ton of unearned premums that the annua method of ta reportng
shoud be affected by a State statute retroactvey convertng, ether
drecty or ndrecty, some porton of prevousy receved premums
nto a rensurance reserve.
It s true that payments receved by a ta payer whch are sub|ect
to a restrcton at the tme they are receved, such as a trust, may
not be ncome to the recpent, f the restrcton s substanta, at east
so ong as the restrcton contnues. See, for e ampe, Maron .
Mc rde (19 ) 11 T. C. 961, nvovng part of purchase prce wth-
hed under agreement guarantee wth purchaser, and G. C. M. 6,
C. . I -2, 370; Los ngees Cemetery ssocaton (1925) 2 . T. .
96, nvovng porton of the purchase prce of cemetery ots receved
n trust for perpetua care and mantenance. ccordngy, that por-
ton of premums receved after the enactment of a State statute (whch
consttutes such porton a rensurance reserve) may propery be con-
strued as unearned premums.
owever, a cear cut dstncton shoud be made between rensurance
reserves set up by statute and mposed for a reasonabe tme upon
future recepts and the rensurance reserves whch a statute attempts,
drecty or ndrecty, to consttute out of premums prevousy
receved, and whch were fuy earned at the tme of recept.
Tte nsurance premums receved n years pror to the enactment of
a State statute were ceary ta abe as ncome at the tme they were
receved. It s a we estabshed rue of ta aton that ncome re-
ceved under cam of rght wthout restrcton as to ts dsposton
at the tme of recept consttutes ta abe ncome n the year of ts
recept even though sub|ect to some future contngency. rocn v.
everng (193 ) 291 U. S. 193, affrmng (C. .-9th, 1933) 63 F.
(2d) 66; Phadepha Tte Insurance Company (1951) 17 T. C. 106S,
acquescence C. . 1953-1, 5: Wayne Tte Trust Company (C. .-
3, 1952) 195 F. (2d) 01. Income thus ta ed n a pror year must
necessary be construed as premums earned n such year, and a state
statute cannot be consdered as changng ther character retroactvey
to unearned premums.
In vew of the foregong, the ureau adheres to the concusons
reached n I. T. 379 , supra.
SUPPL M NT . NONR SID NT LI N INDI IDU LS
S CTION 212.-GROSS INCOM
Reguatons 111, Secton 29.212-2: cuson Rev. u. 171
of earnngs of foregn shps or arcraft from
gross ncome.
( so Secton 231, Secton 29.231-3.)
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225
Regs. I, 29.251- .
INT RN L NU COD
The apanese Mnstry of Foregn ffars has confrmed the vad-
ty of apanese Law No. 6 of 192 , as amended by Law No. 57 of 19 0,
reatng to the e empton from ncome ta , corporate ta , and bus-
ness ta of ncome and net profts derved from the operaton of
foregn vesses. ccordngy, apan satsfes the equvaent e emp-
ton requrements of sectons 212(b)(1) and 231(d)(1) of the In-
terna Revenue Code.
SUPPL M NT I. FOR IGN CORPOR TIONS
S CTION 231. T ON FOR IGN CORPOR TIONS
Reguatons 111, Secton 29.231-1: Ta aton
of foregn corporatons.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. 602 , p. 91.)
Reguatons 111, Secton 29.231-3: cuson
of earnngs of foregn shps or arcraft from
gross ncome.
INT RN L NU COD
apan-equvaent e empton provsons of secton 231(d) (1) of the
Interna Revenue Code. (See Rev. Ru. 171, p. 22 .)
SUPPL M NT . POSS SSIONS OF T UNIT D ST T S
S CTION 251. INCOM FROM SOURC S WIT IN
POSS SSIONS OF UNIT D ST T S
Reguatons 111, Secton 29.251 : Defnton. Rev. Ru. 199
( so Secton 116, Secton 29.116-1; Secton
131, Secton 29.131-1.)
INT RN L R NU COD
The term Unted States when used n the geographca sense s
defned n secton 3797(a) (9) of the Interna Revenue Code as ncud-
ng ony the States, the Terrtores of aska and awa, and the
Dstrct of Coumba. In I. T. 0S0, C. . 1952-1,139, t s hed that
the Marsha Isands, whch are a part of the former apanese man-
dated sands now known as the Terrtory of the Pacfc Isands (of
whch Oknawa n the Ryukyu group aso s a part), admnstered
by the Unted States under a trusteeshp agreement between the
Unted States and the Securty Counc of the Unted Natons, do not
consttute a possesson of the Unted States. ccordngy, t s hed
that Oknawa s not a possesson of the Unted States wthn the mean-
ng of secton 251 of the Code, but s a foregn country for the purposes
of sectons 116(a) and 131 of the Code.
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292. 226
SUPPL M NT L. SS SSM NT ND COLL CTION OF D FICI NCI S
S CTION 271. D FINITION OF D FICI NCY
Reguatons 111, Secton 29.271-1: Defcency
defned.
INT RN L R NU COD
Penaty based upon a defcency e stng pror to appcaton of
carryback oss where ta n orgna return s equa to or n e cess of
ta fnay determned. (See Rev. Ru. 173, p. 227.)
SUPPL M NT M. INT R ST ND DDITIONS TO T T
S CTION 291. F ILUR TO FIL R TURN
Reguatons 111, Secton 29.291-1: ddton Rev. Ru. 172
to the ta n case of faure to fe return.
( so Secton 500, Secton 29.500-1.)
1NT N L R NU COD
The denquency penaty under secton 291 of the Interna Revenue
Code shoud not be asserted aganst a persona hodng company n
any case n whch faure to fe a tmey Form 1120 s attrbutabe
to reance n good fath upon the advce of a reputabe accountant or
attorney, e perenced n Federa ta matters, and to whom a ree-
vant nformaton has been furnshed.
S CTION 292. INT R ST ON D FICI NCI S
( so Secton 112(n), Secton 29.112(n)-,
Reguatons 111.)
INT RN L R NU COD
Interest must be assessed on a defcency n Federa Income ta
whch arses when a ta payer who has sod hs od resdence
has not purchased a new resdence wthn the perod of tme pre-
scrbed by secton 112(n) of the Interna Revenue Code.
dvce s requested whether a ta payer may be reeved from the
assessment of nterest on a defcency n Federa ncome ta whch
arses because the ta payer, who has sod hs od resdence, s un-
abe to purchase a new resdence sutabe for hs needs wthn the
perod of tme prescrbed by secton 112 (n) of the Interna Revenue
Code.
Secton 112(n) of the Code provdes n part as foows:
(n) Gan Fom Sate or change of Resdence.
(1) Nonrecoonton of qan. If property (herenafter n ths subsec-
ton caed od resdence ) used by the ta payer as hs prncpa resdence
s sod by hm and, wthn a perod begnnng 1 year pror to the date of
such sae and endng 1 year after such date, property (herenafter In ths
subsecton caed new resdence ) s purchased and used by the ta payer
as hs prncpa resdence, gan (f any) from such sae sha be recognzed
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227
2C3.
ony to the e tent that the ta payer s seng prce of the od resdence
e ceeds the ta payer s cost of purchasng the new resdence.
Secton 29.112(n)- of Reguatons 111 provdes that f an nten-
ton not to repace hs od resdence s formed by a ta payer or f
the perod n whch repacement may resut n nonrecognton of
gan e pres, or f the cost of purchasng the new resdence s ess
than the seng prce of the od resdence, the recognzabe gan sha
be ncuded n the gross ncome for the ta abe year or years n whch
such gan was reazed.
The gan from the sae of a ta payer s prncpa resdence s a gan
reazed by hm n the year of the sae of such resdence. Whether
any part of that gan s not to be recognzed depends upon the ta -
payers meetng the condtons of secton 112 (n) of the Code, supra.
If the ta payer does not meet the condtons of secton 112(n), the
addtona ncome ta resutng therefrom s a defcency, wthn
the meanng of sectons 271 and 292(a) of the Code, for the ta abe
year n whch the sae occurred.
Secton 292(a) of the Code provdes n part that nterest upon
the amount determned as a defcency sha be assessed at the same
tme as the defcency, sha be pad upon notce and demand from
the coector, and sha be coected as a part of the ta at the rate
of 6 per centum per annum from the date prescrbed for the payment
of the ta to the date the defcency s assessed, or, n the case of a
waver under secton 272(d), to the 30th day after the fng of such
waver or to the date the defcency s assessed whchever s the earer.
The assessment and coecton of nterest on a defcency s man-
datory and may not be waved by the ureau regardess of the cr-
cumstances whch caused the defcency. ccordngy, t s hed that
nterest must be assessed on a defcency n Federa ncome ta whch
arses when a ta payer who has sod hs od resdence has not pur-
chased a new resdence wthn the perod of tme prescrbed by
secton 112(n) of the Code, supra. Such nterest must be assessed
from the date the ta on the gan from the sae of a ta payer s od
resdence woud have been due, wthout regard to the provsons of
secton 112(n) of the Code, to the date the defcency s assessed, or,
f a waver has been fed by the ta payer under secton 272(d) of
the Code, to the 30th day after the fng of such waver or to the date
the defcency s assessed whchever s the earer.
S CTION 293.- DDITIONS TO T T IN
C S OF D FICI NCY
( so Secton 271, Secton 29.271-1, Regua- Rev. Ru. 173
tons 111.)
INT RN L R NU COD
n ad vaorem penaty (neggence, denquency, or fraud) based
upon the amount of a defcency e stng pror to the appcaton of a
reef provson such as a net operatng oss carryback Is to be Im-
posed n connecton wth a Federa Income ta abty, even though
the ta as reported n the orgna return ; equa to or n e cess
of the correct ta us fnay determned after tt a pcaton of such
provson.
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293.
22S
dvce s requested whether secton 293(b) of the Interna Revenue
Code requres the mposton of a fraud penaty upon a defcency
e stng pror to the appcaton of a carryback of a net operatng oss
or an unused e cess-profts credt, even though the ta as reported n
the orgna return s equa to or n e cess of the ta as fnay deter-
mned after the appcaton of such credt.
In the nstant case, the ta payer fed an ncome ta return dscosng
Federa ncome ta abty of 0a; doars, whch was pad. Subse-
quenty, the ta payer fed an amended return, dscosng fraud n the
orgna return and pad addtona ta of 9a; doars. s the resut
of the appcaton of a carryback of an unused e cess-profts credt
the ta was reduced to 20a; doars and the overpayment was refunded.
Upon e amnaton of the returns, further ad|ustments (not reated to
the fraud tems) were made resutng n addtona ta due of 3a; do-
ars and ta as fnay determned of 23a; doars. The basc queston
s whether secton 293(b) of the Code requres the mposton of the
fraud penaty on a tota defcency of 12a; doars even though the
correct abty of 23a; doars s ess than the abty of 0a; doars
shown n the orgna return, and the defcency of 3a; doars does not
resut from an tem of fraud. The answer to ths queston s to be
found n the constructon of secton 293 (b), reatng to fraud penates,
and secton 271, defnng defcency.
Secton 293(b) of the Interna Revenue Code provdes as foows:
(b) Fraud. If any part of any defcency Is due to fraud wth ntent to evade
tat, then 50 per centum of the tota amount of the defcency (n addton to such
defcency) sha be so assessed, coected, and pad, n eu of the 50 per centum
addton to the ta provded n secton 3612(d) (2).
Secton 271 (a) of the Code provdes n part as foows:
(a) In Genera. s used n ths chapter chapter 1 of the Code n respect
of a ta mposed by ths chapter, defcency means the amount by whch the
ta mposed by ths chapter e ceeds the e cess of
(1) the sum of ( ) the amount shown as the ta by the ta payer upon
hs return, f a return was made by the ta payer and an amount was shown
as the ta by the ta payer thereon, pus ( ) the amounts prevousy as-
sessed (or coected wthout assessment) as a defcency, over
(2) the amount of rebates made.
Secton 29.271-1 of Reguatons 111, promugated pursuant to sec-
ton 271 of the Code, provdes n part as foows:
When a case s consdered for the frst tme, the defcency s the e cess of the
amount determned to be the correct amount of the ta over the amount shown
as the ta by the ta payer on hs return, or, f t s a case where no ta was
reported by the ta payer, the defcency s the amount determned to be the
correct amount of the ta . Subsequent nformaton sometmes dscoses that
the amount prevousy determned to be the correct amount of the ta s ess
than the correct amount, and that a redetermnaton of the ta s necessary. Ia
such a case the defcency on redetermnaton s the e cess of the amount deter-
mned to be the correct amount of the ta over the sum of the amount of ta
reported by the ta payer and the defcency assessed n connecton wth the
prevous determnaton. If t s a case where no ta was reported by the ta -
payer, the defcency s the e cess of the amount determned to be the correct
amount of the ta over the amount of the defcency dscosed by the prevous
determnaton. If the prevous determnaton resuted n a credt or refund to
the ta payer, the defcency upon the second determnaton s the e cess of the
amount determned to be the correct amount of the ta over the amount of ta
reported by the ta payer decreased by the amount of the credt or refund. (Itacs
supped.)
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229
293.
The case of Dane . Leary and Sade D. Leary, Ta Court Memo-
randum Opnon entered anuary 25, 19 5, and pr 10, 19 5, us-
trates the nterreaton of sectons 271 and 293(b) n the computaton
of the fraud penaty. In that case the Commssoner assessed def-
cences for 2 of the years nvoved and ater dscovered fraud, at
whch tme he assessed for each year an addtona defcency and a
penaty to the e tent of 50 percent of the tota of the two defcences
assessed for each year. For the other year nvoved, the ta payer had
obtaned a refund pror to the dscovery of fraud whch resuted n
the assessment of a defcency and fraud penaty. In computng the
penaty the amount of ta shown on the return was reduced by the
amount of the refund. Ths sum was then deducted from the correct
amount of the ta and the defcency arrved at. The fu amount
that the correct amount of ta e ceeded the amount shown on the re-
turn as decreased by the refund was assessed as a defcency. Ffty
percent of ths dentca fgure was asserted as a fraud penaty. The
Ta Court of the Unted States accepted the computaton of the Com-
mssoner for the year nvovng the refund, but at frst ob|ected to the
computatons nvovng the two defcences. fter consderaton of
a moton fed by the Commssoner, n whch t was contended that
such computatons of penaty were determned n accordance wth the
provsons of secton 2 1 (a) of the Code, defnng defcency, the court
ordered ts former opnon amended. Ths case s sgnfcant n that
t nvoves a refund after whch a defcency due to fraud was ds-
covered. It demonstrates that the amount of ta shown on the return
must be ad|usted by the amount of the pror refund even for the
purpose of assertng the fraud penaty under secton 293(b) of the
Code. The fact that the court n the same case had before t the
proper treatment of a stuaton where there was a defcency pror to
the defcency due to fraud adds addtona weght to the hodng.
In ths connecton aso see Matund . Wson v. Commssoner,
7 T C 395
In ohn . Mannng v. Seeey Tube tf o Co., 33 U. S. 5G1, Ct. D.
1729, C. . 1950-1, 113, t was hed that whe a net operatng oss
carryback may serve to emnate a defcency for a prevous year, the
nterest whch had theretofore accrued on such defcency was not
emnated. In hodng that the Government was entted to nterest,
the Supreme Court of the Unted States concudrd that there was a
rea defcency e stng pror to the occurrence of the carryback oss
and the rght to nterest s dependent upon the e stence of a def-
cency. It foows that for purposes of the penates mposed under
sectons 291 and 293 of the Code, a rea defcency must kewse be
consdered to e st.
In G. C. M. 2C 55, C. . 1950-1, 11 , t s hed that nterest and
penates assessed and coected n connecton wth a Federa ncome
ta abty shoud not be credted or refunded even though such ta
abty s reduced or emnated by net operatng oss carrybacks.
The rung ponts out that the statutory pattern requrng prompt pay-
ment of ta es was the foundaton of the decson of the Supreme Court
n Mannng v. Seeey Tube o Co., supra, and that the ratonae
of that case apped to penates. The prompt fng of returns whch
convey compete and accurate nformaton s equay a statutory duty
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Regs. I, 29.322-7.
230
of every ta payer. The carryback provsons of the Code do not
modfy such dutes. (See S. ept. 1631, C. . 19 2-2, 50 , 597.)
though the facts n the nstant case dffer from those n the Supreme
Court case and G. C. M. 26 55 cted above, n that the queston n-
voved s the asserton of penaty nstead of the proper refund of n-
terest or a penaty aready asserted, and the carryback s wth respect
to an unused e cess-profts credt rather than a net operatng oss,
t seems cear that the same reasonng appes.
Secton 293(b) of the Code provdes a penaty computed not upon
any part of any defcency but upon the tota amount of the def-
cency . In vew of the foregong t foows that secton 293 of the
Code and secton 271, whch defne defcency, are nterdependent
and that the sum tota of the defcency referred to n cause ( ) of
secton 271(a) (1) has the same meanng as the tota amount of the
defcency n secton 293 (b). The proper procedure n determnng the
tota amount of defcency s, therefore, to compute each defcency
pursuant to the provsons of secton 271 of the Code and add them
together for the purposes of secton 293(b). Ths procedure gves
effect to reductons n the correct amount of ta due to carryback
osses or emnaton of e cessve profts, and pror refunds or credts
receved n renegotaton settements under secton 3 06 of the Code,
and requres the amounts of such ad|ustments to be deducted from
the orgna return n computng the tota defcency.
ccordngy, t s hed that an ad vaorem penaty (neggence,
denquency, or fraud) based upon the amount of a defcency e stng
ror to the appcaton of a reef provson such as a net operatng
oss carryback s to be mposed n connecton wth a Federa ncome
ta abty, even though the ta as reported n the orgna return
s equa to or n e cess of the correct ta as fnay determned after
the appcaton of such provson. ppyng these prncpes to the
nstant case, the mposton of the fraud penaty on the tota defcency
of 12a; doars s requred by statute.
SUPPL M NT O. O RP YM NTS
S CTION 322. R FUNDS ND CR DITS
: UL TONS 111, Secton 29.322-7: Lmta-
tons upon the credtng and refundng
of ta es pad.
INT N L R NU COD
Lmtaton upon the amount of refund or credt of ta es pad, based
upon a net operatng oss carryback to a year n whch a net operatng
oss carryover was not propery taken nto account, the tme for fng
a cam for refund or credt based upon the net operatng oss carry-
over havng e pred. (See Rev. Ru. 21 , p. 176.)
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231
Regs. 130, 0. 30-1.
SU C PT R D.- C SS-PROFITS T
P RT I. R T ND COMPUT TION OF T
S CTION 30. IMPOSITION OF T
Reguatons 130, Secton 0. 30-1: Scope of T. D. G0 6
ta .,
( so Secton 0. 30-2; Secton 31, Secton
0. 31-1; Secton 32, Secton 0. 32-1;
Secton 1 1, Secton 2 .31 (a) (90), Regua-
tons 129.)
TITL 26 INT RN L R NU C PT R I, SU C PT R , P RT 2
ND P RT 0
Reguatons 129 and 130 amended to conform to the provsons
of Pubc Law 125, ghty-thrd Congress p. 73, ths uetn , a -
proved uy 16, 1953, reatng to the e tenson unt December 1,
1953, of the perod wth respect to whch the e cess profts ta sha
be effectve.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
In order to conform Reguatons 129 26 CFR, pt. 2 and Regua-
tons 130 26 CFR, pt. 0 to the provsons of Pubc Law 125, ghty-
thrd Congress p. 73, ths uetn , approved uy 16, 1953, reat-
ng to the e tenson unt December 31,1953, of the perod wth respect
to whch the e cess-profts ta sha be effectve, such reguatons are
hereby amended as foows:
R GUL TIONS 129 26 CFR, PT. 2
Paragraph 1. Subdvson () of secton 2 .31(a) (90) s amended
by strkng une 30, 1953 and uy 1, 1953 , wherever such dates
appear, and nsertng n eu thereof December 31, 1953 and an-
uary 1, 195 , respectvey, so that such subdvson as amended sha
read as foows:
() In the case of a ta abe year of the group begnnng before anuary 1,
195 , and endng after December 31, 1953, such amount sha be reduced to an
amount whch s such part thereof as the number of days n such ta abe year
before anuary 1, 195 , s of the tota number of days In such ta abe year; and
R GUL TIONS 130 20 CFR, PT. 0
Par. 2. There s nserted mmedatey precedng secton 0. 30-1
the foowng:
rU LIC L W 125, IG TY-T IRD CONGR SS
PPRO D ULY 16, 1953
sectons 30(a), 30(c), of the Interna Reve-
nue Code are amended, effectve wth respect to ta abe years endng
after une 30, 1953, by strkng une 30, 1953, and uy 1, 1953,
wherever such dates appear, and nsertng n eu thereof December
31, 1953, and anuary 1, 195 , respectvey.
Par. 3. The second sentence of secton 0. 30-1 s amended by strk-
ng uy 1,1953 and nsertng n eu thereof anuary 1, 195 so
that such sentence as amended sha read as foows:
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Regs. 130, 0. 30-1.
232
The e cess-profts ta Is mposed upon the ad|usted e cess-profts net Income of
every corporaton, both domestc and foregn, for each ta abe year endng after
une 30, 1950, and begnnng before anuary 1,195 , e cept n the case of certan
corporatons whch are e empt from the ta under the provsons of secton 5 .
Par. . Paragraph (c) of secton 0. 30-2 s amended by strkng
une 30, 1953 and uy 1, 1953 , wherever such dates appear, and
nsertng n eu thereof December 31, 1953 and anuary 1, 195 ,
respectvey, so that such paragraph as amended sha read as fo-
ows :
(c) Ta abe years begnnng before anuary 1, W5 , and endng after Decem-
ber SI, 1953. In the case of a ta abe year whch begns before anuary 1, 195 ,
and ends after December 31, 1953, the e cess-profts ta w be an amount equa
to that porton of a tentatve ta determned under secton 30(a) and under (a)
of ths secton as the number of days n such year pror to anuary 1, 195 , bears
to the tota number of days n such year.
Par. 5. The ast sentence of secton 0. 31-1, as added by Treasury
Decson C02 p. 91, ths uetn , approved une 25, 1953, s
amended by strkng une 30,1953 and uy 1,1953 , and nsertng
n eu thereof December 31, 1953 and anuary 1, 195 , respec-
tvey, so that such sentence as amended sha read as foows:
For treatment of ta abe years begnnng before anuary 1, 195 , and endng
after December 31, 1953, see secton 0. 30-2(c).
Par. 6. There s nserted mmedatey precedng secton 0. 32-1
the foowng:
PU LIC L W 125, IG TY-T IRD CONGR SS IU RO D
ULY 16, 1953
sectons 32(b) of the Interna Revenue Code are
amended, effectve wth respect to ta abe years endng after une 30,
1953, by strkng une 30, 1953, and uy 1, 1953, wherever such
dates appear, and nsertng n eu thereof December 31, 1953, and
anuary 1, 195 , respectvey.
Par. 7. The frst and fourth sentences of paragraph (a) of secton
0. 32-1 are amended by strkng une 30,1953 and uy 1, 1953 ,
wherever such dates appear, and nsertng n eu thereof December
31, 1953 and anuary 1, 195 , respectvey, so that such sentences
as amended sha read as foows:
Secton 32 provdes that the unused e cess-profts credt for any ta abe year
endng after une 30, 1950, and begnnng before anuary 1, 195 , s the e cess
of the corporaton s e cess-profts credt for such ta abe year over ts e cess-
profts net ncome for such year computed wthout regard to the net operatng
oss deducton and computed on the bass of the e cess-profts credt appcabe
to such year. If the ta abe year begns before anuary 1, 195 , and
ends after December 31,1953, the unused e cess-profts credt w be an amount
whch s such porton of the unused e cess-profts credt determned under the
genera rue as the number of days n the ta abe year before anuary 1, 195 ,
s of the tota number of days n such ta abe year.
Inasmuch as ths Treasury Decson merey provdes for the e ten-
son, unt December 31, 1953, of the perod wth respect to whch the
e cess-profts ta sha be effectve, n conformty wth the provsons
of Pubc Law 125, ghty-thrd Congress, approved uy 16, 1953,
t s hereby found that t s unnecessary to ssue such Treasury Decson
wth notce and pubc procedure thereon under secton (a) of the
dmnstratve Procedure ct, approved une 11, 19 6, or sub|ect to
the effectve date mtaton of secton (c) of that act.
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233 Regs. 130, 0. 31-1.
(Ths Treasury Decson s ssued under authorty contaned n sees.
62, 1 1, and 3791 of the Interna Revenue Code (53 Stat. 32, 67; 6
Stat. 1217; 26 U. S. C. 62,1 1,3791).)
T. Coeman ndrews,
Commssoner of Interna Revenue.
pproved October 2 , 1953.
M. . Fosom,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster November 2, 1953, : 51 a. m.)
Reguatons 130, Secton 0. 30-2: Rate of Rev. Ru. 200
ta .
INT RN L R NU COD
new corporaton, whch succeeded to the busness and assets of a
predecessor partnershp n a ta -free transacton under secton
112(b)(5) of the Interna Revenue Code, s deemed to have com-
menced busness, for the purpose of computng ts e cess-profts ta
under secton 30(e) of the Code, on the date t acqured the busness
and assets from the partnershp and the organzaton date of the
predecessor partnershp s mmatera for such purposes.
Reguatons 130, Secton 0. 30-2: Rate of Rev. Ru. 212
( so Secton 5, Secton 0. 5-1.)
nterna revenue code
new corporaton does not commence busness wthn the meanng
of secton 30(e) and secton 5(a) of the Interna Revenue Code
unt t starts the busness operatons for whch t was organzed
regardess of the fact that t may have ncdenta ncome pror to that
tme. new corporaton organzed n 19 6 to engage n the bankng
busness w not be consdered as havng commenced busness n 19 7
merey because t reazed ncome n that year from the sae of a
budng ste whch was unsutabe for ts purposes and had fed a
Federa ncome ta return for 19 7 (the corporaton s frst return)
reportng such ncome. Inasmuch as the corporaton had, as of the
end of 19 7 ony a comparatvey sma porton of the assets neces-
sary for the bankng busness, and snce the corporaton dd not start
any of the busness operatons for whch t was organzed unt 19
when t was authorzed by the State bank commssoner to commence
the genera busness of bankng, t s hed that the corporaton dd
not commence busness wthn the meanng of secton 30(e) and
secton 5(a) of the Code unt 19 .
S CTION 31. D FINITION OF D UST D C SS-
TROFITS N T INCOM
Reguatons 130, Secton 0. 31-1: Defnton
of ad|usted e cess-profts net ncome.
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Regs. 130, 0. 5-1. 23
INT RN L R NU COD
Reguatons 130 amended. (See T. D. 602 , p. 91.)
Reguatons 130, Secton 0. 31-1: Defnton
of ad|usted e cess-profts net ncome.
INT RN L R NU COD
Reguatons 130 amended. (See T. D. 60 6, p. 231.)
S CTION 32. UNUS D C SS-PROFITS
CR DIT D USTM NT
Reguatons 130, Secton 0. 32-1: Unused
e cess-profts credt ad|ustment.
INT RN L R NU COD
Reguatons 130 amended. (See T. D. 60 G, p. 231.)
S CTION 35. C SS-PROFITS CR DIT- S D
ON INCOM
Reguatons 130, Secton 0. 35-6: Capta
addtons n base perod.
nterna revenue code
Reguatons 130 amended. (See T. D. 605 , p. 2 2.)
Reguatons 130, Secton 0. 35-6(a) : Capta
addtons n base perod (a) In genera.
nterna revenue code
Date for determnng yeary base perod capta for second preced-
ng ta abe year of component corporaton treated as acqurng
corporaton n case of part II transacton. (See Rev. Ru. 1 6, p. 2 9.)
S CTION 5. R G S P RIOD N T
INCOM -N W CORPOR TION
Reguatons 130, Secton 0. 5-1: New corpo-
ratons.
nterna revenue code
ppcaton of term commenced busness to new corporatons.
(See Rev. Ru. 2 2, p. 233.)
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235
Regs. 130, 0. 56-2.
S CTION . C SS-PROFITS CR DIT-R GUL T D
PU LIC UTILITI S
Reguatons 130, Secton 0. -2: Defntons. Rev. Ru. 123
( so Secton 1 1, Secton 2 .31(b) (20), Regu-
atons 129.)
INT RN L R NU COD
The Securtes and change Commsson, n ts capacty as ad-
mnstrator under the Pubc Utty odng Company ct of 1935
for the protecton of nvestments of stockhoders, does not quafy
as an approprate reguatory body under secton (b) (3) of the
Interna Revenue Code n determnng whether the books of account
of a reguated pubc utty are propery reguated for the purpose
of determnng ts e cess-profts credt. The term an approprate
reguatory body as used n secton (b) (3) of the Code s confned
to rate reguatng bodes. (See sec. 0. -2(e) (2) (), Reguatons
130.) ccordngy, n computng the consodated secton
nadmssbe asset ad|ustment of such a pubc utty, ts assets may
not be determned by reference soey to the amounts recorded n ts
books of account whch are mantaned n accordance wth a system
of accounts prescrbed by the Securtes and change Commsson.
(See Rev. Ru. 03, C. . 1953-1, 355.)
S CTION 53. NONT L INCOM FROM C RT IN
MINING ND TIM R OP R TIONS, ND FROM
N TUR L G S PROP RTI S
Rh oatons 130, Secton 0. 53-2: Defntons.
INT RN L R NU COD
Reguatons 130 amended. (See T. D. 6031, p. 120.)
S CTION 56. NORM LITI S IN INCOM
IN T L P RIOD
Reguatons 130, Secton 0. 56-2: Cass- T. D. 6026
fcaton of ncome.
TITL 26 INT RN L R NU . C PT R I, SU C PT R . P RT 0.
C SS-PROFITS T ; T L Y RS NDING FT R UN 30, 1950
Secton 0. 56-2 (b) of Reguatons 130 amended
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
On December , 1952, a notce of proposed ruemakng was pub-
shed n the Federa Regster (17 F. R. 10973) amendng secton
2 070 5 16
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Regs. 130, 0. 56-7.
230
0. 56-2(b) of Reguatons 130 26 CFR, pt. 0 . fter consdera-
ton of such reevant suggestons as were presented regardng the
proposas, such reguatons are hereby amended by addng at the end
of secton 0. 56-2(b) the foowng:
Income from the sae of tangbe property arsng out of research and deveop-
ment whch e tended over a perod of more than 12 months Is not ncuded n
the st of abnorma types of ncome to whch secton 56 s appcabe, and such
ncome may not consttute a cass of ncome for purposes of that secton. ow-
ever, secton 50 s appcabe to such ncome f the ncome s otherwse propery
Incudbe wthn a cass of ncome to whch such secton s appcabe for
e ampe, the cass descrbed In secton 50(a) (2) (D).
(Ths Treasury Decson s ssued under the authorty contaned n
sec. 62 of the Interna Revenue Code (53 Stat. 32; 26 U. S. C. 62).)
T. Coeman ndrews,
Commssoner of Interna Revenue.
ppoved uy 3, 1953.
M. . Fosom,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster uy S, 1053, :52 a. m.)
R gatons 130, Secton 0. 56-7: poraton, Rev. Ru. 236
dscovery, prospectng.
INT RN L R NU COD
ppcaton of secton 50 of the Interna Revenue Code to the o
and gas e tractve ndustry: bnorma ncome resutng from e -
poraton, dscovery, or prospectng.
1. Purpose. The purpose of ths Revenue ung s to state the
poston of the Interna Revenue Servce wth respect to the appca-
ton of secton 56 of the Interna evenue Code (reatng to the e cess-
profts ta ) to ta payers engaged n the e tracton of petroeum and
natura gas.
2. poraton, dscovery, or proapectng. poraton or pros-
pectng by a ta payer begns wth the frst fed work desgned to deter-
mne whether to acqure or retan the acreage n the area n whch a
dscovery s ater made. (See I. T. 006, C. . 1950-1,3 .) It does not
ncude the genera research of pubshed reports to determne where
e poraton mght be proftabe. poraton s ended and dscovery
occurs for a poo when a we s competed that proves the presence of
o or gas n commerca quanttes. Subsequent drng n the poo,
whe t may contan a arge eement of rsk, consttutes e potaton
to reap the benefts of the dscovery. To the e tent that deveopment
s the equvaent of e poraton or dscovery, t may resut n ab-
norma ncome under secton 50; to the e tent that deveopment s
the equvaent of e potaton, t w not resut n any abnorma n-
come wthn the meanng of secton 56.
3. Perod of e poraton, dscovery, or prospectng. To quafy
under secton 50(a)(2)( ) ncome must resut from e poraton,
dscovery, or prospectng, or any combnaton of the foregong, e -
tendng over a perod of more than 12 months. Ths means that the
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237
Regs. 130, 0. 56-7.
eapsed tme between the commencement of e poraton or prospect-
ng and the resutng dscovery, as defned n paragraph 2, e cusve
of any ntervenng perods of nactvty, must tota more than 12
months. Ony the actua tme consumed from the nta steps n the
e poraton or prospectng to the fna competon of the dscovery we
that proved the presence of o or gas n commerca quanttes s to
be consdered n measurng the tme eapsed.
. Cass of ncome. The entre ncome of a ta payer whch resuts
from e poraton, dscovery, or prospectng, or any combnaton of
the foregong, e tendng over a perod of more than 12 months,
consttutes a snge cass of ncome.
5. Determnaton of abnorma ncome. That part of the gross
ncome from the sae of o and/or gas from propertes of the ta payer
whch meets the other requrements of secton 56 and whch t at-
trbutabe to the e poraton, dscovery, or prospectng of such prop-
ertes consttutes abnorma ncome wthn the meanng of secton
50(a) (2) ( ). That part of the gross ncome from the sae of o
and/or gas from the ta payer s propertes whch s attrbutabe to
the e potaton of such propertes, however does not under any cr-
cumstances consttute abnorma ncome wthn the meanng of secton
56(a) (2) ( ). ny method of aocaton w be acceptabe whch
reasonaby determnes the portons of ncome whch are attrbutabe
to e poraton, dscovery, or prospectng of the propertes and the
portons of ncome whch are attrbutabe to the deveopment or
e potaton of the propertes n vew of the respectve rsks under-
taken. For e ampe, an amount equa to the tota amount whch
woud be reazed over the fe of the propertes as overrdng royates
f the propertes had been subeased on the dscovery date (or the
actua amount so reazed f the propertes n fact were subeased)
quafes as abnorma ncome. Such amount w not ncude any
ncome whch woud be reazed by the subessee as the resut of
e potaton of such propertes.
The amount whch woud be equa to the assumed overrdng roya-
tes (f the propertes were not n fact subeased), or the ncome
otherwse determned as attrbutabe to e poraton, dscovery, or
prospectng of the propertes, must be estabshed n the ght of
the condtons and crcumstances known at the dscovery date, re-
gardess of ater nformaton concernng the propertes. The terms
of an assumed subease sha be determned on the bass of a transfer
between a wng subessor and a wng subessee as of the dscovery
date. Due weght sha be gven to any and a facts and evdence
havng a bearng on the amount of such overrdng royates, or
ncome attrbutabe to e poraton, dscovery, or prospectng, such as
the actua subeasng of smar propertes, or the determnaton by
an anaytca method whch w reasonaby apporton the antcpated,
undscounted net earnngs from such propertes between the nterest
of the e porer, dscoverer, or prospector, and the nterest of a de-
veoper or e poter. In the determnaton of net earnngs, deductons
from antcpated gross ncome sha ncude not ony the estmated
drect operatng costs attrbutabe to the producton of o and/or
G
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Regs. 130, 0. 56-7.
23
gas but aso the estmated costs of drng subsequent wes, genera
overhead, and any other deductons attrbutabe to e potaton of the
propertes.
method of determnng abnorma ncome may be ustrated as
foows: ssume that as of the date of dscovery of a new poo, the
estmated undscounted net earnngs from the ta payer s propertes
are 1,250,000. ssume further that these propertes coud be sub-
eased on a 0-60 bass (. e. 0 of the estmated net earnngs at-
trbuted to the subessor and 60 to the subessee). These are a
facts wth respect to the propertes to be determned by e pert anayss
such as by a petroeum engneer. Under these assumptons, the sub-
essors share of the tota estmated net earnngs s 500,000, and f
the tota estmated recoverabe o s 1,000,000 barres, 50 cents of the
ncome reazed from each barre of o w be the ncome resutng
from e poraton, dscovery, and prospectng (wthout regard to the
utmate amount of o recovered from the property), and such 50
cents per barre thus w represent abnorma ncome.
6. Items of abnorma ncome. n tem of abnorma ncome con-
ssts of the abnorma ncome, as defned above, attrbutabe to a snge
dscovery. Thus, the amount of an tem of abnorma ncome n any
ta abe year s equa to that porton of the ncome, attrbutabe to
the dscovery, reazed n such ta abe year from a partcuar o
and/or gas poo whch s proved by a snge dscovery we. For the
purposes of ths Revenue Rung, a poo means any underground
accumuaton of crude petroeum or assocated hydrocarbon substances
ncudng, but not mted to, natura gas, consttutng a snge and
separate reservor or source of suppy wthn a fed. The probabe
mts of such new poo, as determned by the best evdence avaabe
at the date of competon of the dscovery we, thus defne the area
wthn whch a eases or propertes owned at the tme by the ds-
coverer woud be ncuded n the dscovery. Later dscoveres of new
poos n the same area may be made n dfferent sands or horzons, and
agan the ncome attrbutabe to the dscovery of the new poo woud
be determned by the facts known as of the date of dscovery. No
ad|ustments w be made because of any subsequent nformaton.
The abnorma ncome of a ta payer for any year, ether the current
ta abe year or one of the pror ta abe years, conssts of the sum
of the tems of abnorma ncome, as defned above, from a dscovery
unts of the ta payer yedng such ncome n the gven year.
7. Net abnorma ncome attrbutabe to other years. Net abnorma
ncome, and tems of net abnorma ncome, are to be determned as
provded n Reguatons 130, secton 0. 56-1. Wth respect, however,
to the reducton for costs or deductons reatng to the abnorma n-
come caed for by sectons 0. 56-1 (c)(3) and (d)(2), these costs
and deductons, other than the depeton aowabe, are zero, snce
t s the e pected net reazaton from antcpated producton that s
refected n the subessor s share of antcpated net earnngs (50 cents
per barre of o n the e ampe gven n paragraph 5) whch s used
to measure abnorma ncome. The amount of the depeton aowance
reatng to the abnorma ncome wth respect to each tem s an
amount equa to the depeton deducton mutped by the rato of
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239
Regs. 130, 0. 56-7.
abnorma ncome to the net ncome before depeton. (The depeton
aowance reatng to the cass of abnorma ncome s the sum of the
depeton aowances reatng to a of the tems consttutng the cass.)
The amounts of net abnorma ncome attrbutabe to other years
are to be determned as provded n secton 0. 56-3. ny net ab-
norma ncome due to an ncrease n demand for o or gas, as shown
by approprate saes or consumpton data, s not attrbutabe to other
years, but to the current ta abe year. Smary, any net abnorma
ncome due to ncreased prces s not attrbutabe to other years; but
f abnorma ncome has been determned by the method shown n the
ustraton n paragraph 5 above, or by any other metod not nvov-
ng fuctuatng prces, then no net abnorma ncome so determned w
be attrbutabe to the current ta abe year by vrtue of such ncreased
prces.
ach tem of net abnorma ncome attrbutabe to other years s
attrbutabe to (he years of e poraton, dscovery, or prospectng for
such tem n proporton to the rato of e pendtures for these actvtes
n eacb such year to ther tota for a years.
. ampe. The foowng e ampe w ustrate some of the
prncpes and methods descrbed above. The e ampe concerns ony
the petroeum e tracton phases of the operatons of a company whch
may aso operate a refnery or have other actvtes. The M O Com-
pany durng the ta abe year 1952 and pror years sod o, or trans-
ferred o to ts refneres at market prces, from ts varous propertes
as foows:
Item , dscovered by the ta payer n 1935 after more than 12
months e poraton; subessor s share of antcpated net earnngs
100,000; estmated reserves 1 mon barres (resut, 0 per
bb.); average annua producton 19 -51, 50,000 barres; reserves
e hausted n 19 9;
Item , dscovered by the ta payer n 19 after more than 12
months e poraton; subessor s share of antcpated net earnngs
500,000; estmated reserves 1 mon barres (resut, 500 per
bb.); average annua producton 19 -51, 50,000 barres; 1952
producton 0,000 barres;
Item C, dscovered by the ta payer n 1950 after more than 12
months e poraton; e poraton and dscovery costs 0,000 n
19 9 and 0,000 n 1950; subessor s share of antcpated net earn-
ngs 600,000; estmated reserves 1 mon barres (resut, 60# per
bb.); average annua producton 19 -51, 10,000 barres; 1952
producton 90,000 barres;
Property D, acqured from others n 19 0 after dscovery; aver-
age producton 19 -51,150,000 barres; 1952 producton 200,000
barres.
Tota assumed average annua producton 19 -51, 260,000 barres;
1952 tota producton 370,000 barres. ssume the market prce of
o n 1952 was 2.50 per barre. ssume aso that countrywde data
on o consumpton and e ports show that n 1952 the demand was 10
percent hgher than the average of the pror years.
Under the assumed facts, the net abnorma ncome computatons as
shown heren ensue.
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/ O Company, petroeum operatons, ta abe year 1952
Tota
925, 000
265, 000
660, 000
2 2, 500
17, 500
9 , 000
5 , 650
35, 350
0, 750
37. 606
15, 32
20, 020
20, 026
add
add
add
add
add
add
( )
add
( )
( )
( )
add 30,933
add 100
Prop. D
500, 000
100, 000
00, 000
137, 500
262, 500
None
None
None
Items . nd O
5
27, 000
7. 222
23, 550
76. 132
Item O
225, 000
125, 000
100, 000
50, 000
50, 000
5 , 000
6, 900
7, 100
23, 550
15, 2 6
25
13, 750
2 125
7, 3 3
23. 6
, 7 0
Item
200, 000
0, 000
100, 000
55, 000
105, 000
0, 000
2 , 750
11, 250
3, 67
Item
0
0
0
0
0
0
23, 000
0
0
b. Producton costs (ncudng, n ca e of tem C, ntangbe
drng costs ncurred n connecton wth e potaton n
1952).
d. Depeton aowance (27 of gross n tems 1 and D,
f. bnorma ncome n 1952 (1952 producton of each tem tmes
amount of abnorma ncome per barre).
g. 115 of abnorma ncome n pror years (average 19 51
. Percent of depeton aowance reatng to abnorma ncome
(f/c)
. Depeton aowance reatng to abnorma ncome ( d)
k. Percent of depeton aowance aocabe to e cess over 115
(h/f) ...
I. mount of depeton aowance aocabe to e cess over
115 (k |)
O. Net abnorma ncome tota (cass) aocated to tems by
percents n ne n ....
1. Not Income computatons
11. Net abnorma ncome computaton
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(Regs. 130, ( 0. 5 -7.
a
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Regs. 130, 0. 59(d)- .1 2 2
S CTION 59(d). MISC LL N OUS PRO ISIONS:
T L ISION RO DC STING COMP NI S
Reguatons 130, Secton 0. 59 (d) -1: Teevson T. D. 605
broadcastng companes.
( so Sectons 0. 59(d)-2, 0. 59(d)-3, 0. 59
(d)- , 0. 59(d)-5, 0. 59(d)-6, 0. 59(e)-;
Secton 35, Sectons 0. 35-0, 0. 35-7.)
TITr. 2 INT RN L R NU . C TT R I. SU C PT R . P RT 0.
C SS 1 RO TTS T ; T L Y RS NDINU FT R UN 30, 50
Reguatons 130 amended to confovn to secton 519 of the Revenue
ct of 1951, reatng to teevson broadcastng companes.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
On December 13, 1952, a notce of proposed ruemakng was pub-
shed n the Federa Regster 17 F. R. 113 71 to conform Reguatons
130 26 CFR, pt. 0 to secton 519 of the Revenue ct of 1951, ap-
proved October 20,1951. fter consderaton of such reevant sugges-
tons as were presented regardng the proposas, the amendments set
forth beow are hereby adopted.
Paragraph 1. Secton 0. 35-6(a) (1) s amended by nsertng at
the end thereof the foowng new sentence:
In the rase of a ta payer engaged n the teevson broadcastng busness whch
computes ts average base perod net ncome under secton 59(d), see secton
0. 59(d)-5(c).
Par. 2. Secton 0. 35-7(a) (2) s amended by nsertng at the end
thereof the foowng new sentence:
For rues appcabe n the case of a ta payer engaged n the teevson broad-
castng busness whch computes ts average base perod net Income under
secton 59(d), see secton 0. 59(d)-5(d).
Par. 3. There s nserted mmedatey after secton 0. 59(c)
1(d)( ) the foowng:
S C. 519. T L ISION IIRO DC STINO COMP NI S R NU
CT OF 1951, PPRO D OCTO R 20, 1951 .
Secton 59, as added by sectons 510 to 51 of ths ct, s hereby
amended by addng after subsecton (c) thereof the foowng new
subsectons:
(d) Teevson roadcastng Companes.
(1) In genera. In the case of a ta payer engaged In the
busness of teevson broadcastng throughout a perod begnnng
before anuary 1, 1951, and endng wth the cose of the ta abe
year, the ta payer s average base perod net Income determned
under ths subsecton sha be the amount computed under para-
graph (2) or (3), whchever s appcabe.
(2) If engaged n teevson broadcastng at cose of base
perod. If the ta payer was engaged n the busness of teevson
broadcastng at the cose of ts base perod, the average base perod
net ncome computed under ths paragraph sha be computed as
foows:
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2 3
Regs. 130, 0. 59(d)- .
( ) If the ta payer was engaged durng ts base perod
In any busness or busnesses other than teevson broadcast-
ng, by computng the average base perod net ncome under
secton 35(d) for such other busness or busnesses (deter-
mned wthout regard to Income, deductons, osses, or other
Items attrbutabe to the teevson broadcastng busness).
( ) y mutpyng such part of ts tota assets (as denned
In secton 2(f)) for the ast day of ts base perod, as was
attrbutabe to the teevson broadcastng busness by
() the base perod rate of return determned under
secton 7(c) for the ndustry cassfcaton whch ncudes
rado broadcastng, or
() f the ta payer was engaged durng ts base perod
n the busness of rado broadcastng, ts Indvdua rate
of return computed under paragraph ( ),
whchever rate of return produces the greater average base
perod net ncome under ths subsecton. If the amount com-
puted under ths subparagraph Is computed by the use of the
rate of return specfed In cause (), the amount so computed
sha be reduced by an amount equa to such porton of tbe
tota nterest pad or ncurred by the ta payer, for the perod
of 12 mouths foowng the cose of ts nse perod, as Is
attrbutabe to ts teevson broadcastng busness.
(C) y addng the amount computed under subparagraph
( ) to the amount, f any, computed under subparagraph ( ).
(3) COMM NCI.NO T L ISION RO DC STING T S P On MI
before as. If the ta payer acqures ts teevson broadcastng
busness after the cose of ts base perod and before anuary 1,11)51,
the average base perod net ncome computed under ths paragraph
sha be computed as provded In paragraph (2), e cept that
( ) the appcabe rate of return under paragraph (2)( )
sha be mutped by such part of ts tota assets (as defned n
secton 2(f)), for the ast day of the caendar month n whch
t frst engaged n such busness, as was attrbutabe to such
busness, and
( ) the reducton specfed n the ast sentence of para-
graph (2) ( ) sha, f appcabe, be equa to such porton of
the tota nterest pad or ncurred by the ta payer, for the
perod of 12 months foowng the month In whch t frst en-
gaged n such busness, as s attrbutabe to such busness.
( ) Indvdua rate of return. The ndvdua rate of return
sha be computed as foows:
( ) y determnng the amount of the ta payer s tota
assets (as defned n secton 2(f) attrbutabe to the busness
of rado broadcastng for the ast day of each month In ts
base perod.
( ) y computng the aggregate of the amounts ascertaned
under subparagraph ( ) and dvdng by .
(C) y computng for each month n the base perod the e -
cess profts net ncome of the rado broadcastng busness (de-
termned wthout regard to Income, deductons, osses, or other
tems attrbutabe to any other busness), by addng such
amounts for a of the months n the base perod, and by dvdng
(D) y dvdng the amount computed under subparagraph
(C) by the amount computed under subparagraph ( ).
(5) uks fob appcaton of subsecton.
( ) For the purpose of secton 35(a) (1) ( ), an average
base perod net ncome determned under ths subsecton s, der
consdered an average base perod net Income deternnea u
secton 35(d) ; but, n computng the base perod capta
ton under secton 35(f), the computatons und su retary,
sha be ad|usted, under reguatons prescrbed by the
so as to e cude therefrom tems attrbutabe to tbe w
broadcastng busness.
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Regs. 130, 0. 59(d)- . 2
( ) If any part of the tota assets referred to In paragraph
(2)( ) or paragraph (3) ( ), whchever s appcabe, were
acqured, drecty or ndrecty, through the use of assets at-
trbutabe at any tme durng the base perod to a busness of
the ta payer other than teevson broadcastng, the amount
determned under paragraph (2) ( ) sha be propery ad|usted
by emnatng from the e cess profts net ncome (computed
for the purpose of paragraph (2) ( )) for each month pror to
such acquston such porton thereof as s attrbutabe to the
assets used, drecty or ndrecty, for such acquston. For the
purpose of ths subparagraph, the e cess profts net ncome for
any month sha be attrbuted to such assets on the bass of the
rato, as of the begnnng of the day of the acquston, of such
assets to tota assets (as defned n secton 2(f)) determned
wthout regard to assets attrbutabe to the teevson broad-
castng busness.
(C) The Secretary sha by reguatons prescrbe rues for
the appcaton of ths subsecton, Incudng rues for the compu-
taton of the ta payer s net capta addton or reducton.

S C. 523. FF CTI D T OF TITL R NU CT OF
1051, PPRO D OCTO R 20, 1951 .
cept as otherwse provded n secton 500(d), the amendments made
by ths tt e ncudng sec. 519 sha be appcabe ony wth respect to
ta abe years endng after une 30, 1950.
Sec. 0. 59(d)-1. Teevson roadcastng Companes In Genera. (a)
corporaton whch was engaged n the busness of teevson broadcastng
throughout a perod begnnng before anuary 1, 1951, and endng wth the cose
of an e cess profts ta ta abe year may compute ts average base perod net
tcome for the purpose of determnng ts e cess profts ta for such ta abe
year under secton 59(d) nstead of under any other appcabe provson of the
Code. The average base perod net ncome computed under secton 59(d) sha
be the amount computed under paragraph (2) of secton 59(d) and under
secton 0. 59(d)-2 f the ta payer was engaged n the busness of teevson
broadcastng at the end of ts base perod, and sha be the amount computed
under paragraph (3) of secton 59(d) and under secton 0. 59(d)-3 f the
ta payer dd not acqure ts teevson broadcastng busness unt after the cose
of ts base perod. In no event sha the beneft of secton 59(d) be avaabe,
however, uness the ta payer was engaged n the teevson broadcastng busness
before anuary 1, 1951. The amount determned as the average base perod net
ncome under secton 59(d) sha be used as the average base perod net ncome
n computng the e cess profts ta for any ta abe year endng after une 30,
1950, f the ta payer contnued n the busness of teevson broadcastng through
the end of such ta abe year, and f the use of such amount computed under
secton 59(d) as the average base perod net ncome woud resut n a esser
e cess profts ta for such ta abe year than woud resut under any other
aowabe computaton of such ta .
(b) ta payer whch docs not actuay broadcast teevson w not be con-
sdered to be engaged n the teevson broadcastng busness even though It s
engaged n a busness whch s reated to teevson broadcastng, such as adver-
tsng, the manufacturng of teevson equpment, or the preparaton and sae
of teevson programs. ta payer whch s engaged In the teevson broad-
castng busness and aso In any other busness or busnesses, however, may be
entted to the beneft of secton 59(d).
Sec. 0. 59(d)-2. Computaton of verage ase Perod Net Income f Ta -
payer Was ngaged n Teevson roadcastng at Cose of ase Perod. If
the ta payer was engaged n the busness of teevson broadcastng at the cose
of Its base perod, Its average base perod net ncome determned under secton
59(d) sha be computed as foows:
(a) If the ta payer was engaged durng ts base perod n any busness
or busnesses other than teevson broadcastng, Its average base perod net
ncome for sucb other busness or busnesses sha be computed under secton
35(d) and secton 0. 35-(d), reatng to the computaton of average base
perod net ncome under the genera average method. The determnaton of
the average base perod net ncome of such busness or busnesses other than
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2 5
Regs. 130. 0. 59(d)- .
teevson broadcastng sha be made wthout regard to any ncome, deduc-
tons, osses, or other tems whch are attrbutabe to the teevson broad-
castng busness. See secton 0. 59(d)-5(a). If the ta payer was not
engaged durng ts base perod n any busness other than teevson broad-
castng, the amount determned under ths paragraph sha be zero. See
secton 0. 59(d)-5(b) for ad|ustment of the amount computed under ths
paragraph where assets attrbutabe to the teevson broadcastng busness
were acqured, drecty or ndrecty, through the use of assets attrbutabe
at any tme durng the base perod to a busness other than the teevson
broadcastng busness.
(b) Such part of the ta payer s tota assets for the ast day of Its base
perod as was attrbutabe to the teevson broadcastng busness sha be
mutped
(1) by the base perod rate of return determned under secton 17(c)
for the ndustry cassfcaton whch ncudes rado broadcastng, and the
amount so determned sha then be reduced by an amount eo.ua to such
porton of the tota nterest pad or ncurred by the ta payer for the
perod of 12 months foowng the cose of ts base perod as s attrbuta-
be to ts teevson broadcastng busness, or
(2) f the ta payer was engaged durng ts base perod n the busness
of rado broadcastng, by ts ndvdua rate of return computed under
secton 59(d)( ) and secton 0. 59(d)- ,
whchever produces the greater average base perod net ncome under secton
59(d) and ths secton.
(c) The amount, f any, computed under secton 59(d) (2) ( ) and under
(a) of ths secton sha he added to the amount computed under secton
59(d) (2) ( ) and under (b) of ths secton.
The amount determned under (c) of ths secton that s, the tota of the
amounts determned nnder (a) and (b) of ths secton sha be the average base
perod net ncome computed under secton 59(d) of a ta payer whch was engaged
n the teevson broadcastng busness at the cose of ts base perod.
Sec. 0. 59(d)-3. Computaton or verage ase Perod Net Income f Ta -
pater Commenced Teevson roadcastng fter Cose or ase Perod and
efore 1051. If the ta payer dd not acqure ts teevson broadcastng busness
unt after the cose of Its base perod (but before anuary 1, 1951), ts average
base perod net ncome determned under secton 59(d) sha be computed n the
same manner as provded n secton 59(d)(2) and secton 0. 50(d)-2 as n
the case of a ta payer whch was engaged n the teevson broadcastng busness
at the cose of ts base perod, e cept that
(a) the appcabe rate of return specfed n secton 59(d)(2)( ) and
secton 0. 50(d)-2(b) sha be mutped by such part of the ta payer s
tota assets for the ast day of the caendar month n whch t frst engaged
In the teevson broadcastng busness (nstead of for the ast day of ts base
perod) as was attrbutabe to such teevson broadcastng busness: and
(b) the reducton for Interest specfed n the ast sentence of secton
59(d) (2) ( ) and n secton 0. 50(d)-2(b) (1) sha, f appcabe, be equa
to that porton of the tota nterest pad or ncurred by the ta payer for the
perod of 12 months foowng the month n whch t frst engaged n the tee-
vson broadcastng busness (nstead of for the perod of 12 months foowng
the cose of ts base perod) as s attrbutabe to such teevson broadcastng
busness.
Sec. 0. 59(d)- . Indvdua Rate of Return. The ndvdua rate of return,
for the purpose of the computatons provded n sectons 59(d) (2) ( ) () and
0. 59(d)-2(b) (2) and n sectons 59(d) (3) ( ) and 0. 59(d)-3(a), n the case
of a ta payer whch was engaged n the busness of rado broadcastng durng Its
base perod, sha be computed as foows:
(a) The ta payer s tota assets attrbutabe to ts rado broadcastng bus-
ness for the ast day of each month n ts base perod sha be determned.
See secton 0. 59(d)-5(a) for rues for the determnaton of the busness to
wrhch assets are attrbutabe,
(b) The amounts determned under (a) of ths secton sha be added
together and the aggregate dvded by .
(c) The e cess profts net ncome for each month n the base perod
attrbutabe to the rado broadcastng busness sha be computed, such
e cess profts net ncome beng determned wthout regard to ncome, deduc-
tons, osses, or any other tems attrbutabe to any busness other than the
rado broadcastng busness (see secton 0. 59 (d) -5 (a)). Such amounts of
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Regs. 130, 0. 50(d)- .
2 (3
e cess profts net Income attrbutabe to the rado broadcastng busness for
each month n the base perod sha be added together and the tota of such
amounts then dvded by . The e cess profts net ncome for any month
attrbutabe to the rado broadcastng busness, for the purpose of (c) of ths
secton, sha be the e cess profts net Income or defct n e cess profts net
ncome, as the case may be, attrbutabe to such busness for the ta abe year
n whch such month fas dvded by the number of caendar months n such
year.
(d) The amount computed under (c) of ths secton sha be dvded by the
amount computed under (b) of ths secton. That Is, the aggregate, dvded
by , of the e cess profts net Income attrbutabe to the rado broadcastng
busness for each month n the base perod sha be dvded by the aggregate,
dvded by , of the ta payer s tota assets attrbutabe to the rado broad-
castng busness for the ast day of each month n the base perod. The
resutng fgure sha be the ta payer s ndvdua rate of return.
Sec. 0. 59(d)-5. Rues for ppcaton op Secton 59(d). (a) Determna-
ton of busness to whch tems are attrbutabe. (1) the determnaton, for
th | purpose of secton 59(d) and sectons 0. 59(d)- through 0. 59(d)-5,
whether any ncome, deductons, osses, nterest, assets, or any other tems are
attrbutabe to the teevson broadcastng busness, to the rado broadcastng
busness, or to any other busness sha be made n such manner as w ceary
refect the ncome attrbutabe to each such busness, and, n the case of assets,
w refect the e tent to whch assets are u.-ed n, or devoted to, the busnesses
of the ta payer. dmnstratve e penses, for e ampe, n the case of a ta payer
whch s engaged n the teevson broadcastng busness and aso n some other
busness or busnesses may not be attrbuted to any one busness but sha be
propery aocated among the varous busnesses of the ta payer. If an asset s
used n or devoted to the teevson broadcastng busness, or the rado broad-
castng busness, and aso some other busness, such asset sha not be ncuded
at an amount equa to ts fu ad|usted bass n determnng at any tme the tota
assets of the ta payer whch are attrbutabe, as the case may be, to the teevson
broadcastng busness or to the rado broadcastng busness. In such case, proper
ad|ustment sha be made to refect the fact that such asset drecty or ndrecty
Is used n or devoted to, or s part of, the teevson broadcastng busness, the
rado broadcastng busness, or some other busness. Smary, proper ad|ust-
ment sha aso be made n the case of any other tems (ncudng, for e ampe,
nterest) as are attrbutabe to more than one busness.
(2) () For the purpose of the ad|ustment provded n secton 59(d) (5) ( )
and n (b) of ths secton, for the purpose of computng the ndvdua rate of
return provded n secton 59(d)( ). and for the purpose of computng an
average base perod net ncome under secton 59(d) (2) ( ) for the busness or
busnesses of the ta payer other than the teevson broadcastng busness, f
cash or other qud assets were n fact set asde pursuant to a resouton of the
board of drectors of the ta payer or other corporate acton for the purpose of
acqurng assets to be used u the teevson broadcastng busness, the settng
asde of such assets sha be consdered the acquston, on the date the assets
were set asde, of assets attrbutabe to the teevson broadcastng busness.
() The rues provded n () sha aso appy to cash or other qud assets
not so set asde to the e tent that the ta payer estabshes to the satsfacton
of the Commssoner that such cash or other qud assets were hed for the
purpose of acqurng assets to be used n the teevson broadcastng busness (for
e ampe, through desgnaton n the accountng records of the ta payer) and that
such cash or other qud assets had no matera effect upon the e cess profts net
ncome durng the base perod of the busness or busnesses of the ta payer other
than teevson broadcastng. Such cash or other qud assets sha be deemed
to have been set asde for the purpose of acqurng assets to be used n the
teevson broadcastng busness on the date whch the ta payer so estabshes
as the date that such cash or other qud assets were frst hed for ths purpose.
() The rues provded n (I) and () sha not appy to any assets theren
descrbed whch were used for a purpose other than that for whch they were
set asde.
(b) d|ustment of average base perod net ncome of busness other than
teevson broadcastng busness. ()If any part of the tota assets attrbutabe
to the teevson broadcastng busness whch were hed by the ta payer on the
date as of whch the appcabe rate of return Is to be apped to ts teevson
broadcastng assets was acqured, drecty or Indrecty, through the use of assets
whch were attrbutabe at any tme durng the base perod to a busness of the
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2 7
(Regs. 130, 0. 59(d)- .
ta payer other than the teevson broadcastng busness, an ad|ustment, as
provded n secton 59(d) (5) ( ), must be made n determnng under secton
59(d)(2)( ) the average base perod net ncome, f any, of the ta payer s
nonceevson broadcastng busness or busnesses. See (3) beow for rues wth
respect to the crcumstances n whch such ad|ustment s requred. The con-
verson n whoe or n part of assets attrbutabe to a busness other than the tee-
vson broadcastng busness to use n the teevson broadcastng busness sha be
consdered for the purpose of secton 59(d) and of ths secton, to the e tent of
such converson, to be an acquston of teevson broadcastng assets by the use
of assets attrbutabe to a busness of the ta payer other than ts teevson
broadcastng busness. In determnng the e tent of such converson, appropr-
ate aowance sha be made for offsettng effects of converson n whoe or n
part of assets attrbutabe to the teevson broadcastng busness to use n a
busness other than the teevson broadcastng bnsness.
(2) If an ad|ustment t. requred under the provsons of secton 59(d) (5) (1 )
and of (b) of ths secton wth respect to any acquston of assets attrbutabe
to the teevson broadcastng bnsness, then n determnng tbe average base
rerod net ncome under secton 59(d) (2) ( ) of such nonteevson broadcast-
ug busness or busnesses there sha be e cuded from the e cess profts net
Income for each month pror to any such acquston such porton of such
e cess profts net ncome as s attrbutabe to tbe assets used, drecty or n-
drecty, for such acquston. In determnng the amount whch s to be e -
cuded from the e cess profts net ncome for any month, under the provsons
ot secton 59(d) (5) ( ) and of (b) (2) of ths secton, the part of the e cess
profts net ncome attrbutabe to any assets whch were used, drecty or n-
drecty, to acqure assets attrbutabe to the teevson broadcastng busness
sha be determned on the bass of tbe rato, as of the begnnng of the date
of acquston, of such assets whch were so used to the tota assets of the ta -
payer other than ts assets attrbutabe to the teevson broadcastng busness.
If the acquston took pace on any day other than the frst day of a caendar
month, the ad|ustment fcr the month n whch the acquston took pace sha
be reduced to an amount determned on the bass of the rato of the number of
days n such month pror to the day on whch the acquston was made to the
tota number of days n such month.
(3) The ad|ustment provded n secton 59(d) (5) ( ) and n (b) of ths
secton s requred n any case n whch an average base perod net ncome
for a busness or busnesses of the ta payer other than ts teevson broad-
castng busness s computed under secton 59(d) (2) ( ) e cept to the e tent
that teevson broadcastng assets were acqured by tbe ta payer through a
bona fde ong-term ncrease n ts capta structure made n con|uncton wth
and for the purpose of such acquston. bona fde ong-term ncrease n
the capta structure wthn the meanng of (b) (3) of ths secton (whether
an ncrease n equty capta or n borrowed capta as defned n secton 39(b))
sha be deemed to have occurred ony to the e tent that such ncrease s re-
fected n tbe capta structure throughout the perod begnnng wth the tme
such ncrease was orgnay made and endng wth the cose of the ta abe
year for whch the ta s beng computed. For the purpose of determnng
whether such ncrease s refected n the capta structure, proper ad|ustment
sha be made to emnate the effect of any oss occurrng after the orgna
Increase s made, and, n the case of such determnaton as of any tme durng
a ta abe year, the determnaton sha be made wthout regard to the earnngs
nnd profts of such ta abe year. If the ncrease n the capta structure s
the resut of a part II transacton, (b) (3) of ths secton and secton 0. 02-
9(b)(1)( ) sha be apped n the ght of the facts appcabe both to the
ta payer and to the component corporaton n such transacton. For the pur-
pose of (b)(3) of ths secton, an ncrease n the capta structue does not
resut from the converson of nadmssbe assets nto admssbe assets or from
the accumuaton of earnngs and profts pror to the begnnng of the frst ta -
abe year whch begns after the date of the acquston. If the assets of the
teevson broadcastng busness were acqured party n the manner descrbed
n (b) (3) of ths secton and party n another manner the ad|ustment sha
be made to the e tent the acquston was made n such other manner.
(c) Computaton of base perod capta addton. The average base perod
net ncome under secton 59(d) sha be consdered, for the purpose of secton
35(a)(1)( ), to be an average base perod net Income computed under sec-
ton 35(d) whch provdes for the computaton of the average base perod net
ncome under the genera average method. The basa perod capta addton
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Regs. 130, 0. 59(d)- . 2
provded In secton 35(f) accordngy w be aowed In any case n whch
the average base perod net ncome computed under secton 59(d) s used n
determnng the e cess profts ta for any e cess profts ta ta abe year, but
such base perod capta addton sha be aowed ony wth respect to the
ta payer s busness or busnesses other than ts teevson broadcastng busness.
The foowng rues sha be appcabe In computng the base perod capta
addton n the case of a ta payer whch computes ts average base perod net
ncome under secton 59(d) :
(1) In computng the yeary base perod capta as of any day, there sha
be e cuded from each tem n the computaton (such as assets, abtes,
borrowed capta, or the ad|ustment for nterest) any amount attrbutabe
or aocabe to the assets of the teevson broadcastng busness hed on
such day.
(2) If an ad|ustment s requred to be made under secton 59(d) (5) ( )
wth respect to assets of the ta payer used drecty or ndrecty to acqure
teevson broadcastng assets, the amount of the ad|usted bass of assets
wth respect to whch such ad|ustment Is requred sha be e cuded from
assets of the ta payer n computng equty capta as of any day pror to
such acquston. Such further ad|ustments sha be made In computng
other tems (such as abtes, borrowed capta, or the ad|ustment for
nterest) n the determnaton of yeary base perod capta as of such day
as are, under generay accepted accountng prncpes, consstent wth the
emnaton of such amount from tota assets.
(3) In makng computatons necessary for the determnaton of yeary
base perod capta for any ta abe year, such computatons sha be made,
under the rues and prncpes set forth n (a) of ths secton, n the ght
of a the facts of the partcuar case and consstent wth the purpose of
restrctng the base perod capta addton to the busness or busnesses
of the ta payer other than ts teevson broadcastng busness and the avod-
ance of any dupcaton n the computaton of such base perod capta
addton.
(d) Compuaton of net capta addton or reducton. (1) In the case of a
ta payer whch was engaged n the busness of teevson broadcastng at the
cose of ts base perod, the net capta addton or reducton, provded n secton
. 5(g), sha be computed In the same manner as n te case of any ta payer
whch computes ts average base perod net Income under the genera average
method provded n secton 35(d). See sectons 0. 37-G and 0. 37-7.
(2) In the case of a ta payer whch dd not acqure ts teevson broadcastng
busness unt after the cose of ts base perod (but before anuary 1, :)51),
the net capta addton or reducton, provded n secton 35(g), sha be deter-
mned n the same manner as n the case of any ta payer whch computes Its
average base perod net ncome under the genera average method provded n
secton 35(d) (see sectons 0. 37-6 and 0. 37-7), e cept that the foowng
ad|ustment sha be made:
(I) There sha e determned the amount of any proceeds obtaned from
borrowng, from the Issuance of capta stock, as pad-n surpus, as a con-
trbuton to capta, or n any other manner, on or after the frst day of the
ta payer s frst ta abe year endng after une 30, 1950, and before the
frst day of the frst caendar month foowng the caendar month n whch
the ta payer frst engaged n the teevson broadcastng busness.
() There sha he determned the e cess of (n) the amount of the ta -
payer s assets attrbutabe to the teevson broadcastng busness as of the
ast day of the caendar month n whch the ta payer frst engaged n the
teevson broadcastng busness over (h) the amount of the ta payer s
assets wth respect to whch an ad|ustment Is requred under the provsons
of secton 59(d) (5) ( ) and of (b) of ths secton.
(I) The amount determned under (), but not more than the amount
determned under (), sha be consdered, for the purpose of any compu-
tatons necessary for the determnaton of the net capta addton or reduc-
ton, to have been obtaned pror to the frst day of the ta payer s frst ta abe
year endng after une 30, 1950.
Sec. 0. 59(d)-6. Defntons. For the purpose of secton 59(d) and sec-
tons 0. 59(d)- through 0. 59(d)-5
(a) The term tota assets sha have the same meanng as n sectons
12(f) and 0. 2 3(d) (1),
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2 0
IRegs. 130, 0. 61-7.
(b) The amount of an asset n the case of property other than money
sha be an amount equa to the ad|usted bass of such property for deter-
mnng gan on the sae or e change thereof, ard n the case of money
sha be the amount thereof.
C. 51 ). T L ISION RO DC STING COMP NI S R NU
CT OF 901, PPRO D OCTO R 20, 1051 .
Secton 59, as added by sectons 516 to 51 of ths ct, Is hereby
amended by addng after subsecton (c) thereof the foowng new
subsectons:

(e) ass of ssets. For the purposes of ths secton, any refer-
ence to the ad|usted bass of property or to the bass (unad|usted)
of property means the ad|usted bass or the bass (unad|usted), as the
case may be, for determnng gan upon sae or e change.
S C. 523. FF CTI D T OF TITL LR NU CT OF
1051, PPRO D OCTO R 20, 1051 .
cept as otherwse provded n secton 500(d), the amendments
made by ths tte ncudng sec. 510 sha be appcabe ony wth
respect to ta abe years endng after une 30, 1 )50.
Skc. 0. 50(e)-1. ass of ssets. For the purpose of secton 59 (ncudng
a subsectons thereof) and the reguatons thereunder, any reference to the
ad|usted bass of property or to the bass (unad|usted) of property means the
ad|usted bass or the bass (unad|usted), as the case may be, of such property for
determnng gan upon the sae or e change thereof.
(Ths Treasury Decson s ssued under the authorty contaned n
sec. 62 of the Interna Revenue Code (53 Stat. 32; 20 U. S. C. 62) and
n sec. 59(d) of the Interna Revenue Code as added by sec. 519 of
the Revenue ct of 1951 (Pubc Law 1 3, 2d Cong., approved Octo-
ber 20, 1951).)
T. Coeman ndrews,
Commssoner of I|terna Revenue.
pproved November 27, 1953.
M. . Fosom,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster December 2, 1953, :52 a. m.)
F RT II. C SS-PROFITS CR DIT S D ON INCOM IN CONN CTION WIT
C RT IN C NG S
S CTION 61. D FINITIONS
Reguatons 130, Secton 0. 61-2: cqurng
corporatons.
INT RN L R NU COD
Requrements of adequate and separate records. (See Rev. Ru.
201, p. 251.)
Reguatons 130, Secton 0. 61-7: Provsons Rev. Ru. 1 6
generay appcabe under Part II.
( so Secton 6 , Secton 0. 6 -1; Secton
35, Secton 0. 35-6.)
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Regs. 130, 0. 61-7.
250
INT N L R NU COD
The base perod capta addton of a component corporaton
In a transacton descrbed n secton 61(a) (1) ( ) of the Interna
tevenue Code whch occurred durng the caendar year 11M (the
second precedng ta abe year), sha be computed as though the
component corporaton were an acqurng corporaton, and ts yeary
base perod capta for the second precedng ta abe year sha be
determned as of the day foowng the transacton.
dvce s requested reatve to the proper method of computng the
base perod capta addton of a component corporaton n a trans-
acton descrbed n secton 01(a)(1)( ) of the Interna Revenue
Code reatng to e cess-profts credts based on ncome n connec-
ton wth ta -free e changes.
In 19 the ta payer corporaton transferred cash to another
corporaton n return for a of ts capta stock. In ths transacton
the corporaton to whch the cash was transferred became the acqur-
ng corporaton and the ta payer became ts component, wthn
the meanng of secton C1 of the Code.
In computng the base perod capta addton of the acqurng
corporaton, the yeary base perod capta for the second precedng
ta abe year s to be determned as of the day foowng the transacton.
See sectons 35(f) and 0 (b)(2) of the Code. The queston pre-
sented s the proper date for determnng the yeary base perod
capta for the second precedng ta abe year of the component
corporaton n the computaton of ts base perod capta addton
under secton 35(f) of the Code.
Part II of subchapter D of chapter 1 of the Code appes not ony
n the determnaton of that porton of the component corporaton s
e perence whch s avaabe to an acqurng corporaton after a
sptup, but aso to that porton of such e perence whch the com-
ponent corporaton (f t contnues n e stence) may use after the
sptup. The prncpes appcabe n determnng the porton of
e perence retaned are the same as the prncpes appcabe n deter-
mnng the porton of the e perence transferred to the acqurng cor-
poraton. Secton 0. 01-7 (c) of eguatons 130 provdes that the
e cess-profts credt of a component corporaton s a transacton
descrbed n secton 01(a) (1) ( ) of the Code sha be computed as
though such component corporaton were an acqurng corporaton
recevng n such transacton the propertes whch t n fact retaned.
See T. D. 5 05, C. . 1951-2, 97; and T. D. 0017, C. . 1953-1, 30 .
Ths rue carfes secton 01(c) (3) and ( ) of the Code as regards
transacton where the average base perod net ncome of the compo-
nent corporaton and base perod capta addton s not aready deter-
mned at the tme of the transacton and makes certan the rghts
of such component corporatons under secton 35 (e), (f), and (g),
and sectons 2 through 0 of the Code.
In vew of the foregong, t s hed that the base perod capta add-
ton of the component corporaton s to be computed under secton
35(f) of the Interna Revenue Code as though t were an acqurng
corporaton, and ts yeary base perod capta for the second precedng
ta abe year determned, as provded n secton 0 (b) (2) of the Code,
as of the day foowng the transacton.
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251
Regs. 130, 0. 7 -1.
S CTION 62. R G S P RIOD N T
INCOM D T RMIN TION
Reguatons 130, Secton 0. 62-9: ocaton
rues n the case of Part II transactons de-
scrbed n secton 61(a) (1) ( ).
INT RN L R NU COD
Requrements of adequate and separate records. (See Rev. Ru.
201, beow.)
S CTION 6 . C PIT L C NG S DURING T
S P RIOD
Reguatons 130, Skcton 0. 6 -1: ase perod
capta addtons under Part II.
INT RN L R NU COD
Date for determnng yeary base perod capta for second preced-
ng ta abe year of component corporaton treated as acqurng corpo-
raton n case of part II transacton. (See Rev. u. 1 6, p. 219.)
P RT I . C SS-PROI ITS CR DIT S D ON INCOM IN CONN CTION WIT
C RT IN T L C UISITIONS OCCURRING PRIOR TO D C M R I. 1950
S CTION 7 . C SS-PROFITS CR DIT S D ON
INCOM -C RT IN T L C UISITIONS
Reguatons 130, Secton 0. 7 -1: Purpose Rev. Ru. 201
and scope of Part I .
( so Secton C1, Secton 0. 61-2; Sec-
ton 62, Secton 0. 62-9.)
INT RN L revenue code
Records of the predecessor whch are suffcenty separate to
permt a reasonabe dentfcaton of the base perod e perence
attrbutabe to the propertes acqured In a part II or part I trans-
acton w satsfy the requrements for adequate and separate
records of sectons 0. 01-2(a) ( ), 0. 02-0 (b)(1). and 0. 7 -1
(b) (2) of Reguatons 130.
dvce s requested whether record: from whch earnngs attrb-
utabe to a separate busness unt can be ascertaned, athough such
busness unt records are not separate and ndependent from the
records of other busness unts, are suffcent to meet the adequate and
separate records requrement of sectons 0. 61-2(a) ( ), 0. 62-9
(b) (1), and 0. 7 -1 (b) (2) of Reguatons 130.
For the purposes of each of these sectons there s the requrement of
the e stence of a gong busness unt for whch adequate and separate
records were mantaned. It s recognzed that n many nstances the
records reatng to a busness unt may not be mantaned competey
separate and ndependent from the records of other busness unts
2 070 s 5 17
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Regs. I, 29.500-1.
252
operated by the ta payer, but that nevertheess, the earnngs attrb-
utabe to such busness unt can be reasonaby ascertaned from the
records avaabe. The determnaton of the adequacy of the records
avaabe for such purpose must of necessty be a matter of case by
case anayss.
It s not ntended to requre an absoute separaton of a records
pertanng to each busness. In the case of a soe propretorshp no
record of a saary for the soe propretor s key to be found. In
the case of a corporaton, admnstratve e penses and saares of the
presdent and other prncpa offcers w ordnary not be aocated
to each busness. In such cases an aocaton and separaton woud
generay be proper. On the other hand, where ony the property
accounts of the busnesses are separatey mantaned, the test woud not
ordnary be met. If the ncome and e pense accounts are mantaned
separatey but the property accounts are ntermnged, the separate-
ness of the ncome fgures may be suffcent f the property accounts
can be ready separated.
The requrement of sectons 0. 7 -1 (b) (2), 0. 61-2(a) ( ), and
0. 62-9 (b) (1) of Reguatons 130, regardng adequate and separate
records, may be met even though competey separate records have not
been mantaned f the records of the predecessor are adequate to
permt a reasonabe dentfcaton at a pertnent tmes of the base
perod e perence attrbutabe to the propertes acqured n the part
II or part I transacton.
SU C PT R . T ON S LF- MPLOYM NT INCOM
S CTION 1. D FINITIONS
Reguatons 111, Secton 29. 1-1: Net
earnngs from sef-empoyment.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. 6021, p. 169.)
C PT R 2. DDITION L INCOM T S
SU C PT R .-P RSON L OLDING COMP NI S
S CTION 500.-SURT ON P RSON L OLDING
COMP NI S
Reguatons 111, Secton 29.500-1: Surta
on persona hodng companes.
INT RN L R NU COD
ppcaton of denquency penaty n case of faure to fe Form
1120 . (See Rev. Ru. 172, p. 226.)
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253 Regs. 105, 1.10.
C PT R 3. ST T T
SU C PT R . SIC ST T T
P RT II. ST T S OF CITIZ NS OR R SID NTS OF T UNIT D ST T S
SU P RT I.-COMPUT TION OF T
S CTION 11.-GROSS ST T
Reguatons 105, Secton 1.10: auaton Rev. Ru. 156
of property.
( so Secton 22, Secton 1.7 .)
INT RN L R NU COD
To the e tent that marketabe Unted States Treasury bonds
owned by a decedent at death may be apped at par n payment of
Federa estate ta es, the par vaue thereof or ther mean quoted
seng prce at the tme of hs death (and accrued nterest to the
date of death), whchever s hgher, consttutes the vaue at whch
such bonds are ncudbe n hs gross estate for Federa estate ta
purposes. s to bonds n e cess of the amount whch may be so
apped, ther mean quoted prce at the tme of death (and accrued
nterest to the date of death) w be the vaue at whch they are
ncudbe In the decedent s gross estate fur Federa estate ta
purposes.
Procedure, for effectng such appcaton of the bonds, Indcated.
dvce s requested as to vauaton, for Federa estate ta purposes,
cf marketabe Unted States Treasury bonds owned by a decedent
whch may be apped at par n payment of Federa estate ta es, and
as to procedure for effectng such appcaton of the bonds.
arous Treasury Department crcuars provde that certan mar-
ketabe (transferabe and negotabe) and nterest-bearng Unted
States Treasury bonds, whch upon the death of the owner consttute
part of hs gross estate, may be redeemed at the opton of the duy
consttuted representatves of the deceased owner s estate at par vaue
(face, prncpa, amount), pus accrued nterest to the date of pay-
ment, provded that the bonds were owned by the decedent at the tme
of hs death and that the Secretary of the Treasury be authorzed to
appy the entre proceeds of redempton to the payment of Federa
estate ta es. recent Treasury statement of the pubc debt ndcates
that the foowng ssues of such Treasury bonds so redeemabe are
outstandng: 21 percent 1956-59 dated February 1,19 ; 2 percent
1959-62 dated une 1, 19 5; 2 percent 1959-62 dated November 15,
19 5; 2y2 percent 1962-67 dated May 5, 19 2; 2y2 percent 1963-6
dated December 1, 19 2; 2y2 percent 196 -69 dated pr 15, 19 3;
21/2 percent 196 -69 dated September 15, 19 3; 2 percent 1965-70
dated February 1, 19 ; 2y2 percent 1966-71 dated December 1, 19 ;
2 2 percent 1967-72 dated une 1, 19 5; 2y2 percent 1967-72 dated
November 15,19 5; and 31 percent 197 - 3 dated May 1, 1953.
In ths connecton t s to be noted that, where a bond s n a denom-
naton too arge for appcaton of the entre proceeds n payment of
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Regs. 105, 1.10.1
25
Federa estate ta es due from the estate of a deceased owner, denom-
natona e change w be permtted n order that bonds totang the
denomnatona amount (ncudng accrued nterest) ne t ower than
the ta abty may be avaabe for such purpose. For e ampe, f a
bond of the par vaue of 10,000 s to be apped n payment of a Fed-
era estate ta abty of 6, 00 and the owest denomnaton n whch
such bonds are ssued s 500, the bond w be redeemed to the e tent of
6,500 par vaue for appcaton toward payment of the ta abty.
onds totang 3,500 par vaue w be ressued for the amount of
the bond n e cess of the porton thereof ( 6,500 par vaue) apped n
pavment of Federa estate ta .
The bonds shoud be submtted for redempton and appcaton to
payment of Federa estate ta by the decedent s e ecutors or ad-
mnstrators to the ureau of the Pubc Debt (Dvson of Loans and
Currency), Treasury Department, Washngton 25, D. C, drecty or
through a Federa Reserve bank (the bonds beng not drecty accept-
abe by a dstrct drector of nterna revenue). Such ureau has
ndcated that, n order to secure proper payment and credt, the
bonds shoud reach t at east 3 fu weeks before the date upon whch
credt to the dstrct drector s account s desred, athough, uness
otherwse requested; payment and credt w be made as soon as pos-
sbe foowng recept of the bonds. The Treasury Department cr-
cuars offerng the bonds generay provde that they shoud be
accompaned for such ta payment redempton by Form PD 17 2 prop-
ery competed, sgned, and sworn to, and by a certfcate of appont-
ment of the representatves of the decedent s estate, under sea of court,
dated not more than 6 months pror to the submsson of the bonds
and showng that at the tme thereof the appontment was st n fu
force. Copes of Form PD 17 2 may be obtaned from the ureau of
the Pubc Debt or any Federa Reserve bank.
Secton 11 of the Interna Revenue Code provdes that The vaue
of the gross estate of the decedent sha be determned by ncudng the
vaue at the tme of hs death of a property , and the regua-
tons (secton 1.10(a) of Reguatons 105) provde that The vaue
of every tem of property ncudbe n the gross estate s the far
market vaue thereof at the tme of the decedent s death; . In
the absence of any e press provson to the contrary, t s cear that
the ncudbe vaue, wthn the meanng of that term as used n
the Code, s that whch passes by vrtue of the decedent s death and,
hence, the words at the tme of hs death mean mmedatey upon,
rather than before, death. For nstance, a fe estate may have sub-
stanta vaue durng ts owner s fetme and yet nothng passes
or arses n respect thereof by vrtue of, or upon, hs death. so see
ames . Tyer, r., et a., v. Unted States (2 1 U. S. 97; Ct. D. 190,
C. . I -1, 3 3, 3 5, 3 6 (1930)). In state of enry Uauptfuhrer,
Deceased (Docket No. 170 6, Ta Court Memorandum Opnon
entered October 2 , 1950), the Commssoner was sustaned n the
ncuson n gross estate, for Federa estate ta purposes, of the par
vaue of Unted States savngs bonds of Seres G owned by the decedent
at death and whch, though not matured, were redeemabe mmed-
atey upon hs death at par (face amount, purchase prce), and wth-
out refund by the bondhoder of a porton of the nterest prevousy
reazed thereon as woud have been requred f redeemed pror to
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255
egs. 105, 1.10(d).
maturty durng hs fetme (see I. T. 350 , C. . 19 1-2, 93). Wth
respect to testmony of one of the pettoner s wtnesses that, athough
the bonds were supposed to be worth face vaue at the tme of the
decedent s death, they were dscounted by the Government because of
deay ether of a bank or empoyees of the Government n handng
them, the court sad: The fact that a penaty may have been ncurred
for deay n presentng the bonds after the decedent s death coud have
no effect on ther vaue at the date of death. Snce Treasury bonds
passng by the death of the owner are, to the e tent that they may be
apped at par n payment of Federa estate ta abty, mmedatey
upon hs death redeemabe at par vaue for that purpose, t foows
that the par vaue thereof or ther mean quoted seng prce at that
tme, whchever s hgher, s ther vaue or far market vaue
wthn the meanng of the statute and reguatons. Secton 1.10(c)
of Reguatons 105.
In vew of the foregong, t s hed that to the e tent marketabe
Unted States Treasury bonds owned by a decedent at death may be
apped at par n payment of Federa estate ta es the par vaue thereof
or the mean between ther hghest and owest quoted seng prce at
the tme of hs death (and accrued nterest to te date of death),
whchever s hgher, consttutes the vaue at whch such bonds are
ncudbe n hs gross estate for Federa estate ta purposes. s to
bonds n e cess of the amount whch may be so apped, such mean
quoted prce thereof (and accrued nterest to the date of death) w
be the vaue at whch they are ncudbe n the decedent s gross es-
tate for Federa estate ta purposes. ppyng these rues to the
above e ampe, the porton ot the 10,000 bond ( 0,500) whch may be
apped at par n payment of Federa estate ta abty w be
vaued at 6,500 or the aforesad mean quoted seng prce thereof
(and accrued nterest to the date of death), whchever s hgher, and
the e cess porton thereof ( 3,500) w be ncuded n the gross es-
tate ony at such mean quoted seng prce thereof (and accrued
nterest to the date of death).
S CTION 11(a). GROSS ST T : D C D NT S
INT R ST
Reguatons 105, Secton 1.10(d) : Interest n Rev.Ru. 157
busness.
( so Secton 1.10(c).)
INT RN L R NU COD
though the byaws of a corporaton contan a bndng agree-
ment, effectve ony upon a sharehoder s death, provdng fur the
sae to the corporaton of the sharehoder s nterest n the busness
at a prce whch does not refect consderaton for goodw, the
Commssoner woud not be precuded, for Federa estate tn pur-
poses, from evauatng the sharehoder s nterest n the busness to
ncude goodw.
dvce s requested whether, under the facts presented, n vaung a
decedent s nterest n a busness for Federa estate ta purposes, an
amount for goodw shoud be added to the book vaue of the busness.
In the nstant case the byaws of a corporaton, n whch the de-
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Regs. 105, 1.10(d).
256
cedent and another ta payer each hed 50 percent of the outstandng
stock, provde that upon the death of a stockhoder a of hs stock
sha, at the opton of the board of drectors f e ercsed wthn 30
days, become the property of the corporaton to be pad for at such
1 nce as may be agreed upon by and between the corporaton and the
ega representatve of the deceased as the far vaue of such stock, or
f an agreement cannot be reached then the corporaton may purchase
the stock at such prce as may be determned as such far vaue by a
board of three apprasers. The byaws further provde that n as-
certanng the prce to be pad for the stock, whether by agreement or
apprasa, no aowance sha be made for the vaue of any goodw
possessed or camed to be possessed by the corporaton. These pro-
vsons are appcabe ony to the dsposton of the stock after the
death of ether stockhoder; they do not appy to the dsposton of
the stock by ether sharehoder durng hs fetme.
Secton 11(a) of the Interna Revenue Code provdes n part that
the vaue of the gross estate of the decedent sha be determned by
ncudng the vaue at the tme of hs death of a property, rea or
persona, tangbe or ntangbe, wherever stuated, e cept rea prop-
erty stuated outsde the Unted States , to the e -
tent of the nterest theren of the decedent at the tme of hs death.
Secton 1.10(d) of Reguatons 105, provdes wth respect to the
vauaton of property as foows:
(d) Interest n busness. Care shoud be taken to arrve at an accurate vaua-
ton of any busness In whch the decedent was nterested, whether as partner
or propretor. far apprasa as of the appcabe vauaton date shoud be
made of a the assets of the busness, tangbe and ntangbe, ncudng good w,
and the busness shoud be gven a net vaue equa to the amount whch a wng
purchaser, whether an ndvdua or a corporaton, woud pay therefor to a
wng seer n vew of the net vaue of the assets and the demonstrated earnng
capacty. Speca attenton shoud be gven to f ng an adequate fgure for
the vaue of the rood w of the busness n a cases n whch the decedent has
not agreed, for an adequate and fu consderaton n money or money s worth,
that hs nterest theren sha pass at hs death to hs survvng partner or
partners.
The factors herenbefore stated reatve to the vauaton of other property,
f appcabe, w be consdered n determnng the vauaton of an nterest n a
busness hed as propretor or partner. evdence bearng upon such vauaton
shoud be submtted wth the return, ncudng copes of reports n any case n
whch e amnatons of the busness have been made by accountants, engneers,
or any technca e perts as of or near the appcabe vauaton date.
In the case u-der consderaton the byaws of the corporaton do not
purport to f the prce at whch the corporaton may purchase the
shares of a deceased stockhoder. They merey provde that the cor-
poraton may purchase the stock at ts far vaue, as agreed upon by
the corporaton and the ega representatves of the deceased, and f an
agreement cannot be reached then the corporaton may purchase at
such prce as may be determned as such far vaue by a board of three
apprasers, e cudng any aowance for goodw.
In the state of George Marsha Tramme v. Commssoner, 1
T. C. C62, the decedent was n busness as an equa partner wth hs
wfe and the partnershp agreement contaned the foowng
provson:
In the event ths agreement s termnated by the death or nabty to act of
ether of sad partners, t s e pressy agreed that the survvng partner may
contnue the busness as theretofore, and buy out the busness of such partner, by
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257
Regs. 105, 1.13.
payng therefor the reasonabe vaue of the partner s property as may be deter-
mned from the books of the partnershp, payng nothng for good w, and
takng nto account deprecaton, etc. Itacs supped.
The court there hed that whe the provson n the partnershp
agreement, that the survvng partner may purchase a deceased
partners share wthout payng for goodw, s bndng upon the
partes to the agreement, such provson s not bndng upon the Com-
mssoner n f ng vauatons for estate ta purposes. Consequenty,
n vaung the deceased partner s nterest, the court determned that
goodw vaue shoud be ncuded n addton to mere book vaue. In
the vauaton of such goodw the court consdered severa factors,
ncudng the earnng record of the busness for severa years, the
busness ocaton, the reputaton for far deang, the type of centee,
quaty of merchandse, amount and knd of advertsng, and pubc
esteem. The Tramme case nvoved a partnershp consstng of two
partners whereas the nstant case nvoves a corporaton owned equay
by two stockhoders. That dstncton s not deemed matera.
In vew of the foregong, t s hed that athough the byaws of a
corporaton contan a bndng agreement, effectve ony upon a share-
hoder s death, provdng for the sae to the corporaton of the share-
hoder s nterest n the busness at a prce whch does not refect con-
sderaton for goodw, the Commssoner woud not be precuded,
for Federa estate ta purposes, from evauatng the sharehoder s n-
terest n the busness to ncude goodw.
Reguatons 105, Secton 1.13: Property Rev. Ru. 293
of decedent at tme of death.
INT RN L R NU COD
In determnng the net vaue of the assets of an Inter vvos trust
created by the decedent and ncuded n hs gross estate, aowance
shoud be made for the amount of attorney s fees ncurred n connec-
ton wth the usua ssues nvoved n a trust accountng made
necessary by the decedent s death.
dvce s requested n vew of the decson n mma P. bbett e a.
v. Commssoner (17 T. C. 1293, acquescence C. . 1952-2,1), whether
the vaue of an nter vvos revocabe trust ncudbe n the gross estate
for Federa estate ta purposes may be reduced by the amount of an
attorney s fee pad n connecton wth the usua ssues nvoved n a
trustee s accountng or whether such fee s propery deductbe as an
admnstraton e pense under secton 12(b) of the Interna Revenue
Code.
In the nstant case, the decedent estabshd an nter vvos revocabe
trust whch provded that the ncome therefrom was to be pad to hm
for the duraton of hs fe, and that foowng hs death the trustee
was to pay to the e ecutor the funds necessary for the admnstraton
of the estate and retan the baance n further trust for certan named
benefcares. The net vaue of the trust s sub|ect to Federa estate
ta under secton 11(c)(1) ( ) and/or secton 11(d) of the Code.
The corpus of the trust was ncuded n the estate ta return reduced
by an amount representng an attorney s fee ncurred n connecton
wth an accountng made by the trustee. The appcabe State court
aowed such fee as proper n the admnstraton of the decedent s
affars.
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Regs. 105, 1.13.
25
In the bbett case, supra, the trust nstrument provded, as of the
date of the decedent s death, that the trust was rrevocabe, that the
fe ncome was payabe to the decedent wth severa remanders over,
and that on the decedent s death hs two sons shoud become cotrustees
wth the corporate trustee. The Ta Court of the Unted States stated
that athough an accountng was not specfcay requred by the
statutory aw of the State, t was necesstated and requred by ordery
procedure so that the corporate trustee mght account before t assumed
to functon wth cotrustees. The court aowed as a deducton from the
decedent s gross estate that porton of the e penses ncurred by the
corporate trustee for attorney s fees and guardan s fees whch were
attrbutabe to the settement of the usua ssues nvoved n a trust
accountng and aowed by the proper State court.
though the Ta Court n the t)bett case stated that the attorney s
fees pad Dy the trustee for the trust accountng were deductbe as
admnstraton e penses under secton 12(b) of the Code, that was
not the rea ssue n the case. The Commssoner contended that the
net ta abe estate shoud not be reduced by the attorney s fees ether
as a reducton n the vaue of the trust property or as a deducton from
the gross estate as an admnstraton e pense. The ta payer con-
tended for one or the other. Thus, the ssue there nvoved and the
ssue rased here are dfferent.
In the ease of the state of zabeth W. aggart et a. v. Uommh-
sonrr, 1S2 Fed. (2d) 51 , the facts were smar to those n the case
here under consderaton e cept that the decedent s resduary testa-
mentary estate was to be added to the corpus of the trust and upon the
death of the decedent a desgnated ndvdua was to become a cotrustee.
In ts decson aowng a deducton for attorney s fees pad n con-
necton wth a court accountng, the court stated:
Whether they attorney fees and other e penses are to be aowed as e pense
of admnstraton or whether they are to be aowed n dmnuton of the gross
estate does not matter n ths case. It comes out the same ether way and, here-
fore, we refran from commttng ourseves to a choce.
It s usuay not matera whether attorney s fees or e penses pad n
connecton wth an accountng of an nter vvos trust whch s n-
cuded n the grantor s gross estate are treated as a reducton n the
vaue of the trust property or as an admnstraton e pense under
secton 12(b) of the Code. It s matera, however, n some cases.
For e ampe, f the revocabe trust quafes for the marta deducton,
the survvng spouse w receve the net amount after payment of the
e penses chargeabe aganst the trust and the deducton shoud be
mted to what passes to the survvng spouse. owever, f the e -
penses chargeabe to the nter vvos trust are hed deductbe as ord-
nary admnstraton e penses, a marta deducton w be aowabe
n some cases for an amount n e cess of that passng to the survvng
spouse. In such cases treatment of the e penses ncurred n connec-
ton wth the nter vvos trust as deductbe admnstraton e cuses
woud resut n a doube deducton to the e tent of the trust e penses.
In vew of the foregong t s hed that an aowance shoud be made
for the amount of attorney s fees ncurred n connecton wth the usua
ssues nvoved n a trust accountng made necessary by the decedent s
death n determnng the net vaue of the assets of an nter vvos trust
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259
egs. 1C5, 1.17.
created by the decedent and ncuded n hs gross estate rather than
as an admnstraton e pense deductbe under secton 12(b) of the
Interna Revenue Code.
Reguatons 105, Secton 1.13: Property
of decedent at tme of death.
INT RN L R NU COD
Une ercsed nontransferabe stock optons. (See Rev. Ru. 190,
p. 17 .)
S CTION 11(c). GROSS ST T : TR NSF RS IN CON-
T MPL TION OF, OR T ING FF CT T, D T
Reguatons 105, Secton 1.17: Transfers n- Rev. Ru. 15
tended to take effect at or after the decedent s
death.
( so Secton 1.1 ; Secton 11(f), Secton
1.2 ; Secton 113(a), Secton 29.113(a)-
(5)-, Reguatons 111.)
INT RN L R NU COD
Te e ercse of nn opton by a decedent under a penson pan
to take a reduced annuty for hmsef and to provde a survvor-
shp annuty for hs wfe (oos not consttute a transfer wthn the
meanng of secton 11(c)(1)( ) of the Interna Revenue Code
whch s ncudbe n hs gross estnte, where the eecton was made
pror to October ,1 M9; however, where such an eecton was made
after October 7,11) 9, the vaue of the survvng annutant s nterest
s ncudbe n hs gross estate under secton 11(c)(3) or sec-
ton 11(f) of the Code.
The bass of such annuty to the survvng spouse, for Federa
ncome ta purposes, s determned accordng to the treatment of
her annuty nterest as a part of the decedent s estate for Federa
estate ta purposes.
dvce s requested whether the vaue of an annuty payabe to a
survvor annutant s ncudbe n the gross estate of a decedent, for
Federa estate ta purposes under secton 11(c) of the Interna Reve-
nue Code, where the decedent eected, under an opton provded n a
penson pan, to take a reduced annuty on hs retrement and to pro-
vde a survvorshp annuty for hs wfe.
Ths queston was consdered n Commssoner v. state of Fred-
erck ohn Twogood (15 T. C. 9S9, acquescence, C. . 1953-1, 6,
affrmed, 19 Fed. (2d) 627). In the Twogood case, the decedent,
Frederck ohn Twogood, was an empoyee of the Standard O Co.
of New York and ts successors from May 1912 unt hs retrement
on uy 1, 19 3. The empoyer of the decedent took out annuty con-
tracts for the beneft of ts empoyees, ncudng the decedent, wth
such contract beng underwrtten and admnstrated by the Metro-
potan Lfe Insurance Co. under a group annuty contract. y the
terms of the contract, the decedent was entted to retre after 30
years of contnuous foregn servce and to receve a retrement an-
nuty. Pursuant to the contract, the decedent was entted, pror to
hs norma retrement date, to eect to receve a reduced annuty for
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Regs. 105, 1.17.1
2G0
hs fe and to have pad to a desgnated dependent an annuty for
the fe of such dependent shoud he or she survve the decedent. y
the terms of the pan, ths eecton coud not be changed by the de-
cedent wthn 5 years before he reached retrement age whch was on
une 1, 19 2, e cept wth the consent of the nsurance company and
after that date, t coud not be changed at a. Nether coud the de-
cedent or the desgnated dependent se, assgn, or transfer n any way
ther rghts to the annuty payments.
On October 15, 1937, the decedent e ercsed such opton and eected
to receve ony 955. 2 a month f and when he became egbe to
retre and desgnated hs then wfe as hs dependent who was to be
entted to receve an annuty of 1G.G7, monthy, f he ved to retre
and she survved hm. Ths desgnaton was made rrevocabe by an
agreement ncdent to hs dvorce n 193 . If the decedent had ded
at any tme durng the perod from October 15, 1937, the date of the
eecton and desgnaton, and une 1, 19 2, the date on whch he be-
came entted to retre, no annuty woud have been payabe to any
one. The decedent s tota contrbuton to the annuty pan was ,616
whch amount woud have been pad to hs estate had he ded prevous
to the maturty of hs annuty. The decedent dd not retre on hs
norma retrement date, anuary 1,19 2, but was formay retred on
uy 1, 19 3, and was pad an annuty at the reduced amount whch
he had prevousy eected. Ths reduced annuty was pad to hm
unt hs death on pr 2 , 19 . Thereafter monthy payments
were made to hs former wfe n accordance wth the terms of the
pan. The Unted States Court of ppeas for the Second Crcut
hed, nter aa, that the vaue of the annuty payabe to the decedent s
frst wfe was not ncudbe n hs gross estate as a transfer wthn
the meanng of secton 11(c) (1) ( ) of the Interna Revenue Code.
In state of Wam . gqs v. Commssoner (1 Fed. (2d) 27).
ths queston was consdered by the Unted States Court of ppeas
for the Thrd Crcut, whch hed that the vaue of the survvorshp
annuty was not ncudbe n the decedent s gross estate under secton
11(c)(1)( ) of the Interna Revenue Code, as a transfer wth a
retenton of ncome for the fe of the decedent.
The bass of the decsons by the Unted States Courts of ppeas
for the Second and Thrd Crcuts n the Twogood and ggs cases,
s that f an empoyee s entted to an annuty for fe under an em-
poyers retrement pan and eects to receve a reduced annuty for
hs fe wth a survvorshp annuty to a desgnated dependent f
he or she survves the decedent, the decedent has not retaned an n-
terest n the part of the property upon whch the desgnated survvng
dependent s annuty s based, even f t were consdered that the de-
cedent had made a transfer of property. The theory was that the
purchase prce of the entre contract was dvsbe nto two parts one.
the prce of the snge fe annuty and the other the prce of the
survvorshp annuty.
Wth respect to eectons made pror to October ,19 9, the Interna
Revenue Servce has decded to foow the decson n the Twogood
case. owever, the aw wth respect to such eectons made after
October 7, 19 9, has been changed. Secton 11(c) (3) of the Code,
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261
Regs. 105, 1.17.
as amended by Pubc Law 37 ( 1st Cong., 63 Stat. 91, C. . 19 9-2,
275,279), provdes n part as foows:
(3) Transfers takng effect at death transfers after October 7,
19 9. n Interest n property transferred by the decedent after October 7,
19 9, sha be ncuded n ths 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 nterest, be obtaned ony by survvng the decedent; or
( ) under aternatve contngences provded by the terms of the
transfer, possesson or en|oyment of the property can, through owner-
shp of such nterest, be obtaned ony by survvng the earer to occur
of (1) the decedent s death or () some other event; and such other
event dd not n fact occur durng the decedent s fe.
Under ths amendment the decsve queston s whether a transfer s
made when the decedent eects to take a reduced annuty, gves another
person a survvorshp annuty and thereafter retres. If such acton
s consdered as effectng a transfer, then the property w be ncud-
be n the decedent s gross estate under secton 11(c)(3), supra,
whether or not the decedent retans an ncome nterest n the part
transferred to the survvng annutant, because that secton now
requres the property to be ncuded n the decedent s gross estate f
possesson or en|oyment of the property can, through ownershp of
such nterest, be obtaned ony by survvng the decedent.
The Ta Court of the Unted States n the Twogood case, took the
poston that the decedent s nterests n the annuty whch he woud
receve n the future were property rghts and that he made a transfer
of that part of the annuty upon whch the survvng benefcary s
annuty was based. In the Twogood and ggs cases, the Unted
States Courts of ppeas for the Second and Thrd Crcuts dd not
decde whether the decedents made transfers of property to the sur-
vvng annutants but hed that even f t were assumed that transfers
occurred, such transfers were not ta abe wthn the meanng of secton
11(c)(1)( ) of the Code.
It s the poston of the Revenue Servce that a transfer wthn the
meanng or secton 11(c) (3), supra, s effected n such cases by the
decedent to the survvng annutant, snce the e ercse of the opton
by the decedent deprves the decedent of an nterest n property whch
he woud otherwse en|oy, or n the aternatve, that the vaue of the
survvorshp annuty s ncudbe n the decedent s gross estate under
secton 11 Cf) of the Code, as amended, as the e ercse of a genera
power of appontment n respect of property by a dsposton whch
s of such nature that f t were a transfer of property owned by the
decedent, such property woud be ncudbe n tre decedent s gross
estate under subsectons (c) or (d) , nasmuch as the decedent s rght
to take the entre annuty or a esser annuty woud consttute a genera
power of appontment e ercsabe n hs own favor. See eguatons
111, secton 22(b) (2)-2, e ampe 5.
The dscusson above has no appcaton to survvorshp annutes
purchased for cash. See Commssoner v. Wder state (11 Fed.
(2d) 2 1, certorar dened, 31 U. S. 63 ); Commssoner v. Cse
(122 Fed. (2d) 99 , certorar dened, 315 U. S. 21); Mearke s
state v. Commssoner (129 Fed. (2d) 3 6).
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Regs. 105, 1.17.
262
ttenton s drected to the provsons of secton 303 of the Revenue
ct of 1951 whch provdes as foows:
(a) mendment of Secton 22(b) (2). Secton 22(b) (2) Is amended by add-
ng at the end thereof the foowng new subparagraph :
(C) ont and Survvor nnutes. For purposes of subparagraphs
( ) and ( ) of ths paragraph, whore amounts are receved by a sur-
vvng annutant under a |ont and survvor s nnnuty contract and the
bass of such survvor annutant s nterest s determned under secton
:(a)(5) the consderaton pad for such survvor s annuty sha be
consdered to be an amount equa to such bass.
(b) mendment of Secton 113(a) (5). Secton 113(a) (5) s amended by
addng nt the end thereof the foowng: For the purposes of ths paragraph, the
survvor s nterest n a ont and survvor s annuty sha be consdered tn be
property acqured by bequests, devse, or nhertance from the decedent f the
death of the decedent was after December 31, 11(50, and f the vaue of any part
of such nterest was requred to be Incuded n determnng the vaue of the
decedent s gross estate under secton 11.
(c) ffectve Dates. The amendments made by ths secton sha be appca-
be to ta abe years endng after December 31, 1950.
For ta abe years pror to 1951, a |ont and survvorshp annuty was
treated for gan purposes as havng the same bass as t had n the
hands of the donor. (See S. Rept. 7 1, C. . 1051-2, 5 at p. 95.)
Thus, where the annuty contracts were purchased entrey by the
empoyer, t was hed that the entre amounts receved each year were
ncudbe n the gross ncome wth no part thereof beng e cuded
under secton 22(b)(2) of the Code. Under secton 113(a)(5), as
amended, supra, f the |ont and survvorshp annuty s ncuded n
the decedent s gross estate, t s gven a stepped-up bass equa to
the vaue of such nterest ncuded n the gross estate. owever, f
the annuty s not ncuded n the gross estate t does not get the
stepped-up bass. Therefore, where the transfer occurs, as n the
Twogood and ggs cases, pror to October , 19 9, even though the
death of the decedent s after December 31,1950, the survvng annu-
tant w not be entted to the treatment provded by secton 303 of the
Revenue ct of 1951, and the annuty w be fuy ta abe for ncome
ta purposes.
In vew of the foregong, t s hed that the decson n the Twogood
case, w be foowed n smar cases ony where pror to October S,
19 9, the decedent eected to take a reduced annuty wth a survvor-
shp nterest. The vaue of a survvorshp annuty w be ncuded
n the decedent s gross estate under secton 11(c)(3) and secton
11(f) of the Code, where such an eecton was made after October 7,
19 9.
Reguatons 105, Secton 1.17: Transfers n- Rev. Ru. 200
tended to take effect at or after the decedent s
death.
( so Secton 11(d), Secton 1.20.)
INT RN L R NU COD
The commuted vaue of the rght to receve annuty payments
pursuant to an agreement entered nto between an empoyee and hs
empoyer pror to October , 19 9, provdng for the retrement of
the empoyee and, n the event of hs death, for payments to certan
named benefcares s ncudbe n the decedent s gross estate for
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263
Regs. 1P5, 1.17.
Federa estate ta purposes under secton 11 (c) (2) of the Interna
Revenue Code. The vaue of the rght to receve such payments s
aso Incudbe n the gross estate under secton 11(d) of the Code
where the decedent possessed at hs death the power to modfy the
contract.
dvce s requested reatve to the status, for Federa estate ta
purposes, of the rght to receve annuty payments pursuant to an
agreement entered nto between an empo ree and hs empoyer pror
to October , 19 9, provdng for the retrement of the empoyee and,
n the event of hs death, for payments to certan named benefcares.
In the nstant case the empoyee had entered nto an agreement
wth hs empoyer provdng that the empoyee coud retre at a ater
date and receve thereafter a stated annua deferred compensaton
payabe n 120 monthy nstaments durng hs fetme. f death
occurred after retrng but before recevng the tota number of n-
staments the empoyer woud make (he remanng payments to cer-
tan named benefcares; and, f death occurred before the retrement
date the payments woud be made n equa monthy nstaments for
a perod of 10 years to the named benefcares. The agreement states
that the purpose thereof s to assure the contnuance of the empoyee s
servces to the empoyer corporaton and hs avaabty for servces
to certan subsdary corporatons and to the soe stockhoder of the
corporaton. The rghts of the empoyee under the contract coud
not be cutoff for reasons other than hs dscharge for dshonesty or
the vountary termnaton by hm of hs servces. The agreement
coud not be modfed e cept by an nstrument n wrtng sgned by
both partes thereto.
Secton 11 of the Interna Revenue Code provdes n part as
foows:
The vaue of the gross estate of the decedent sha be determned by ncudng
the vaue at the tme of hs death of a property, rea or persona, tangbe or
ntangbe, wherever stuated, e cept rea property stuated outsde of the
Unted States

(c) Transfers n Contempaton of, or Takng 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 In money or money s worth),
by trust or otherwse

(C) ntended to take effect n possesson or en|oyment at or afer
hs death.
(2) Transfers takng effect at death Transfers pror to octorkh b,
19 9. n nterest n property of whch the decedent made a transfer, on
or before October 7, 1U 1), ntended to take effect n possesson or en|oyment
at or after hs death sha not be ncuded n hs gross estate under para-
graph (1) (C) of ts subsecton uness the decedent has retaned a re-
versonary nterest n the property, arsng by the e press terms of the
Instrument of transfer and not by operaton of aw, md the vaue of such
reversonary nterest mmedatey before the death of te decedent e ceeds
5 er centum of the vaue of such property. For the purposes of ths para-
graph, 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 bra.

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Regs. 105, 1.17.
2G
(d) Revocabe Transfers.
(1) Transfers after |une 22, 193 . To the e tent of any Interest theren
of whch the decedent has at any tme made a transfer (e cept n case of
a bona fde sae for an adequate and fu consderaton n money or money s
worth), by trust or otherwse, where the en|oyment thereof was sub|ect
at the date of hs death to any change through the e ercse of a power
(n whatever capacty e ercsabe) by the decedent aone or by the decedent
In con|uncton wth any other person (wthout regard to when or from
what source the decedent acqured such power), to ater, amend, revoke,
or termnate, or where any such power s renqushed n contempaton of
decedent s death;
The payments to the benefcares under the nstant agreement are
not vountary on the part of the corporaton but are made pursuant to
a contractua obgaton. Cf. state of Wam L. Nevn v. Comms-
soner, 11 T. C. 59, acquescence C. . 19 9-1, 3. The fact that a rght
was reserved to the corporaton to fund such obgaton, or that t
actuay dd so by purchasng nsurance on the decedent s fe, woud
not be matera. In the case of state of Pau G. Lcon v. Comms-
soner, Ta Court Memorandum Opnon entered October 20, 19 ,
a contract entered nto by the decedent and hs empoyer provded for
the payment by the empoyer to the decedent s wdow, f vng, of an
annuty for a perod of years after the decedent s death. The estate
contended that snce these payments were gven soey to the wdow,
the decedent or hs estate had no rght, tte, or nterest to, or n, any
part of the payments and, therefore, the decedent made no transfer
ntended to take effect n possesson or en|oyment at or after hs death,
wthn the purvew of secton 11(c) of the Code. In hodng that the
decedent dd make a transfer of property ncudbe under secton
11(c) of the Code, the Court sad:
The servces to be rendered by the deepdent furnshed the consderaton for the
empoyer s promse to make the prescrbed payments to ths wdow after decedent s
death. We thnk there was a transfer of property procured through
the performance of servces by the decedent, wth the ntent of havng t pass at
the tme of hs death. The death of the decedent was the operatve fact whch
matured the promsor s duty to pay and competed the shftng of the economc
benefts of property. Transfers of ke purport have been hed to come wthn
the purvew of secton 11(c) of the Code, requrng the vaue of the property
rght transferred to be ncuded n the decedent s estate.
It s, therefore, cear that the agreement n queston gave rse to
transfers of property on the part of the nstant decedent. The vaue
of such transfers, however, cannot be reached for Federa estate ta
purposes under secton 11(a) of the Code as property owned by the
decedent at death, and, as the transfers were made pror to October ,
19 9, ncudbty n the decedent s gross estate cannot be requred
under secton 11(c) of the Code, as amended, uness the decedent
retaned a reversonary nterest n the property, arsng by the e press
terms of the nstrument of transfer. It s hed that such a reverson-
ary nterest was retaned by the decedent under the terms of the con-
tract n that a property rghts thereunder were to revert to hm n the
event e shoud be vng on the retrement date and shoud thereafter
ve ong enough to receve 120 equa monthy nstaments. s the
vaue at the tme of decedent s death of the rght to receve the pay-
ments f vng on the retrement date and durng hs fetme there-
after was n e cess of 5 percent of the vaue of nterests passng upon
hs death, the entre vaue of the rght to receve the payments pro-
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2G5 Regs. 105, 1.1 .
vded for n the contract s ncudbe n the gross estate for Federa
estate ta purposes under secton 11(c) (2) of the Interna Revenue
Code. Snce the contract coud have been modfed by an nstrument
n wrtng sgned by both partes thereto (the decedent and the em-
poyer), t foows that the en|oyment of the transferred property
was, at the tme of the decedent s death, sub|ect to change through the
e ercse by hm of such power. It s therefore hed that the vaue of
the rght to receve the payments provded for coud aso be ncuded
n the decedent s gross estate under secton 11(d) of the Code as a
transfer under whch he possessed, at the tme of hs death, the power
to change the en|oyment of the property transferred.
Reguatons 105, Secton 1.1 : Transfers Rev Ru. 277
wth possesson or en|oyment retaned.
INT RN L NU COD
Wthn the meanug of secton 7 of the Technca Changes rt
of October 2. , .M , s amended, a revocabe nter vvos transfer n
the form of a trust wth ncome retaned s deemed to have been
made at the tme nftcr March . , 1031, when the donor renqushed
ITs power to revoke, amend, or termnate the trust rather than n
I 20 when the trust was created, and the vaue thereof s ncudbe
n the donor s gross estate for Federa estate ta purposes under
the provsons of secton 11(c)(1)( ) of the Interna Revenue
Code.
dvce s requested whether certan transfers of property n (he
form of revocabe trusts wth ncome retaned created by decedent n
1926 are ncudbe n decedent s gross estate for Federa estate ta pur-
1)oses under the provsons of secton 11(c)(1)( ) of the Interna
evenue Code, where the decedent renqushed hs power to revoke,
amend, or termnate the trusts after March 3,1931.
In the nstant case, the decedent created three trusts on February 5,
1926, one for the utmate beneft of each of hs three daughters, re-
tanng the rght to the ncome from the trusts durng hs fe and the
unrestrcted power to revoke, amend, or termnate the trusts. On
pr 27, 1932, he e ecuted an amendment to each trust pursuant to
whch he renqushed hs rght to revoke, amend, or termnate the
trusts. e ded on December 17,19 9.
Secton 11 of the Code provdes n part as foows:
The vaue of the gross estate of the decedent sha be determned by ncudng
the vaue at the tme of hs death of a property, rea or persona, tangbe or
ntaughe, wherever stuated, e cept rea property stuated outsde of the
Unted States

(c) Transfers n Contempaton of, or Takng ffect at, Deat.
(1) Genera Rue. To the e tent of nny nterest theren of whch the
decedentbas at any tme made a transfer (e cept n case of a bona tde
sae for an adequate and fu consderaton n money or money s worth),
by trust or otherwse

( ) under whch he has retaned for hs fe or for any perod not
ascertanabe wthout reference to hs death or for any perod whch
does not n fact end before hs death () the possesson or en|oyment of,
or the rght to the ncome from, the property,
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Regs. 105, 1.1 .
266
Secton 1.1 of Reguatons 105 reatng to transfers wth pos-
sesson or en|oyment retaned provdes n part as foows:
In the cose of a decedent who ded before anuary 1, 1951, property
sha not be ncuded In the gross estate under ths secton uness transferred
(1) after March 3, 1031, and before une 7, 1932, and the retenton or
reservaton by the decedent was ( ) for bs 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
The above-quoted reguatons are based upon secton 7. as amended, of
the Technca Changes ct of October 25,19 9 (Pubc Law 37 , 1st
Cong., C3 Stat. 91).
In the case presented the prmary queston, n determnng whether
the vaue of the transfers s to be ncuded n the gross estate of the
decedent, s whether the transfers were made, wthn the meanng of
secton 7 of the Technca Changes ct of October 25, 19 9, when the
trusts were frst created n 1926, or when the transferor renqushed hs
rght to revoke, amend, or termnate the trusts on pr 27, 1932.
The ratonae n the case of urnet, Commssoner of Interna
Revenue v. Murray Guggenhem, 2 U. S. 2 0, Ct. D. 636, C. . 1I-1
(1933), 37 , s beeved to be controng n the nstant case. That case
nvoved a trust created n 1917 under whch the grantor orgnay
reserved a power of revocaton and renqushed such power n 1925.
In hodng that the gft was made n 1925, the Supreme Court of the
Unted States stated that:
Whe the powers of revocaton stood uncanceed n the deeds, the gfts, from
the pont of vew of substance, were nchoate and mperfect. y concesson there
woud have been no gft n nny aspect f the donor had attempted to attan the
same resut by the mere devery of the securtes nto the hands of the donees.
power of revocaton accompanyng devery woud have made the gft a
nuty. y the e ecuton of deeds and the creaton of trusts, the settor dd
ndeed succeed In dvestng hmsef of tte and tranferrng t to others,
but the substance of hs domnon was the same as f these forms had been
omtted. e was free at any moment, wt reason or wthout, to revest
tte n hmsef, e cept as to any ncome then coected or accrued. s to the
prncpa of the trusts and as to ncome to accrue thereafter, the gfts were
forma and unrea. They acqured substance and reaty for the rst tme n
uy 1925, when the deeds became absoute through the canceaton of the
power.

If a revocabe deed of trust s a present transfer by gft, there Is not another
transfer when the power Is e tngushed. If there s not a present transfer upon
the devery of the revocabe deed, then there s such a transfer upon the e -
tngushment of the power.
In the nstant case, appyng the ratonae of the Supreme Court n
urnet. Commssoner of Interna Revenue v. Murray Guggenhem,
supra, there was not a present transfer by the decedent upon the
devery of the revocabe deeds of trust on February 5,1926, but there
was such a transfer on pr 27, 1932, upon the e tngushment of the
power to revoke, amend, or termnate the trusts.
In vew of the foregong, t s hed that, wthn the meanng of
secton 7 of the Technca Changes ct of October 25, 19 9, the nstant
transfers were made n 1932 when the decedent renqushed hs power
to revoke, amend, or termnate the trusts, and the vaue thereof s
ncudbe n hs gross estate under the provsons of secton
11(c)(1)( ) of the Interna Revenue Code.
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267 Regs. 105, 1.2 .
S CTION 11(d). GROSS ST T : R OC L
TR NSF RS
Reguatons 105, Secton 1.20: Transfers
wth power to change the en|oyment.
INT RN L R NU COD
aue for estate ta purposes of rght to receve payments under a
deferred compensaton agreement. (See Rev. Ru. 260, p. 2C2.)
S CTION 11(f). GROSS ST T : POW RS OF
PPOINTM NT
Reguatons 105, Secton 1.2 : Property sub- Rev. u. 2 3
|ect to power of appontment by decedent.
nterna revenue code
devse n genera terms, e pressng nether a fee nor a fe estate,
couped wth the power n the devsee to se, convey, encumber, and
otherwse dspose of the property devsed as may to the devsee seem
best, wthout any authorty or order of any court whatsoever, and
wth a further power n the devsee to dstrbute by w any property
remanng undsposed of at hs or her death to certan named benef-
cares, under State aw generay creates n the devsee such a power
of dsposa durng fe as to consttute a genera power of appont-
ment wthn the purvew of secton 11(f) of the Interna Revenue
Code. The Interna Revenue Servce w appy the foregong gen-
era rue n a cases e cept those n whch the decsons of the courts
n the State wheren the estate s stuated hod that a devse n the
manner set forth above gves the devsee a fe estate wth a restrcted
power such as a power to use the corpus ony for purposes of the
devsee s heath, educaton, support, or mantenance.
Reguatons 105, Secton 1.2 : Property sub- Rev Ru. 27
|ect to power of appontment by decedent.
INT RN L revenue code
Where an nsured retans unt hs death the rght to change the
benefcary and the rght to surrender the poces or obtan oans
thereon, a power of appontment gven n the poces to the
benefcary wth respect to the proceeds of such poces Is cre-
ated at the tme of the death of the nsured wthn the meanng
of secton 11(f) of the Interna Revenue Code.
dvce s requested whether the amount of the proceeds of certan
nsurance poces whch were payabe to the decedent n monthy
nstaments wth prvege of surrender and wthdrawa are ncud-
be n her gross estate under the provsons of secton 11 (f) (2) of the
Interna Revenue Code.
In the nstant case the decedent s husband e ecuted settement op-
tons pror to October 22, 19 2, provdng for the payment of the
proceeds of severa nsurance poces to hs wfe, the present decedent,
n nstaments wth prvege of surrender and wthdrawa, and for
2 670 9 1
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Regs. 105, 1.26 and 1.27.
2CS
the payment of the remander of the proceeds upon her death to hs
chdren. The nsured retaned unt hs death, n 1950 the rght to
change the desgnaton of hs wfe as prmary benefcary and the
rght to surrender the poces or to obtan oans thereon. The pro-
ceeds of the nsurance poces were ncuded n the husband s gross
estate n the return fed for hs estate and the marta deducton pro-
vded for n secton 12(e) of the Code was camed and aowed wth
respect thereto. The representatves of the estate of the wfe, the
present decedent, contend that the power gven to her to appont the
property to hersef was created pror to October 22, 11) 2, and that
snce she ded n 1951 wthout e ercsng the power, the property s
not ncudbe n her gross estate under secton 11(f) of te Code.
Secton 11(f) of the Code, wth e ceptons not here matera, de-
fnes a genera power of appontment as a power whch s e ercsabe
n favor of the decedent, hs estate, hs credtors, or the credtors of
hs estate, and provdes that property sub|ect to such a power created
on or before October 21, 1912, s ncudbe n the gross estate of a
decedent ony f the power s e ercsed; property sub|ect to a genera
power of appontment created after such date s ncudbe n the gross
estate for estate ta purposes whether or not the power s e ercsed.
It s the poston of the Interna Revenue Servce that a power of
appontment conferred n a fe nsurance pocy that does not become
efectve unt the deat of the nsured s not created wthn the
meanng of secton 11(f) of the Code so ong as the nsured retans the
rght to surrender the pocy.
In the nstant case t s hed that snce the nsured retaned unt hs
death n 1950 the rght to surrender the poces, the power of appont-
ment conferred upon hs wfe, the present decedent, wth respect to the
proceeds of such poces, was created wthn the meanng of secton
11(f) of the Code at the tme of the death of the nsured n 1950 and
not at the date of e ecuton of the settement optons. The amount of
the proceeds of the poces are, therefore, ncudbe n the gross
estate of the wfe for estate ta purposes under the provsons of secton
11(f) (2) of the Interna Revenue Code.
Reguatons 105, Secton 1.21: Property sub-
|ect to power of appontment by decedent.
INT N L R NU COD
aue of an annuty payabe to a survvor annutant. (See Rev.
Ru. 15 , p. 259.)
S CTION 11(g).-GROSS ST T : PROC DS OF
LIF INSUR NC
Reguatons 105, Sectons 1.2G and 1.27: Rev. Ru. 2C2
Insurance n favor of the estate, and n-
surance receved by other benefcares.
( so Secton 12(e), Secton 1. 7a; Secton
12(b), Secton 1.30 of Reguatons 105;
Secton 1000, Secton 6.2 (Reguatons
10 .)
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269 Regs. 105, 1.26 and 1.27.
INT RN L R NU COD
Treatment of fe nsurance poces and the proceeds therefrom
for Federa estate and gft ta purposes under the communty prop-
erty aws of the State of Lousana In certan factua stuatons
wheren the nsured at death possessed ncdents of ownershp n the
poces whch had been taken out by hm, ether before or durng the
e stence of the communty, and premum payments thereof were
made entrey wth separate funds of ether spouse wth separate
funds of both spouses combned, entrey wth communty funds, or
n part wth the separate funds of the nsured and n part wth com-
munty funds, and the benefcary s (1) anyone other than the n-
sured s est; e or survvng spouse, (2) the survvng spouse, or (3)
the nsured s estate.
dvce s requested wth respect to the treatment of fe nsurance
poces and the proceeds therefrom for Federa estate and gft ta pur-
poses under the communty property aws of the State of Lousana n
certan factua stuatons not covered n Rev. Ru. , C. . 1953-1,392.
n Rev. Ru. t was hed that, where a marred man n Lousana
or Te as takes out an nsurance pocy on hs own fe n favor of a
benefcary other than hs estate, reservng the rght to change the bene-
fcary, and pays the premums wth communty funds, upon the death
of the husband, one-haf of the proceeds of the pocy was ncudbe n
hs gross estate for Federa estate ta purposes under secton 11 (g) (2)
of the Interna Revenue Code, and the remanng one-haf of the pro-
ceeds, n whch he had ncdence of ownershp as the agent for hs wfe,
became an absoute gft by the wfe for Federa gft ta purposes, and
that n the event the wfe predeceased the husband, one-haf of the
vaue of the pocy was ncudbe n her gross estate as her nterest n
a communty asset or as a revocabe transfer under secton 11(d) of
the Code.
Inasmuch as each case presented beow requres a consderaton of
the Lousana aw to determne whether the poces of fe nsurance
theren nvoved consttute communty or separate property of the
spouses, a bref premnary statement of the prncpes of aw n the
Lousana communty property system w assst n resovng these
factua stuatons.
rtce 233 of the Lousana Cv Code reatng to separate and
common property of spouses provdes n pertnent part as foows:
The property of marred persons s dvded nto separate and common property.
Separate property s that whch ether party brngs nto the marrage, or
acqures durng the marrage wth separate funds, or by nhertance, or by dona-
ton made to hm or her partcuary.
Common property s that whch Is acqured by the husband and wfe durng
marrage, n any manner dfferent from that decared.
Wth respect to the purchase of fe nsurance poces, the Lousana
courts have announced the genera rue that the tme of ssuance of the
poces governs the character of the nsurance proceeds, that s, a po-
cy acqured by the husband before marrage s hs separate property,
and a pocy taken out durng marrage fas nto the communty.
owever, the appcaton of the rue n artce 233 , supra, ndcates
that a pocy taken out by the husband durng marrage on hs own
fe woud be hs separate property f he can prove the premums were
pad wth hs separate funds.
In Lousana t s cear that where an nsurance pocy s acqured
before marrage the character of the pocy s not affected by the pay-
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Regs. 105, 1.2G and 1.27.
270
ment of the premums after marrage from communty funds. The
pocy remans the nsured s separate property, and the communty s
entted to rembursement for the amount of premums so pad. See
Successon of Lews, 1 9 So. 11 ; Successon of erneue, 5 So. 520.
The same rue appes wth respect to nsurance taken out by the hus-
band durng marrage on hs own fe, wth premums pad from
communty funds, hs spouse predeceases hm, and the husband uses
hs separate funds thereafter to pay the premums. The pocy re-
mans a communty asset, and the husband s estate, on hs death, s
entted to rembursement from the communty for the amount of
premums so pad. Successon of Le anc (1917) 76 So. 223.
In Lousana f the husband takes out durng marrage a pocy on
hs own fe payabe at hs death to hs estate, or to hs e ecutor, ad-
mnstrator, or assgns, and pays the premums wth communty funds,
when the marrage s dssoved by the death of the husband, the pro-
ceeds receved by the husband s ega representatve beong to the
communty. Successon of uddg (1902) 32 So. 3G1; Successon of
Le anc, supra; erry v. Frankn State ank Trust Company
(1937) 173 So. 126. In reachng the above resut, the courts have
reasoned that the contract rght to receve the money was acqured by
the husband durng marrage wth communty funds, and, ke a
other property acqured n that way, beongs to the communty.
so n Lousana when the wre s named benefcary n a pocy
taken out by the husband upon hs own fe and pad for wth com-
munty funds, the proceeds receved by the wfe at the husband s death
are her separate property. ey v. ey (1913) 60 So. 671; Nuhen
v. erndon (1933) 1 7 So. 359. No rght of rembursement e sts n
favor of the communty by reason of the premums havng been pad
wth communty funds. Successon of rownee (1 92) 11 So. 590;
ey v. ey, supra. y makng the pocy payabe to the wfe, the
cases usuay reason, the husband has manfested an ntenton of mak-
ng a gft to her of hs share of the proceeds. Ptcher v. New York
Lfe Insurance Company (1 1) 33 I a. nn. 322.
The factua stuatons wth respect to whch advce s requested are
set forth beow. In each nstance t s assumed that the nsured at
death possessed ncdents of ownershp n the pocy.
( ) The Insured takes out a pocy of fe nsurance durng tbe e stence of
the communty and a the premums are pad out of communty funds, and tbe
benefcary s (1) anyone other than the nsured s estate or survvng spouse, (2)
the survvng spouse, or (3) the nsured s estate.
Ths s n part the factua stuaton deat wth n Revenue Ru-
ng , supra. In stuatons (1), (2), and (3), there s ncuded
t the nsured s estate one-haf of the proceeds of the pocy. ow-
ever, n stuaton (1), the survvng spouse s consdered to have made
n gft of the other one-haf of the proceeds and ncurs a gft ta a-
bty f the amount s n e cess or the e cuson. In stuatons (2)
and (3) the survvng spouse s not consdered to have made a gft,
snce the donor and donee woud be the same person. In stuaton (3)
the proceeds of the pocy are communty assets n whch the survvng
(C) The nsured takes out a pocy of fe nsurance durng the e stence of
the communty, a of the premums are pad out of the nsured s separate
funds, and the benefcary s (1) anyone other than the nsured s estate or sur-
vvng spouse, (2) the survvng spouse, or (3) the nsured s estate.
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271
Regs. 105, 1.26 and 1.27.
rtce 233 , supra, provdes that separate property s that whch
s acqured durng marrage wth separate funds. The fact that
the nsurance pocy here was acqured by the husband s separate
funds appears to meet the requrements of the statute. ccordngy,
the nsurance pocy s the separate property of the nsured husband.
Therefore, n stuatons (1), (2), and (3), the entre proceeds of the
pocy are ncudbe n the nsured s gross estate, snce he possessed
ncdents of ownershp of such pocy n hs own rght. Inasmuch as
communty property s not here nvoved, the speca rue provded
by secton 12(e) (2) ( ) of the Interna Revenue Code n computng
the mtaton on the e tent of the marta deducton does not appy.
The marta deducton as provded n sectons 12(e)(1)( ) and
12(e) (1) ( ) of the Interna Revenue Code and secton 1. 7a(b) of
Reguatons 105 s aowed n stuaton (2) wth respect to these
proceeds.
(C) The nsured takes out a pocy of fe nsurance on hs own fe (urng
the e stence of the communty and des possessed of ncdents of owner-
shp. premums were pad out of the nonnsured spouse s separate funds.
and the benefcary s (1) anyone other than the nsured s estate or survvng
spouse, (2) the survvng spouse, or (3) the nsured s estate.
In vew of artce 233 , supra, t woud appear that the nsurance
pocy here consttutes the separate property of the nonnsured
spouse, rather than of the communty, under the aw of Lousana.
owever, n ths stuaton where the nsured has retaned the rght to
change the pocy benefcary wthout the consent of the premum-
payng nonnsured spouse, nsurance aw s to the effect that the n-
terest of the atter s sght; the substanta ownershp of the chose
represented by the pocy s n the nsured. Therefore, n stuatons
(1) and (2), where a thrd party and the nonnsured spouse s named
benefcary, respectvey, secton 1.27 of Reguatons 105 requres the
fu amount to be ncuded n the decedent nsured s gross estate under
the ncdents of ownershp rue estabshed by secton 11(g) (2) ( )
of the Code. In stuaton (3), where the nsured s estate s named
benefcary, secton 1.26 of Reguatons 105 requres the entre amount
of the proceeds to be ncuded n the decedent nsured s gross estate
under secton 11(g)(1) of the Code. The marta deducton pro-
vded by secton 12(e) of the Code may be aowed wth respect to
the proceeds whch are transferred to the survvng spouse n stua-
ton (2).
cam for rembursement of the amount of premums pad by the
nonnsured spouse to the nsured decedent s estate may not be aowed
under secton 12(b)(3) of the Code n each of the stuatons pre-
sented. Such amount of premums, n the absence of evdence to the
contrary, s consdered to De an rrevocabe gft between the spouses.
(D) The Insured takes out a pocy of fe nsurance durng the e stence
of the communty, some of the premums are pad out of communty funds and
some of the premums are pad out of the nsured s separate funds, and the
benefcary s (1) anyone other than the nsured s estate or survvng spouse,
(2) the survvng spouse, or (3) the nsured s estate.
ssumng under these facts, that communty funds were used ntay
to pay the premums on the pocy, such pocy takes on the character
of a communty asset whch, under artce 233 , supra, t retans
thereafter, despte the ater use of the nsured s separate funds to
mantan t. Successon of Le anc, supra. ccordngy, the
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Regs. 105, 1.26 and 1.27.
272
souton to ths factua stuaton s dentca wth ( ), supra.
owever, there may be ncuded as an asset n the nsured s separate
estate, n stuatons (2) and (3), a cam aganst the communty for
premums pad out of the nsured s separate funds.
( ) The nsured takes out a pocy of fe nsurance before the e stence of
the communty, one premum s pad out of the nsured s separate funds before
marrage and the baance of the premums are pad out of communty funds,
and the benefcary s (1) anyone other than the nsured s estate or survvng
spouse, (2) the survvng spouse, or (3) the nsured s estate.
Snce the character of the pocy s determned at the tme t s
taken out by the payment of premums from separate funds, t s
beeved the pocy here consttutes the separate property of the n-
sured. Ths rue ceary appes n stuaton (3), and s appcabe to
stuatons (1) and (2) snce the nsured retaned the soe power to
name the pocy benefcary. Therefore, n each stuaton a pocy
proceeds are ncudbe n the nsured s gross estate n accord wth
sectons 11(g)(1) and 11(g)(2)( ) of the Code. The marta
deducton as provded n secton 12(e) may be aowed n stuaton
(2) wth respect to these proceeds. Inasmuch as communty property
s not here nvoved, secton 12(e) (2) ( ) s not appcabe n com-
putng a mtaton on the e tent of the marta deducton. cam
by the communty for rembursement for premums pad wth com-
munty funds aganst the nsured s gross estate under secton
12(b) (3) may be aowed n stuatons (1) and (3) f such cam s
presented and actuay pad by the nsured s estate representatves.
Where n stuaton (3) the survvng spouse s the soe egatee of the
nsured s separate estate, the marta deducton may be aowed wth
respect to a separate property to the e tent such property passes
from the decedent to hs survvng spouse wthn the meanng of sec-
ton 12(e) of the Code. In the event of the nonnsured s pror de-
cease, such spouse s separate estate may propery ncude as an asset
thereof, the cam aganst the communty for one-haf the premums
pad from communty funds n each stuaton presented.
(F) The Insured takes out a pocy of fe nsurance before the e stence
of the communty, one premum s pad out of the nsured s separate funds
before marrage and the baance of the premums are pad out of the non-
nsured spouse s separate funds, and the nsured des possessed of ncdents of
ownershp of the pocy, and the benefcary s (1) anyone other than the
nsured s estate or survvng spouse, (2) the survvng spouse, or (3) the
nsured s estate.
In accord wth the dscusson of factua stuaton ( ) the pocy
here s regarded as a separate asset of the nsured. Therefore, n
each stuaton a pocy proceeds are ncudbe n the nsured s
gross estate n accord wth secton 11(g) of the Code. The marta
deducton as provded n secton 12(e) may be aowed n stua-
ton (2) wth respect to these proceeds. Inasmuch as communty
property s not here nvoved, secton 12(e)(2)( ) s not app-
cabe n computng a mtaton on the e tent of the marta
deducton. cam by the nonnsured spouse for rembursement of
premums pad wth separate funds aganst the nsured s gross estate
under secton 12(b) (3) may not be propery aowed n any of the
stuatons presented for the reasons stated n souton (C), supra.
Ths same concuson woud foow f soe egatee of the nsured s
estate had submtted a cam for rembursement of the amount of
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273
ogs. 105, 1. .
premums pad. In stuaton (3), where the survvng spouse s the
soe egatee of the nsured s separate estate, the marta deducton
may be aowed wth respect to a separate property to the e tent
such property passes from the decedent to the survvng spouse
wthn the meanng of secton 12(e) of the Code. In the event of
the nonnsured s pror decease, such spouse s separate estate may not
propery ncude as an asset thereof, the cam aganst the separate
property of the nsured spouse for the amount of the premums pad
n each stuaton presented.
S CTION 12(b). N T ST T : P NS S, LOSS S,
IND T DN SS, ND T S
Reguatons 105, Secton 1.29: Deducton of
admnstraton e penses, cams, etc.
INT RN L R NU COD
ecton wth respect to the treatment of certan admnstratve
e penses of an estate for Federa estate ta purposes. (See Rev.
Ru. 2 0, p. 79.)
eguatons 105, Secton 1.36: Cams
aganst the estate.
INT N L R NU COD
Treatment of fe nsurance poces under communty property aws
of Lousana n stuatons nvovng marta deducton. (See Rev.
Ru. 232, p. 26 .)
S CTION 12(d). N T ST T : TR NSF RS FOR PU LIC,
C RIT L , ND R LIGIOUS US S
Reguatons 105, Secton 1. : Transfers for Rev. Ru. 1 5
pubc, chartabe, regous, etc., uses.
nterna revenue code
Where a charty Is egatee under a w and, as such, contests the
probate of a ater w and such contest s setted by agreement wth
the partes n nterest, the amount deductbe for testamentary
chartabe gfts under secton 12(d) of the Interna Revenue Code
s cacuated on the bass of what the charty actuay receved.
dvce s requested reatve to the deducton, for Federa estate
ta purposes, of amounts pad to certan chartabe organzatons
pursuant to a settement agreement resutng from the contest of a w.
In the nstant case the decedent eft two ws. One w created a
trust of the resduary estate for the beneft of a son for fe wth
remander nterest of two-thrds to charty and one-thrd to grand-
chdren. ater w eft the buk of the estate to certan persons
other than the egatees n the frst w. From an order of the probate
court admttng the second w to probate, severa appeas were fed
by the chartes whch contested the ater w reyng on the frst w,
and by the hers who contested both ws, camng the decedent ded
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Regs. 105, 1. .
27
ntestate. efore |udgments were rendered n these suts, a sette-
ment agreement was reached whereby the second w woud stand ad-
mtted to probate and woud be admnstered as wrtten n a respects,
wth the e cepton of the resdue. The chartes receved substanta
amounts n settement of ther cams. The queston presented s
whether: (1) as the ater w was the one admtted to probate, the
amounts deductbe for chartabe bequests are ony those gven n
that w, or (2) n vew of the fact that the chartes actuay receved
substanta amounts n compromse of cams based on the pror w,
such amounts are, for Federa estate ta purposes, consdered to have
been receved from the decedent by bequest or devse and deductbe
from the gross estate under the provsons of secton 12(d) of the
Interna Revenue Code.
Secton 12 of the Interna Revenue Code provdes, n part, as
foows:
For the purpose of the ta the vaue of the net estate sha be determned,
In the ease of a ctzen or resdent of the Unted Sates by deductng from the
vaue of the gross estate

(d) Tbansfebs fob Pubc, Chartabe and Regous Uses. The amount
of a bequests, egaces, devces, or transfers, to or for the use of the
Unted States, any State, Terrtory, any potca subdvson thereof, or the
Dstrct of Coumba, for e cusvey pubc purposes, or to or for the use of
any corporaton organzed and operated e cusvey for regous, chartabe,
scentfc, terary, or educatona purposes. .
Where charty s desgnated as the soe egatee and devsee under a
w but actuay receves somethng ess than the entre estate by rea-
sons of a w contest nsttuted by the hers, the amount of the deduc-
ton s mted to the actua amount receved by charty. Ths
poston has been foowed snce the decson n Munro L. Lyetk v.
toey, 305 U. S. 1 , Ct D. 1370, C. . 193 -2, 20 . In that case an
her of the decedent contested the vadty of the decedent s w n
whch ony a sma egacy had been eft to hm. The hers, devsees,
egatees, and the e ecutors under the w entered nto a compromse
provdng that the w be probated and that a specfc sum be pad
to the her. The court hed that the money the her receved pursuant
to the compromse shoud be treated, wth respect to hs Federa ncome
ta abty, as acqured bv nhertance for the reason that t was
possbe for hm to receve It ony because of hs standng as an her
and of hs cam n that capacty. Whe the ssue there presented
was the ncome ta abty of such her, the ratonae has been fo-
owed bv the ureau n Federa estate ta cases. (See . T. 17, C. .
19 0-1,231.) In state of ohn Sage v. Commssoner, 122 Fed. (2d),
S0, the decedent bequeathed the entre resduary estate to charty.
w contest nsttuted on behaf of the decedent s wdow was aban-
doned n consderaton of her recevng one-fourth of the resduary
estate. In determnng the amount of the chartabe deducton, the
court sustaned the ureau s poston that the deducton for testa-
mentary chartabe gfts was mted to the amount actuay receved
by charty, whch was three-fourths of the resduary estate. In state
of Frederck F. Dumont v. Commssoner, 150 Fed. (2d), 691, two ws
were nvoved and n the ater one the bequest to charty (but not the
entre w) was vod under the Pennsvvana 30-day statute. oth
ws contaned chartabe bequests. The charty contested the va-
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275
Regs. 105, 1. 7(b).
dty of the ater w and camed under the earer w. sette-
ment was made, the ater w (under whch the chartabe bequests
woud have been vod) was admtted to probate, but the charty was
pad a substanta amount. It was hed that the amount pad to the
charty was deductbe under the provsons of secton 12(d) of
the Code. of these decsons arebased on the fact that the person
attackng the w s an her, a wdow, or a egatee under a pror w.
( so see everng v. Safe Depost and Trust Co. of atmore, 316
U. S. 56, Ct. D. 1552, C. . 19 2-1, 2 6, and ugey v. Commssoner,
1 3 Fed. (2d) 27.)
In the nstant case the status of the chartes contestng the pro-
bated w was that of egatees under the pror w whch they proffered
as the decedent s ast w. Such status commanded the settement
agreement and was recognzed by t. If the partes to ths contro-
versy were reversed so that the probated w bequeathed the res-
duary estate to charty but the amount was reduced by a settement
greement by hers and/or egatees (not chartabe organzatons)
under a pror w, the chartabe deducton woud not comprse the
entre resdue but woud be mted to the amount actuay receved
after the settement agreement. Such resut was obtaned n the Sage
case and . T. 17, cted above. Ths rue shoud operate both ways.
In vew of the foregong, t s hed that where a charty s egatee
under a w and, as such, contests the probate of a ater w and such
contest s setted by agreement wth the partes n nterest, the amount
deductbe for testamentary chartabe gfts under secton 12(d)
of the Interna Revenue Code s cacuated on the bass of what the
charty actuay receved.
S CTION 12(e). N T ST T : U STS, TC.,
TO SUR I ING SPOUS
Reguatons 105, Secton 1. 7a(a): owance
of marta deducton.
INT RN L R NU COD
Treatment of fe nsurance poces under communty property aws
of Lousana n stuatons nvovng marta deducton. (See Rev.
Ru. 232, p. 26 .)
Reguatons 105, Secton 1. 7(b) : Nondeduct- Rev. Ru. 279
be nterests.
INT RN L R NU COD
n nterest In rea property passng to a survvng spouse n the
form of a dower nterest under the aws of descent and dstrbuton
of the State of abama consttutes a termnabe nterest wthn
the meanng of secton 12(e) (1) ( ) of the Interna Revenue Code,
and any amount pad to a survvng spouse as the far vaue of such
dower nterest from the subsequent sae of the property, s not an
amount pad n eu of dower wthn the meanng of secton
12(e) (3) of the Code and s not aowabe as a marta deducton
for Federa estate ta purposes.
dvce s requested whether an amount pad to a survvng spouse
as the far equvaent of an nterest n rea property whch passed to
her n the form of a dower nterest under the aws of descent and
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Regs. 105, 1. 7(b).
276
dstrbuton of the State of abama s aowabe as a marta deduc-
ton under secton 12(e) of the Interna Revenue Code.
In the case presented, the decedent ded ntestate, survved by hs
wfe and chdren, ownng at the tme of hs death rea propertes n
the State of abama whch were subsequenty sod by the admnstra-
tors of the estate. One-thrd of the amount receved from such sae
was awarded by the probate court havng |ursdcton over the estate
to decedent s wdow, pursuant to State statutes, as the far equvaent
of her dower nterest n the propertes, she havng consented to the sae
of such nterest. The estate contends that t s entted to a marta
deducton under secton 12(e) of the Code wth respect to that porton
of the saes prce aotted to the wdow as the far vaue of her dower
nterest n the ands sod, t beng mantaned that the amount thus
receved by her consttuted her statutory nterest theren n eu of
dower, wthn the meanng of the defnton contaned n secton
12(e) (3) of the Code, and, that snce such amount passed to her as
absoute owner, t s a deductbe nterest under secton 12(e) (1) of
the Code.
Under the provsons of secton 12(e)(1)( ) of the Code, no
marta deducton w be aowed wth respect to a property nterest
whch passes or has passed from a decedent to hs survvng spouse n
any case where the survvng spouse has ony a fe estate or termnabe
nterest, whch w termnate or fa upon the apse of tme, upon the
occurrence of an event or contngency, or upon the faure of an event
or contngency to occur (1) f an nterest n such property passes or
has passed at any tme (for ess than an adequate and fu consdera-
ton n money or money s worth) from the decedent to any person other
than such spouse (or the estate of such spouse); and (2) f by reason
of such passng such person (or hs hers or assgns) may possess or
en|oy any part of such property after such termnaton or faure of
the nterest so passng to the survvng spouse. Reguatons 105, sec-
ton 1. 7b(d), provdes that secton 12(e)(1)( ), supra, s to be
apped wth respect to the property nterests whch actuay passed
from the decedent to hs spouse and any subsequent converson of the
property s mmatera for ths purpose. Secton 12(e) (3) (C) of the
Code provdes that an nterest n property sha be consdered as pass-
ng from the decedent to any person f and ony f such nterest s the
dower or courtesy nterest (or statutory nterest n eu thereof) of such
person as survvng spouse of the decedent.
Secton 1, tte 16, of the Code of abama (19 0) provdes that:
The rea estate of persons dyng ntestate, as to such estate descends, sub|ect
to the payment of debts, charges aganst the estate, and the wdow s dower, as
foows:
(1) To the chdren of the ntestate, or ther descendants, In equa parts.
Secton 0, tte 3 , of the abama Code defnes dower as:
an estate for the fe of the wdow In a certan porton of the foowng
rea estate of her husband, to whch she has not renqushed her rght durng the
marrage .
Secton 1, tte 3 , of the abama Code provdes that:
The quantty of the dower nterest s as foows:

(3) When there are nea descendants, then to one-thrd part thereof,
whether the estate be sovent or not.
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277
Regs. 105, 5 1. 7(b).
Under tte 61 of the abama Code, n case of ntestacy, ands may
be sod by the admnstrator for the payment of debts when the per-
sona estate s nsuffcent therefor (sec. 2 ); and the ands of an
estate may be sod by order of the probate court havng |ursdcton
of the estate, when the same cannot be equtaby dvded among the
hers or devsees, when an adut her or devsee fes hs wrtten con-
sent that the and be sod (sec. 2 5). In such cases, the appcaton
for the sae of ands, ether for the payment of debts or for dvson,
must be made by the e ecutor or admnstrator and such appcaton
may be contested by any party nterested n the estate (sec. 2 6).
Where, under the provsons of tte 61, the ands of a decedent can be
ordered to be sod by the probate court, the wdow may fe n the offce
of the |udge of probate her wrtten consent that her dower nterest
n the and be sod, so as to vest n the purchaser the compete tte;
and thereupon the court must order such dower nterest to be sod
wth the resdue of the ands (sec. 271). When the sae s confrmed,
the court, on appcaton of the wdow, must make an order that a far
equvaent for the dower nterest be pad to her by the persona repre-
sentatve, when the purchase money s coected, the vaue of such
nterest to be ascertaned by proof, havng regard to the age and
heath of the wdow, but n no case to e ceed one-thrd of the purchase
money (sec. 272, as amended uy 6,19 5).
abama has adopted substantay the common aw concept of
dower. It s cear that dower n that State, as defned by secton 0,
tte 3 , supra, s nothng more than a fe estate n whch the wfe s
entted to a part of the ands of her husband at death or upon her
dssent from hs w. It s aso cear that sectons 271 and 272, tte 61,
of the abama Code provde no statutory substtute for dower such
as s contempated n the defnton set forth n secton 12(e) (3) of
the Code. Secton 271 merey prohbts the court from orderng the
sae of the wdow s dower nterest wthout her wrtten consent; and
secton 272 merey makes t mandatory on the court f ands of the
estate are sod, the wdow consentng thereto n wrtng, to make an
order for the payment to her of the far equvaent of the dower nter-
est out of the purchase money. Dower n abama has not been
aboshed by statute and, therefore, no statutory substtute for dower
s provded. Nether do the sectons of abama aw referred to
confer upon the wdow any vested rght of property such as w
quafy for the marta deducton under secton 12 (e) (1) of the Code.
The ony nterest n the abama ands whch passed upon the death
of the decedent to hs wdow was the dower nterest as defned by the
aw of the State, or an estate for fe n and to a one-thrd part of
such ands. Snce fee smpe tte to the whoe of such ands vested
n the chdren at the tme of ther father s death, sub|ect ony to the
dower nterest theren of the wdow, the chdren or ther descendants
may possess or en|oy a of such property upon the death of ther
mother. The nterest n such ands whch passed to the wdow s,
therefore, ceary a termnabe one. The subsequent sae of the ands
and the payment of a porton of the proceeds of the sae as the far
equvaent of the wdow s dower nterest theren amounted to no more
than a converson of the nterest passng to her on the decedent s
death.
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egs. 105, 1.9.
27
Under the provsons of secton 12(e) of the Code, the marta de-
ducton s aowabe wth respect to any nterest n property whch
passes from a decedent to hs survvng spouse as absoute owner.
Such s not the aw of abama wth respect to the nterest of a
wdow n ands of her ntestate husband where there are nea de-
scendants, as here. The wdow s death termnates any rghts she may
have n the ands. It s true that her dower nterest n the ands cannot
be sod wthout her consent but t aso s true that she cannot compe
a sae of her dower nterest or the payment to her of the far vaue of
such nterest or ts equvaent n cash.
In vew of the foregong, t s hed that an nterest n rea property
passng to a survvng spouse n the form of a dower nterest under
the aws of descent and dstrbuton of the State of abama
consttutes a termnabe nterest wthn the meanng of secton
12(e) (1) ( ) of the Interna Revenue Code, and any amount pad
to a survvng spouse as the far vaue of such dower nterest from
the subsequent sae of the property s not an amount pad n eu of
dower wthn the meanng of secton 12(e) (3) of the Code and s not
aowabe as a marta deducton for Federa estate ta purposes.
S CTION 13(b). CR DITS G INST T : ST T ,
SUCC SSION, L G CY, ND IN RIT NC T S
Reguatons 105, Secton 1.9: Credt for T. D. 603
death ta es.
TITL 20 INT RN L R NU . C PT R I, SU C PT R , P RT 1
ST T T UND R C PT R OF T INT RN L R NU COD , S
M ND D
Reguatons 10.r amended to conform to secton G03 of the Revenue
tt of 11)51, mntng to foregn estate ta credt.
Treasurt Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Se vce and Others
Concerned:
On March 11, 1953, notce of proposed ruemakng wth respect
to amendments conformng the estate ta reguatons to secton 603
of the Revenue ct of 1951, approved October 20,1951, was pubshed
n the Federa Regster (1 F. R. 13 9). fter consderaton of
such reevant suggestons as were presented by nterested persons
regardng the proposas, the foowng amendments to Reguatons
105 26 CFR, pt. 1 are hereby adopted:
Paragraph 1. Secton 1.2, as amended by Treasury Decson
59 1 C. . 1952-2, 23 , approved October 2 , 1952 26 CFR 1.2 ,
reatng to descrpton of ta , s further amended by nsertng m-
medatey after the ffth paragraph of (a) thereof (whch par.
commences Credts for 1 edera gft ta es ) the foowng new
paragraph:
Credts for death ta es pad foresn countres hy estates of certan decedents
dyng after October 20, 1051, are authorzed aganst both the basc and
addtona ta es. See secton 1.9(b) as to condtons and mtatons.
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279
Regs. 105, 1.9.
Par. 2. Secton 1.7, as amended by Treasury Decson 5239, C. .
19 3, 10 1 , approved March 10, 19 3 26 CFR 1.7 , reatng to
rates and computaton of ta , s further amended as foows:
( ) y nsertng n the second sentence of the thrd paragraph
thereof, mmedatey after for gft ta the foowng: or for
death ta es ; and
( ) y strkng the ast sentence n e ampe (2) thereof and nsert-
ng n eu thereof the foowng sentence:
It w be noted that credt for estate or nhertance ta es pad to any State
s not aowabe aganst the addtona ta mposed by secton 935.
Par. 3. There s nserted mmedatey precedng secton 1. 26
CFt 1. the foowng:
S C. 603. FOR IGN ST T T CR DIT R NU CT OF
1951, PPRO D OCTO R 20, 1951 .
(a) CaroT ganst asc state Ta . Secton 13 (reatng to
credts aganst estate ta ) s hereby amended by addng at the end
thereof the foowng new subsecton :
(c) Same Pad to Foregn Countres.
(1) In genkba. The ta mposed by secton 10 sha be
credted wth the amount of any estate, Inhertance, egacy, or
successon ta es actuay pad to any foregn country n respect of
any property stuated wthn such foregn country and ncuded n
the gross estate (not ncudng any such ta es pad wth respect to
the estate of a person other than the decedent). If the decedent
at the tme of hs death was not a ctzen of the Unted States,
credt sha not be aowed under ths subsecton uness the foregn
country of whch such decedent was a ctzen or sub|ect, n mposng
such ta es, aows a smar credt n the case of a ctzen of the
Unted States resdent n such country. The determnaton of the
country wthn whch property s stuated sha be made n accord-
ance wth the rues appcabe under Part III of ths subchapter
n determnng whether property s stuated wthn or wthout the
Unted States.
(2) Lmtatons on credt. The credt provded n ths sub-
secton wth respect to such ta es pad to any foregn country
( ) sha not, wth respect to any such ta , e ceed an
amount whch bears the same rato to the amount of such
ta actuay pad to such foregn country as the vaue of prop-
erty whch s
() stuated wthn such foregn country,
() sub|ected to such ta , and
( ) Incuded n the gross estate bears to the vaue
of a property sub|ected to such ta ; and
( ) sha not, wth respect to a such ta es, e ceed an
amount whch bears the same rato to the ta mposed by
secton 10 (after deductng from such ta the credts pro-
vded by subsectons (a) and (b) of ths secton) as the vaue
of property whch s
() stuated wthn such foregn country,
() sub|ected to the ta es of such foregn country,
and
() ncuded n the gross estate bears to the vaue
of the entre gross estate reduced by the aggregate amount
of the deductons aowed under subsectons (c), (d), and
(e) of secton 12.
(3) auaton of property.
( ) The vaues referred to n the rato stated n para-
graph (2) ( ) are the vaues determned for the purposes
of the ta mposed by such foregn country.
( ) The vaues referred to n the rato stated n para-
graph (2)( ) are the vaues determned under ths chapter;
but, n appyng such rato, the vaue of any property descrbed
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Regs. 105, 5 1.9.
2S0
In causes (), ( ), and (III) thereof sha be reduced by
such amount ns w propery refect, n accordance wth regu-
atons prescrbed by the Secretary, the deductons aowed
n respect of such property under subsectons (c), (d), and (e)
of secton 12.
( ) Paoor op credt. The credts provded In ths subsecton
and n secton 936(c) sha be aowed ony f the ta payer es-
tabshes to the satsfacton of the Secretary ( ) the amount of
ta es actuay pad to the foregn country, ( ) the amount and
date of each payment thereof, (C) the descrpton and vaue of
the property n respect of whch such ta es are mposed, and (D)
a other nformaton necessary for the verfcaton and computaton
of the credts.
(5) Pebod of mtaton. The creds provded In ths sub-
secton and In secton 936(c) sha be aowed ony for such
ta es as were actuay pad and credt therefor camed wthn
four years after the fng of the return requred by secton 21,
e cept that
( ) If a petton for redetermnaton of a defcency has
been fed wth the Ta Court of the Unted States wthn
the tme prescrbed n secton 71, then wthn such four-
year perod or before the e praton of 00 days after the de-
cson of the Ta Court becomes fna.
(3) It, under secton 22(a)(2) or secton 71(h), an
e tenson of tme has been granted for payment of the ta
shown on the return, or of a defcency, then wthn such
four-yenr perod or before the date of the e praton of the
Ierod of the e tenson.
Refund based on such credts may (despte the provsons of sec-
tons 910 to 912, ncusve) be made f cam therefor s fed wthn
the perod above provded. ny such refund sha be made wth-
out nterest.
(b) Credt ganst ddtona state Ta . Secton 93 (reatng
to credts aganst estate ta ) s hereby amended by addng at the end
thereof the foowng new subsecton:
(c) state, tc., Ta es Pad to Foregn Countres.
(1) In genera. In the case of the estate of a ctzen or res-
dent of the Unted States, the ta Imposed by secton 935 sha
be credted wth the amount of any estate, nhertance, egacy,
or successon ta es actuay pad to any foregn country n respect
of any property stuated wthn such foregn country and n-
cuded n the gross estate (not Incudng any such ta es pad
wth respect to the estate of a person other than the decedent).
If the decedent at the tme of hs death was not a ctzen of the
Unted States, credt sha not be aowed under ths subsecton
uness the foregn country of whch such decedent was a ctzen
or sub|ect, In mposng such ta es, aows a smar credt n the
case of a ctzen of the Unted States resdent n such country.
The determnaton of th country wthn whch property Is stuated
sbn be made n accordance wth the rues appcabe under Part
III of subchapter n determnng whether property s stuated
wthn or wthout the Unted States.
(2) Lmtaton on credt. The credt provded n ths sub-
secton wth respect to such ta es pad to any foregn country
( ) sha not e ceed the amount by whch such ta es
pad to the foregn country e ceed the amount of the credt
aowed therefor under secton 13(c) ; and
( ) sha not e ceed an amount whch bears the same rato
to the ta mposed by secton 935 (after deductng from such
tu the credt provded by subsecton (b) of ths secton) as the
vaue of property whch s
() stuated wthn such foregn country,
() sub|ected to the ta es of such foregn country, and
() ncuded In the gross estate bears to the vaue of
the entre gross estate reduced by the aggregate amount of
the deductons aowed under subsectons (c), (d), and (e)
of secton 12.
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2 1
Regs. 105, 1.0.
(3) Same 6Pecabu.es.
( ) For the purposes of paragraph (2) ( ), such ta es pad
to the foregn country sha, wth respect to any ta pad to the
foregn country, be the amount computed under secton 13(c)
(2) ( ).
( ) The vaues referred to n the rato stated n paragraph
(2)( ) are the vaues determned under ths chapter; but, n
appyng such rato, the vaue of any property descrbed In
causes (), (), and () thereof sha be reduced by such
amount as w propery refect, n accordance wth reguatons
prescrbed by the Secretary, the deductons aowed n respect
of such property under subsectons (c), (d), and (e) of secton
12.
( ) I OOF OF CRF.DIT.
For provsons reatng to proof of credt, see secton
13(c)( ).
(5) I RIOD OF LIMIT TION.
For provsons reatng to perod of mtaton on camng
of credt or refund based thereon and nonpayment of nterest
on refund, see secton 13(c) (5).

(e) ffectve Date. The amendments made by ths secton sha be
appcabe wth resect to estates of decedents dyug after the date of
the enactment of ths ct.
S C. 615. TR TY O LIG TIONS R NU CT OF 1951,
F RO D OCTO R 20, 1051 .
No amendment made by ths ct sha appy In any case where ts
appcaton woud be contrary to any treaty obgaton of the Unted
States.
Par. . Secton 1. , as amended by Treasury Decson 5699 C. .
19 9- 1, 1 1 , approved May 13, 19 9 26 CFR 1. , s further
amended as foows:
( ) y strkng the word and from the frst sentence of (a)
thereof;
( ) y strkng the perod at the end of the frst sentence of (a)
thereof and nsertng n eu thereof the foowng: , and, fourth f
the decedent ded after October 20, 1951, the credt under secton
1.9(6) for death ta es pad to a foregn country. ; and
(C) y substtutng 1.9(a) for 1.9 wherever 1.9 appears
n such secton.
Par. 5. Secton 1.9, as amended by Treasury Decson 5 20 fC. .
1950- 2, 7 , approved December 7, 1950 26 CF 1.9 , s further
amended as foows:
( ) y amendng the headng thereof to read as foows: Credt
for Death Ta es. (a) Ta es pad a State, Terrtory, the Dstrct of
Coumba or a possesson of the Unted States ;
( ) y deetng the second and thrd paragraphs thereof; and
(C) y nsertng at the end thereof the foowng:
(b) Foregn death ta es. (1) In genera. () Sub|ect to certan mtatons
ndcated herenafter, sectons 13(c) and 036(c) of the Interna Revenue Code,
as added by secton 603 of the Revenue ct of 1051, approved October 20, 1051,
nuthorze addtona credts aganst the basc and addtona estate ta es for any
estate, nhertance, egacy, or successon ta es actuay pad to any foregn
country n respect of property stuated n such foregn country and ncuded n
the gross estate. Such ta es are heren referred to as foregn death ta es.
The credt s avaabe to estates of decedents dyng after October 20, 1051, who
were ctzens of the Unted States at death. Credt s aso aowabe n the case
of a decedent dyng after October 20, 1051, who was a resdent but not a ctzen
of the Unted States f the country, of whch the decedent was a natona, n
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Regs. 105, 1.9.
2 2
Imposng death ta es aows a smar credt to estates of ctzens of the Unted
States resdent n such country. For defnton of resdent see secton 1.5.
(11) The credt s aowabe not ony as to death ta es pad foregn countres
whch are states n the nternatona sense, but aso as to estate, nhertance,
egacy, or successon ta es pad to possessons or potca subdvsons of foregn
states. owever, the credt s mted to estate, nhertance, egacy, or suc-
cesson ta es mposed wth respect to the death of such a decedent and does not
appy to any such ta es pad wth respect to the estate of a person other than
the decedent. No credt s aowabe as to property stuated outsde of the
foregn country n whch s mposed the ta n respect of whch credt s camed.
Whether partcuar property of the decedent s stuated n the foregn country
mposng the ta s determned n accordance wth the same prncpes that
woud be apped n determnng whether smar property of a nonresdent
decedent not a ctzen of the Unted States s stuated wthn the Unted States
for Federa estate ta purposes. See secton 1.50. For e ampe, under tbnt
secton, a bond for the payment of money s not wthn the Unted States uness
the certfcate s physcay ocated n the Unted States; accordngy, a bond
s deemed stuated n the foregn country mposng the ta ony f the certfcate
therefor s physcay ocated n such foregn country. Smary, under secton
1.50, stock of a domestc (Unted States) corporaton, rrespectve of ocaton
of the certfcate, and stock of a foregn corporaton, f the certfcate therefor
s ocated In the Unted States, s deemed to be stuated n the Unted States;
therefore, a share of corporate stock s regarded as stuated n the foregn
country Imposng the ta f the ssung corporaton s ncorporated In that coun-
try, or f the certfcate of stock (regardess of country of Incorporaton) s
physcay ocated n such country. Further, under the provsons of secton
( 3(b) and secton 1.50, moneys deposted wth any person carryng on the
bankng busness by or for a nonresdent not a ctzen of the Unted States who
was not engaged n busness n the Unted Sates at tme of death s not deemed
to be stuated n the Unted States. Consequenty, such an account wth a
foregn bank In the country mposng the ta s noc consdered to be stuated In
such country.
() The credt Is mted to the foregn estate, Inhertance, egacy, or suc-
cesson ta attrbutabe to property stuated n a foregn country and ncuded
n the gross estate. Further, the credt cannot e ceed the Federa estate ta
attrbutabe to such property, determned n the manner herenafter prescrbed.
No credt s aowabe for any nterest or penaty pad n connecton wth the
foregn estate, nhertance, egacy, or successon tu . Where credt for a par-
tcuar foregn death ta s authorzed by conventon, there sha be aowed
ether the credt provded by the conventon or the credt computed under ths
secton, whchever s the greater. Where a foregn death ta s mposed by
both a foregn country wth whch the Unted States has entered nto a death
duty conventon and one of ts possessons or potca subdvsons, the credt
authorzed by such conventon or by ths secton, whchever s the greater, sha
be aowed. For e ampe, f a porton of the estate of a ctzen of the Unted
States s stuated In Canada and s sub|ected to death ta es mposed by both
the Domnon of Canada and the Provnce of uebec, credt s aowabe for the
Domnon duty computed under the estate ta conventon wth Canada or for
the combned Domnon duty and the provnca dutes under ths secton, whch-
ever s greater. Where foregn death ta es are mposed n respect of the same
property by more than one foregn country, credt sha be aowed for a such
ta es, whether such credt s aowed under a conventon or under ths secton,
sub|ect to the mtatons prescrbed n ths secton. These rues may be us-
trated by the foowng e ampes:
ampe (/). The decedent was a ctzen of and domced In the Unted
States at death. s estate conssted of bonds of Unted States corporatons,
the certfcates for whch were physcay ocated n uebec, 750,000; stocks
of Canadan corporatons, the certfcates for whch were ocated n the Unted
States, 200,000; and bonds of Canadan corporatons, the certfcates beng o-
cated n the Unted States at death, 50,000. Debts and charges amounted to
0,000. The Federa estate ta pror to aowanre of credt for foregn death
ta es amounted to 257,7-10. ssume that the net successon duty mposed hy
the Domnon of Canada on the Canadan stock and onds amounted to 2S,320.
Under the Death Duty Conventon between the Unted States and Canada, the
2rrf oon
Federa estate ta attrbutabe to such property s:- r 257,7 0 6 , 3o.
On the bnss of ttese facts aone, credt woud be aowabe under the Canadan
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2 3
Regs. 105, 1.9.
Conventon for the ta pad to the Domnon of Canada n the amount of 2 ,320,
snce ths amount s ess than the Federa estate tar attrbutabe to the property.
No credt s aowabe under the conventon for tne ta mposed by the Provnce
of uebec.
ssume further that a successon duty was mposed by the Provnce of uebec
on the bonds of Unted States corporatons n the amount of ,090. Under the
stus rues n subdvson (6)()(), the bonds of Unted States corporatons
and stocks of Canadan corporatons are deemed to be stuated n the foregn
country. Under the rues n subdvson (6) (2) () beow for determnng the
an.ount of the frst mtaton the tota uebec duty attrbutabe to the Unted
States bonds stuated n Canada amounted to ,090, ar.d the Domnon succes-
son duty attrbutabe to the Canadan stocks amounted to 22,656. The tota for-
egn death ta attrbutabe to the property stuated n a foregn couutry and
ncuded n the gross estate amounted to 70,752. The credt cannot e ceed the
Federa estate ta attrbutabe to such property whch s computed as foows:
- -5|0- 257,7 0 2 , 53. Snce ths mtaton e ceeds the foregn ta
attrbutabe to the property, the credt under ths secton for both the ta es m-
posed by the Domnon of Canada and the Provnce of uebec Is mted to
7f,7f 2. Credt may not be camed separatey under the conventon for the
Domnon successon duty and under ths secton for the uebec successon duty.
ampe (2). The decedent was a ctzen of the Unted States, domced n
France at death. It s assumed that death occurred after November 21, 1051,
the effectve date of the suppementary conventon btween the Unted States and
Ca.sda. The estate of the decedent conssted of stock of Unted States corpora-
tons vaued at 750,000, the certfcates for whch were physcay ocated In
the Unted States; stock of French corporatons endorsed n bank, the certf-
cates for whch were ocated In Canada, 50,000; and bearer bonds of French
corporatons, the certfcates for whch were In Canada, 200,000. Under the
conventon between the Unted States and France, the French stocks and bonds
are deemed to be stuated n France, and credt for the ta mposed by France
n respect of such property s aowabe under su-h conventon. If not camed
under such conventon, credt for the ta Imposed cy France s avaabe under
ths secton wth respect to the stock of French corporatons for the reason
that under secton 1.50 stocks of corporatons are deemed stuated In the
country where the ssung company s ncorporated or at the physca ocaton
of the certfcates. No credt s aowabe, under ths secton for ta mposed
by France on the bonds of French corporatons snce, n accordance wt secton
1.50, bonds are consdered as beng stuated nt the physca ocaton of the
bocds. No credt s avaabe under the conventon between the Unted States
and Canada wth respect to the ta mposed by Canada on the French stocks and
bonds for the reason that under such conventon, the property s deemed to be
stuated In France. Credt, however, s aowabe under ths secton for the
Canadan ta attrbutabe to the French stocks and bonds, the certfcates for
whch were ocated In Canada.
(v) If at the tme the Federa estate ta return, Form 706, s fed, the for-
egn death ta has not been determned and pad, credt therefor may be entered
on the return n an estmated amount. The computaton of the credt shoud
be set forth on a schedue attached to Form 706. owever, before credt for
foregn death ta Is fnay aowed satsfactory evdence such as a statement by
on authorzed ofca of each country, possesson, or potca subdvson thereof,
mposng such ta must be submtted certfyng ( ) the fu amount of such
ta (e cusve of any nterest or penates), as computed before aowance of
any credt, remsson, or reef; ( ) the amount of any credt, aowance, rems-
son, or reef, and other pertnent nformaton, ncudng the nature of such
aowance and a descrpton of the property to whch t pertans; (C) the net
foregn death ta payabe after such aowance; (I)) the date on whch such
death ta was pad, or f not a pad at one tme, the amount of each parta pay-
ment; and ( ) a st of the property stuated n such foregn country and sub-
|ected to ts ta , showng a descrpton and the vaue thereof. Satsfactory
evdence must aso be submtted showng that no refund of such death ta s
pendng and none authorzed or, f ny such refund s pendng or has been
authorzed, the amount thereof and other pertnent nformaton. The foowng
nformaton shoud aso be submtted whenever appcabe:
( ) If any of the property sub|ected to such death ta was stuated out-
sde of the country mposng the ta , the descrpton of each tem of such
property and the vaue thereof.
2 670 D 19
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Regs. 105, 1.9.
2
( ) If more than one nhertance or successon s Invoved wth respect
to whch credt s camed, or where the foregn country, possesson or pot-
ca subdvson thereof mposes more than one knd of death ta , or where
the foregn country, possesson or potca subdvson thereof each Imposes
a death ta , separate computaton wth respect to each nhertance, succes-
son ta .
(v) In addton to the foregong, the Commssoner may requre the subms-
son of any further proof deemed necessary to estabsh the rght to credt.
(2) Lmtaton on amount of credt aowabe () Genera. The credt a-
owabe under ths secton s mted to the smaer of the foowng amounts:
( ) The foregn death ta attrbutabe to property stuated n a foregn
country, sub|ect to foregn death ta , and ncuded n the gross estate; or
( ) The Federa estate ta attrbutabe to such property, as prescrbed
herenafter.
() Frst mtaton. The amount of the foregn death ta attrbutabe to
the property descrbed n () ( ) above, s an amount , whch bears the same
rato to (the amount of the foregn death ta mposed upon the partcuar
nhertance or successon, wthout aowance of credt, f any, for Federa estte
ta ) that C (the vaue of the Inhertance or successon stuated n the foregn
country whch was ncuded n the gross estate for Federa estate tu ) bears to
D (the vaue of the entre nhertance or successon sub|ected to the foregn
death ta ). Where the foregn country mposes more than one knd of death
ta or mposes ta es at dfferent rates upon the severa shares of an estate, or
where the foregn country and a potca subdvson or possesson thereof each
mpose a death ta , the frst mtaton s to be computed separatey for each snrh
ta or rate. The vaues used n ths proporton are the vaues determned for
the foregn death ta . The amount of the foregn death ta for whch credt Is
aowabe must be converted nto Unted States money.
s an e ampe of the determnaton of the foregn death ta attrbutabe to
specfc property, assume that the decedent was a ctzen of the Unted States
and hs wdow and son are benefcares under hs w. The decedent owned
rea estate n Country vaued at 90,000 and stock of Y Corporaton (a corpora-
ton organzed under the aws of Country ) vaued at 75,000. There s no death
duty conventon between the Unted States and Country . 00,0 of the rea
estate and 15,000 of the stock of Corporaton passed to the survvng spouse.
ssume that under the aws of the Country the nhertance tn s computed as
foows:
Propertes Inducted In the wdow s nhertance for ta of Country
1. aue of rea estate n 00,000
2. aue of stock of Corporaton T 15.000
Tota vaue 75,000
Ta of Country 12,000
Property ncuded n the son s nhertance for ta of Country
1. aue of rea estate n .10. 000
2. aue of stock of Corporaton 60,001)
Tota vaue 90,000
Ta of Country 1 , 00
The amount of the foregn nhertance ta attrbutabe to persona property n
15,000
the wdow s Inhertance s 12,000 2, 00. The amount of the foregn
75,000
nhertance ta attrbutabe to persona property n the son s nhertance Is
00,000
1 , 00 9,000.
90,000
1. Country ta on personaty on wdow s Inhertance 2. 00
2. Country ta on personaty on son s nhertance 9,600
Toa Country nhertance ta attrbutabe to ncuded property 12,tw0
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2 5
Rcgs. 105, 1.9.
() Second mtaton. For the purpose of (I) ( ) above, the amount of the .
Federa estate ta attrbutabe to property for whch the credt s aowabe s
to be computed as foows:
(/ ) The frst step s to determne the vaue of the foregn property whch enters
Into the computaton. In case no deducton Is aowed under secton 12(c)
(reatng to the deducton for property prevousy ta ed), secton 12(d) (re-
atng to the so-caed chartabe deducton), or secton 12(e) (reatng to the
so-caed marta deducton), such vaue sha e the vaue of property stuated
n the foregn country, sub|ect to the foregn death ta , and ncuded n the gross
estate. owever, f any deducton s aowabe under secton 12 (c), (d), or
(e) such vaue sha be the vaue of property stuated n the foregn country,
sub|ect to the foregn death ta , and ncuded n the gross estate, reduced n
accordance wth the foowng rues: ( ) Where any such property s specf-
cay bequeathed, devsed, or transferred to an organzaton descrbed In secton
12(d), or passes to the survvng spouse wthn the meanng of secton 12(e),
such vaue s to be reduced by the amount of the deducton under secton 12(d)
or (e) attrbutabe to such bequest, devse, or transfer, or to the passng of such
property. (6) Where any such property s property wth respect to whch a
deducton may be aowed under secton 12(c), such vaue sha be reduced by
that part of the aggregate deducton aowed under secton 12(c) whch the
vaue of such property wth respect to whch a deducton may be aowed under
the frst three paragraphs of secton 12(c) bears to the vaue of a proerty
wth respect to whch a deducton may be aowed under the frst three para-
graphs of secton 12(c). (c) Where an nterest n a group of assets whch
conssts n part of such property s bequeathed, devsed, or transferred to an
organzaton descrbed n secton 12(d), or passes to the survvng spouse wthn
the meanng of secton 12(e), such vaue s to be reduced by an amount whch
bears the same rato to (the amount of such bequests to charty or such prop-
erty passng to the survvng spouse) whch C (such property ees the amount
of reductons computed under paragraphs (a) and (6)) bears to D (the vaue
of a property ess (1) the amount of a property specfcay bequeathed, de-
vsed, or transferred to an organzaton descrbed n secton 12(d), or specf-
cay passng to the survvng spouse wthn the meanng of secton 12(e), and
() the aggregate deductons aowed under secton 12(c)). ( /) For the pur-
pose of determnng the deducton under secton 12(e) under rues (a) and (c)
If the aggregate marta deducton aowed under secton 12(e) Is ess than the
amount of such deducton computed wthout regard to the mtaton stated In
secton 1. 7d, then the porton of such deducton attrbutabe to partcuar
property Is an amount whch bears the same rato to the deducton whch woud
be attrbutabe to such property wthout regard to the mtaton stated n secton
1. 7d as the aggregate marta deducton aowed bears to the aggregate marta
deducton computed wthout regard to the mtaton stated n secton 1. 7d.
(2) Te second step s to compute the amount of the Federn estate ta at-
trbutabe to property for whch the credt s aowabe, whch s an mount ,
whch bears the same rato to (the Federa estate ta , after aowance of
credts for State nhertance, etc., ta es under secton 13(b) and for gft ta es
under sectons 13(a) and 030(b)) as G (the vaue of the foregn property whch
enters Into the computaton, as determned under the frst step) bears to D
(the vaue of the gross estate, reduced by the aggregate amount of the deductons
aowed under sectons 12 (c), (d),nnd (e)).
The foowng e ampes ndcate the appcaton of the above rues of ths
subdvson. These e ampes are soey for the purpose of ustratng the deter-
mnaton of the amount of credt under ths secton and are wthout regard to
the amount of credt whch may be aowabe under the conventon between the
Unted States and France.
ampe (/). The decedent was a ctzen of and domced n, the Unted
States at tme of death: a son and daughter were benefcares, each takng one-
haf of the resdue of the estate, and cash n the amount of 00,000 was be-
queathed to a chartabe organzaton n the Unted States. The estate conssts
of shares of stock of Unted States corporatons, the certfcates for whch were
physcay ocated n the Unted States, 750,000; bonds ssued by the French
Government physcay ocated n the Unted States, 50,000; shares of stock of
French corporatons, the certfcates for whch were physcay ocated n France,
200,000; and debts and admnstraton e penses tota 0,000. Under the stus
rues prescrbed n subdvson (6) (1) (), the French stock comprses the ony
property deemed to be stuated n France. The amount of the French nhertance
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Regs. 105, 1.9.
2 6
ta In Unted States money Imposed In respect of snch property Is ,000. The
amount of Federa estate ta Is 133,300 after the aowance of State Inhertance
ta . The credt cannot e ceed the amount of the Federa estate ta attrbutabe
to the ncuded property whch s
120,000 (French stocks ad|usted) v 00 -nn_Mf .
600,000 (gross estate ad|usted) 1- .- ( )- - 6- 0-
Snce the cash bequest to charty s not specfcay Identfabe wth any
partcuar property, each amount used n the above proporton s ad|usted
to refect ts prorated share of the chartabe deducton aowed. The credt s
aowabe n the esser of the two amounts, 20,660.
ampe (2). The facts are the some as In e ampe (1) e cept that, n eu of
the cash bequest to charty, 0,000 of the French stocks are specfcay be-
queathed to a pubc chartabe estabshment n France. The tota amount of
French nhertance ta attrbutabe to property ncuded n the gross estate s
2, 00 ( , 00 aocabe to the bequest to charty and 3 ,000 to the shares
passng to the son and daughter). The amount of the Federa estate ta s
2 5,1 0. The credt cannot e ceed the amount of the Federa estate ta at-
trbutabe to the French stocks whch s
160,000 (vaue of French stocks ad|usted) 1C e|nc - 900,000 (gross estate ad|usted) 2 5.1 0 0,SG3.33.
Snce a chartabe deducton s nvoved n ths case, the vaue of the French
stocks and the vaue of the gross estate are ad|usted n computng the Federa
estate ta attrbutabe to the ncuded property. s the amount of the Federa
estate ta attrbutabe to the property Incuded n the gross estate (as ad|usted)
s ess than the amount of the French ta attrbutabe to the Incuded property,
the credt s aowabe n the former amount, 0, 63.33.
ampe (3). The decedent was domced n the Unted States at death; hs
wfe, son, daughter, and a chartabe organzaton beng the benefcares of hs
estate. The estate conssts of shares of stocks of Unted States corporatons, the
certfcates for whch were physcay ocated n the Unted States, O,0 0;
Unted States rea estate, 100,000; shares of stocks of French corporatons, the
certfcates for whch were n France, 300,000; and debts and admnstraton
e penses tota 0,000. e bequeathed 0,000 n rea estate to a charty n the
Unted States and 300,000 of French stocks and 200,000 of Unted States stocks
to hs wfe. The resdue of the estate passed to bs chdren. Under the stus
rues of subdvson (6) (1) (), the ony property consdered to be stuated n
France comprses the shares of stocks of the French corporatons. The amount
of French nhertance ta es n Unted States money s 71,250.
The ad|usted gross estate s 0,000 ess 0,000 debts and charges, or
00,000. The marta deducton s therefore mted to one-haf of 00,00 )
or 00,000. The amount of the Federa estate ta , after the aowance of
the 0 percent State nhertance ta credt, s 76,1 0. The French property
comprsed n the marta deducton s
00 000
3 300,000 or 2 0,000.
The French Inhertance ta attrbutabe to the property Incuded n the gross
estate s 71,250. The credt, however, cannot e ceed
60,000 (French property ad|usted)
00,000 (gross estate ad|usted) .1 0 or , ZT.
The vaue of the French stock Is ad|usted for ts prorated share of the
marta deducton aowed and the vaue of the gross estate s ad|usted for
the marta deducton and the bequest to charty. s the amount of the
Federa estate ta attrbutabe to the ncuded property s ess than the amount
of the French nhertance ta mposed on the property ncuded In the gross
estate, the credt s aowabe n the amount of the former, 11, 27.
(S) For the purposes of ths mtaton, where a partcuar foregn country
Imposes more than one knd of death ta or mposes ta es at dfferent rates
upon the severa shares of an estate or a partcuar country and ts possesson
or potca subdvson each Impose a death ta , the foregn property enterng
nto the computaton (as determned under step (1) above) whch Is sub|ected
to each such ta or dfferent rate sha be combned. The combned vaue
sha not e ceed the vaue at whch such property was ncuded In the
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2S7
Regs. 105, 1.9.
estate for Federa estate ta purposes. For e ampe, If the Domnon of Canada
mposes a successon duy wth respect to property at 10 percent and wth
res)oct to property at 20 percent, or property s sub|ected to ta by the
Domnon of Canada and property by the Provnce of uebec, the tota vaue
of propertes and sha be combned n computng ths mtaton. Further,
In such a case, the foregn death ta es attrbutabe to such property separatey
computed wth respect to each ta or rate under the frst mtaton sha be
combned when determnng whether the foregn death ta s greater or smaer
tbnn the Federa estate ta attrbutabe to such property. See part 1 of e ampe
(1) beow.
( ) In case credts aganst the Federa estate ta are aowabe under ths
secton or under ths secton and one or more death duty conventons n respect
of death ta es pad to more than one country, such credts sha be combned
and the aggregate amount thereof credted aganst the Federa estate ta .
If a partcuar tem of proerty ncuded n the gross estate s sub|ected to
ta by more than one foregn country, the tota amount of the credts Is
mted to the amount of the federa estate ta attrbutabe to such property,
ad|usted to gve effect to the prncpes stated n (3) above. See part 2 of
e ampe (1) beow. The amount of the Federa estate ta attrbutabe to such
property sha be determned In accordance wth the rues prescrbed for com-
putng the second mtaton n subdvson (b) (2) ( I).
ampe (/). The decedent s estnte conssted of propertes , , and C, each
raned at 100,000 for Federa estate ta purposes, and the tota Federa estate
ta wh respect to a such property amounted to 72,000. ssume that
propertes and quafy for the credt and that such propertes were fuy
sub|ected to foregn death ta as foows:
Property by the Domdon of Canada 20, 000
Proerty by the Provnce of uebec 20, ( 10
Property by Couttry 1U.000
Snce propertes and were fuy sub|ected to foregn death tn , the
amount of the foregn death ta attrbutabe to such proerty (computed sep-
aratey under the frst mtaton for each separate foregn death ta ) s the
fu amount of the foregn death ta es. The foregn death ta attrbutabe to
such property, thus computed separatey under the rst mtaton wh respect
to each separate foregn death ta , s to be compared wth the Federa estate
ta attrbutabe to such property computed under the second mtaton.
Part (/). In the case of the property sub|ected to ta by the Domnon of
Canada and the Provnce of uebec, the amount of the Federa estate ta at-
trbutabe to such proerty Is not to be computed separatey, under the second
mtaton wth respect to each separate foregn ta , but propertes and are
combned as foows:
20O,000(p.O1:ety sub|ect to to by Canada and ucbcc) te ) ,000
300,000 (gross estate)
Further, the amounts of the Canadan and uebec ta es attrbutabe to
propertes and computed under the frst mtaton are combned ( 0,000)
for purposes of comparson wth the Federa estate ta attrbutabe to such
property ( ,000) n determnng the aowabe credt wth respect to the for-
egn death ta es mposed by Canada and uebec. Credt s, therefore, aowabe
n the amount of 0,000 wth respect to the tu es mposed by Canada and ue ec
snce ths amount Is ess than the amount computed under the second mtaton.
Note: That f the second mtaton were computed separatey for propertes
and , the tota credt aowabe wh respect to property woud be ony
2 ,000 rather than 20,000.
Part (2). In the case of property sub|ected to ta by Country , the second
mtaton s computed as foows :
100,000 (property sub|ect to ta by ) 72000 federa ta ) 2 ,000
300,000 (gross estate)
The foregn ta Imposed by Country attrbutabe to such property under the
frst mtaton Is 10,000. Ths amount s ess tbnn the Federa estate ta
attrbutabe to such property ( 2 ,000), and on the bass of Ihese facts aone,
credt woud be aowabe for the ta mposed by Co .ntry In the amount of
10,000. owever, the Federa estate ta attrbutabe to property s 2 ,000
and, of th/s amount, 22,000 has been taken nto account n part 1 of ths e ampe
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Regs. 105, 1.9.
2
n determnng the credt aowabe wth respect to the death ta es mposed by
the Domnon of Canada and the Provnce of uebec as foows:
20,000 credt aowed wth respect to property for the ta mposed by
the Domnon of Canada;
2,000 credt aowed wth respect to property n e cess of the Federa
estate ta attrbutabe to such property ( 2 ,000) for the ta mposed by the
Provnce of uebec.
ccordngy, addtona credt aowabe for the ta mposed by Country
s mted to 2,000. If, under the facts n ths e ampe, property had aso been
sub|ected to death ta by Country no addtona credt woud be aowabe for
such ta for the reason that the Federa estate ta attrbutabe to such property
amounted to ony 2 ,000. Nevertheess, the credt of 2(,000 otherwse aowabe
wth respect to property sha not be reduced. The combned credts aowabe
wth respect to a foregn death ta es s mted to ,000.
ampe (2). If t be assumed under the facts otherwse ndcated n e ampe
(1) above that ony property was sub|ected to foregn death ta , the tota
credt aowabe wth respect to such property woud be 2 ,000. Whe the tota
death ta es mposed wth respect to property amounted to :(),000, the Federa
estate ta attrbutabe to snch property amounted to ony 2 ,000 and the credt
s, accordngy, mted to the smaer amount.
(v) ocaton of credt. The amount computed under the ower of the two
mtatons s the tota credt authorzed wth respect to boh the basc aud add-
tona ta es. The amount of credt authorzed agnnst the basc estate ta s
the ower of ( ) the amount computed under the frst mtaton and ( ) the
amount of the basc estate ta attrbutabe to the property computed n the man-
ner descrbed under the second mtaton. For ths purpose, the basc estate
ta s the net basc ta after aowance of credts for State nhertance, etc., ta es
under secton 13(b) and gft ta es under secton 13(a). The amount of credt
authorzed aganst the addtona estate ta s the ower of (C) the amount com-
puted under the frst mtaton ess the credt aowed aganst the basc estate
ta and (D) the amount of the addtona estate ta attrbutabe to the property
computed n the manner descrbed n the second mtaton. For ths purpose,
the addtona estate ta s the net addtona ta after aowance of credt for
gft ta under secton 936(b).
(c) Cam for credt or refund and nterest on refund. The credt s aso
mted to such ta es as were actuay pad and credt therefor camed wthn
years after the fng of the return, e cept as otherwse provded n ths para-
graph. If a petton s fed wth the Ta Court for the redetermnaton of a
defcency wthn the tme prescrbed by secton 71(a) (se- secton 1.73), the
credt s mted to such ta es as were actuay pad and credt therefor camed
wthn years after the fng of the return or before the e praton of 60 days
after the decson of the Ta Court becomes fna, whchever perod s the
onger. If an e tenson of tme has been granted for payment of the ta shown
on the return or of a defcency under secton 22(a) (2) or secton 71(h), the
credt s mted to such ta es as were actuay pad and credt therefor camed
wthn years after the fng of the return or before the date of the e praton
of the e tenson, whchever perod s the onger. Shoud the e ecutor, n ac-
cordance wth the provsons of sectons 925 and 926, eect to postpone the pay-
ment of the Federa estate ta attrbutabe to a reversonary or remander n-
terest, the credt aowabe aganst the ta attrbutabe to such nterest s mted
to estate, Inhertance, egacy, or successon ta es attrbutabe to such nterest
as are actuay pad and credt therefor camed pror to the e praton of 00
days after the termnaton of the precedent nterest. (See secton 927 of the
Interna Revenue Code and secton 1.79(6) of these reguatons.)
Refund based on the credt, despte the provsons of sectons 910, 911, and
912, w be made f cam therefor s fed wthn the perod provded for fng
cam for credt. Such refunds w be made wthout nterest.
(d) Recovery of death tan camed as credt. If subsequent to the aowan.-e
of credt for death ta es under secton 13 (b) or (c) or secton 936(c), re-
covery s made of any overpayment of such ta es, then the e ecutor or other
ptrson recoverng such overpayment s requred at once to notfy the Comms-
soner thereof. The Commssoner w thereupon redetermne the addtona
amount of estate ta due resutng from the ncorrect credt aowed and snch
amount w be pad by the e ecutor upon recept of notce and demand therefor.
ssessment of such addtona ta may be made at any tme.
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2 0
(Regs. 105, 1.9.
Par. 6. Secton 1.56 26 CFR 1.56 s amended by changng the
frst sentence thereof to read as foows:
The provsons reatng to credts under sectons 1. and 1.0(a) and to rates
and payment of the ta are the same n estates of nonresdents not ctzens and
of resdents or ctzens.
Par. 7. There s nserted mmedatey after secton 7 and pre-
cedng secton 75 of the Interna Revenue Code whch precede secton
1.7 the foowng:
S C. 0(13. FOR IGN ST T T CR DIT R NU CT OF
1001, N CT D OCTO R 20, 1051 .

(d) tenson of 1 erod of Lmtatons, etc., n Case of Recovery
of Ta es Camed as Crk|ht. Secton 7-( ) (reatng to e ceptons
to genera rue as to perod of mtaton upon assessment and coecton
of estate ta ) s hereby amended by nsertng at the end thereof the
foowng new paragraph:
(3) Recovery of ta es camed as credt. If any ta camed
as a credt under secton 13 ( ) or (c) or secton o: ((c) s re-
covered from any foregn country, any State, any Terrtory or pos-
sesson of the Unted Sates, or the Dstrct of Coumba, the e ecu-
tor, or any other person or persons recoverng such amount, sha
gve notce of su h recovery to the Secretary at such tme and n
such manner as may he requred by reguatons prescrbed by hm,
and the Secrctay sha redetermne the amount of the ta under
ths chupter and the amount, f any, of the ta due upon such re-
determnaton, sha be pad by the e ecutor or such person or per-
sons, as the case may be, upon notce and demand.
(e) ffectve Date. The amendments mcde by ths secton sha
be appcabe wth respect to estates of decedents dyng after the date
of the enactment of ths ct.
Par. . Secton 1.7 26 CF 1.7 s amended by strkng the
frst sentence of the fourth paragraph and nsertng n eu thereof
the foowng:
assessments aganst e ecutors (as to assessments aganst transferees and
fducares, see secton 1.102), e cept n the case of a fase or frauduent return,
or of a faure to fe a retnrn, or In the case of the recovery of ta camed as a
credt under secton 13 (b) or (c) or secton 030(c), must be made wthn 3
years after the return was fed.
Par. 9. There s nserted mmedatey precedng secton 1.79 26
CF 1.79 the foowng:
S C, 003. FOR IGN ST T T CR DIT I NUS CT OF
1051, N CT D OCTO R 20, 1051 .

(C) R ION Y OR R M IND R INT R ST.- S Cton 027 (reatng
to credt for State death ta es) s hereby amended to read as foows:
S C. 027. CR DIT FOU D T T S.
Such part of any estate, Inhertance, egacy, or successon ta es aow-
abe as a credt under secton S13 (b) or (e) aganst the ta mposed by
ts subchapter, or under secton 030(c) aganst the ta mposed by
subchapter , as s attrbutabe to such reversonary or remander nter-
est may be aowed as a credt aganst the ta attrbutabe to such nter-
est, sub|ect to the mtatons on the amount of credt contaned n such
sectons, If such part s pad, and credt therefor camed, at any tme
pror to the e praton of CO days after the termnaton of the precedent
Interest or Interests In the property.

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Regs. 105, 1.9.
290
(e) ffectve Date. The amendments made by ths secton sha
be appcabe wth respect to estates of decedents dyng after the date
of the enactment of ths ct.
Par. 10. Secton 1.79, as amended by Treasury Decson 5G99 2C
CFR 1.79 s further amended as foows:
( ) y strkng therefrom the sentence n the ast paragraph of
(a) begnnng n e tenson of tme to pay the ta , and nsertng n
eu thereof the foowng:
n e tenson of tme to pay the ta may e tend the perod wthn whch ta es
aowed as a credt by secton 13 (b) or (c) or secton 930(c) are requred
to be pad and the credt therefore camed. (See secton 1.0);
( ) y amendng the ffth paragraph of (b) thereof to read as
foows:
If the tme for payment of Federa estate ta attrbutabe to a reversonary
or remander nterest n property s postponed, a estate, nhertance, esat y,
or successon ta es aowabe as a credt under the provsons of sectons 13 (b)
or (c), or 936(c), whch are pad and for whch credt s camed wthn the
perod provded n such sectons w be aowed (not to e ceed the mtatons
n such sectons) and the aowance w be apped frst to the respectve portons
of the Federa ta attrbutabe to the same Interests n pro|erty to whch the
estate, nhertance, egacy, or successon ta es are attrbutabe. state, nher-
tance, egacy, or successon ta es, as descrbed In secton 13 (b) or (c), or
under secton 930(c), whch are attrbutabe to the reversonary or remander
nterest and whch are pad and for whch credt s camed after the e praton
of the perod provded n those sectons w aso be aowed as a credt aganst
the Federa ta attrbutabe to such Interest (not to e -ecd the mtatons In
such sectons) f such ta es are pad and credt therefor s camed pror to the
e praton of 60 days after the termnaton of the precedng nterest or nterests
n the property;
(C) y nsertng the foowng e ampe mmedatey foowng
the e ampe n the ffth paragraph of (6):
ampe. The fcts are the same as In the precedng e ampe e cept that.
In addton, the estate Is entted to a credt for foregn death ta pad n the
amount of ,000. The addtona Federa estate ta before aowance of such
credt s 51 2,500, of whch 7,500 s attrbutabe to the reversonary or re-
mander nterest and 95,000 s attrbutabe to other property. Of the tota
credt of ,000 for foregn death ta , 1,000 s attrbutabe to the reversonary
or remander nterest and 3,000 to other property. 500 of the credt s aowabe
aganst the Federa basc ta and 3,500 aganst the addtona ta . ssume that
the foregn death ta pad wthn the -year perod amounts to 3,500 none of
whch Is attrbutabe to the reversonary or remanoer Interest. Of ths payment,
500 w be credted aganst the Federa basc ta and 3,000 aganst the add-
tona ta . ccordngy, under these added facts, the estate w be requred to
pay at once 1,500 (Federa basc ta attrbutabe to property other than the
reversonary or remander nterest mnus the credts of S,000 and 500) and the
addtona Federa ta of 92,000 (the addtona Federa estate ta of 95,000
attrbutabe to property other than the reversonary or remander nterest mnus
the credt of 3,000). n e tenson w be aowed for payment of ,000 (Fed-
era basc ta of 5,000 mnus credt for State nhertance ta of 1,000) and
7,500 (the porton of the addtona Federa ta attrbutabe to the reversonary
or remander nterest). fter e praton of the -year perod, but before e pra-
ton of 00 days after termnaton of the precedent nterest, the estate pays add-
tona State estate, Inhertance, egacy, or successon ta es of 5,000 and foregn
death ta of 1,000 attrbutabe to the reversonary or remander nterest. s
the ma mum credt for both ta es Is 16,000, and 12,500 has aready been
aowed, there w be an addtona aowance of 3,500 and the estate w te
requred to pay ,000 at the end of the e tenson perod. ; and
(D) y nsertng n the frst sentence of the ast paragraph thereof
mmedatey after Dstrct of Coumba the foowng: , or by any
foregn country .
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291 Regs. 105, 1.13
Par. 11. The second sentence of the ast paragraph of secton 1. 0
26 CFR 1. 0 s amended to read as foows:
n e tenson of tme to pay te defcency may e tend the perod wthn whch
ta es aowed .s a credt by secton 13 (b) cr (c) or sec ton 030(c) are requred
to be pad and the credt therefor camed. (See sec. 1.9.)
Tar. 12. Secton 1.97 2G CFR 1.97 s amended by strkng there-
from the ast sentence and nsertng n eu thereof the foowng:
If a refund s based upon the credt for payment of estate, nhertance, egacy,
or successon ta es aowed by secton 13 (b) or (c) or secton 030(c) (ste
sec. 1.9), the refund w be made wthout Interest.
(Ths Treasury Decson s ssued under the authorty contaned n
sec. 3791 of the Interna Revenue Code (53 Stat. 67; 26 U. S. C.
3791).)
T. Coeman ndrews,
Commssoner cf Interna Revenue.
pproved uy 29,1953.
M. 15. Fnr.so.Yr,
ctng /Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster ugust 3, 1053 at :51 a. m.)
SU P RT II.-R TURNS ND P YM NT OF T
S CTION 22. P YM NT OF T
Reguatons 105, Secton 1.7 : Payment wth
bonds or notes of the Unted States.
1NT N L R NU COD
ppcaton of Unted States Treasury bonds n payment of Fed-
era estate ta es. (See Rev. Ru. 15(5, p. 253.)
P RT III. ST T S OP NONR SID NTS NOT CITIZ NS OF T UNIT D ST T S
S CTION 61. N T ST T
R-nuL TONs 105, Secton 1.13: Propery of Rev. Ru. 1S7
decedent at tme of death.
INT N L R NU COD
Upon the death of a foregn envoy duy accredted to te Unted
States who at te tme of death s nether domced n nor a natona
of the Unted Staes, the estate ta s not apped to persona property
used by hm n the conduct of hs ofca msson and reasonaby re-
qured for such purpose. The estate ta s apped to persona prop-
erty not so used (such as bonds or shares of corporate stock or other
nvestment property) and to a rea property stuated n the Unted
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Regs. 10 , 6.3a.
292
Sates, owned by the envoy. The agreement, effectve November 21,
19 7, between the Unted States of merca and the Unted Natons
respectng the headquarters of the Unted Natons (61 Stat. 3 1G.
3 27) provdes that certan representatves of member natons and
ther staffs and certan representatves of specazed agences and
ther staffs sha be entted to the same prveges and mmuntes
accorded to dpomatc envoys accredted to the Unted States. In the
event of the death of any such representatves or such staff members
ther estates are accorded the same estate ta treatment as s apped
to estates of deceased envovs accredted to the Unted States.
C PT R . GIFT T
SUCTION 1000. IMPOSITION OF T
Reouatons 10 , Secton 6.2: Transfers
reached.
INT RN L R NU COD
gft by the wfe of one-haf the proceeds of an nsurance pocy on
fe of the husband becomes absoute n Lousana upon death of the
husband. (See Rev. Ru. 232, p. 26 .)
Reguatons 10 , Secton 6.3a: Gft of husband Rev. Ru. 1 6
or wfe to thrd party after pr 2, 19 .
INT RN L R NI COD
Where a husband and hs wfe eect to treat any gfts of property
made by cue of the spouses to thrd persons durng the year as havng
been made one-haf by each spouse, the consent whch s e ecuted for
that year under secton 1000(f) of the Interna Revenue Code w
appy to a of the gfts made by the spouses durng the year, ncud-
ng every gft of separate property made by the husband or the wfe
even though a consent s e ecuted ony on one of the separate gft
ta returns whch are fed.
Rkottatons 10 , Secton 6.3a : Gft of husband Rev. Ru. 1SS
or wfe to thrd party after pr 2,19 .
INT RN L R NU COD
husband and wfe, each havng faed to e ecute the consent
of spouse paragraph on the Federa gft ta return, Form 700, fed
by the other, w not be dened the gft-spttng prvege provded
by secton 1000(f) of the Interna Revenue Code f on each of ther
separate gft ta returns they sgnfed ther consents to treat a
gfts made by them to thrd partes as havng been made one-haf
by each spouse.
dvce s requested whether the gft-spttng prvege provded
by secton 1000(f) of the Interna Revenue Code shoud be dened to
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293
Regs. 10 , 6.3a,
a husband and wfe where on each of ther separate Federa gft ta
returns, Form 709, they sgnfed consents to treat a gfts made by
them to thrd partes as havng been made one-haf by each spouse
but faed to e ecute the consent of spouse paragraphs on each
other s returns.
In the nstant case the donor fed a Federa gft ta return for the
year nvoved and eected to spt the gfts made between hmsef and
hs wfe. The wfe fed a separate gft ta return. On each of the
separate returns the partes ndcated n answerng queston 3 that
each consented to have the gfts made by them to thrd partes con-
sdered as havng been made one-haf by each spouse, owever, on
nether of the returns of the husband or the wfe was the consent of
spouse paragraph e ecuted. The queston presented s whether the
fng of the separate returns and the afrmatve answers thereon reat-
ng to consents satsfy the requrements of secton 1000(f) of the
Code and the reguatons promugated pursuant thereto so as to per-
mt the gft-spttng prveges to each spouse.
Secton 1000(f) of the Code, nsofar as t s pertnent to the ques-
ton n ssue, provdes that a gft made after the date of the enactment
of the Revenue ft of 11)1 ( pr 2,11) ) by one spouse to a person
other than hs spouse sha, for the purpose of the Federa gft ta ,
be treated as havng been made one-haf by each spouse. Ths pro-
vson of the gft ta aw s appcabe ony f both partes consent
n accordance wth the reguatons) to treat a such gfts made
urng the year by ether whe marred to the other as havng been
made one-haf by each spouse. Subparagraph (b) of secton G.3a
reads n pertnent part as foows:
Consent to the appcaton of the provsons of secton 1000(f) wth respect
to a caendar year sha, n order to he effectve, he sgnfed by bo) spouses.
If both spouses re gft ta returns, Form 70S), wthn the tme for sgnfyng
consent t. s suffcent f (1) the consent of both spouses Is sgnfed on one of
such returns or (2) the consent of one souse s sgnfed on one such return and
the consent of the other spouse s sgnfed on the other return. If ony one spouse
fes a gft ta return wthn the tme provded for sgnfyng rongeur, the consent
of both spouses sha be sgnfed on such return. owever. wherever possbe
notce of the consent s to be shown on both returns. .
In vew of the foregong t s hed that f t s necessary for ony one
spouse to fe a Federa gft ta return the consent of spouse para-
graph must be e ecuted on such return by the other spouse; or, f
ether spouse shoud on hs or her return negect to answer queston
on the return reatng to consents, e ecuton of sad paragraph woud
kewse be essenta. owever; where each party has on hs and her
separate return by an affrmatve answer to queston sgnfed
consent to treat a gfts made by them to thrd partes as havng been
made one-haf by each spouse (and f such gfts otherwse quafy),
the partes w not be dened the gft-spttng prvege because of
the faure to e ecute the consent of spouse paragraphs on each
other s returns. The affrmatve answers by each to queston
reatng to consents consttutes a suffcent compance wth the re-
qurements of secton 1000(f) of the Code and the reguatons promu-
gated pursuant thereto. s to the effect of a consent e ecuted by
ony one of the spouses, see Rev. Ru. 1 6, page 292, ths uetn.
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Regs. 12 , 0 .20 . 29
S CTION 1005. GIFTS M D IN PROP RTY
Reguatons 10 , Secton 6.19: auaton of Rev. Ru. 1 9
property.
INT RN L NO COD
Restrctons attachng to shares of corporate stock, provdng that
the owner may not se, transfer, or otherwse dspose of the shares
wthout frst offerng them for sae to certan nterested persons at a
f ed prce, or at a prce determned by the appcaton of a partcuar
formua, whe a factor to be consdered wtn a other pertnent fac-
tors of vauton, are not bndng upon the Commssoner n deter-
mnng far market vaues for Federa gft ta purposes. See statt
of Ucu ted ames v. Commssoner, 1 Fed. (2d) 236; Chares T.
ne v. Commssoner, 130 Fed. (2d) 7 2; Frederck raus et a. v.
Unted States, 1 0 Fed. (2d) 510; Commssoner v. arrson . Mc-
Cann, 1 6 Fed. (2d) 3 5; arry II. Sptser v. Commssoner, 153 Fed.
(2d) 9G7. so see Rev. Ru. 57, page 255, ths uetn.
C PT R 9. MPLOYM NT T S
SU C PT R .- MPLOYM NT Y OT RS T N C RRI RS
P RT I. T ON MPLOY S
S CTION 1 01. D DUCTION OF T FROM W G S
Reguatons 12 , Secton 0 .30 : Coecton
of, and abty for, empoyee ta .
INT RN L R NU COD
Wthhodng tabe combnng empoyee ta under the Federa In-
surance Contrbutons ct and Federa ncome ta to be wthhed from
weeky wages pad on and after anuary 1,195 . (See Rev. Ru. 29 ,
P- 317.)
P RT I. G N R L PRO ISIONS
S CTION 1 26. D FINITIONS
Reguatons 12 , Secton 0 .20 : Who are Rev. Ru 233
empoyees.
( so Secton 1607, Secton 03.20 , Regua-
tons 107; Secton 1621, Secton 05.101,
Reguatons 116.)
INT RN L R NU COD
abystters performng servces for the customers of an estab-
shment engaged n a babystter servce whch furnshes rues n-
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295
Regs. 12 , 0 .20 .
structrg them In t r conduct whe on assgnment and the nature
of servces to be performed as we as the manner of performance of
such servces are empoyees of that estabshment for purposes of
Federa empoyment ta es and wanes for such servces are sub|ect
to wthhodng of Income ta under secton 1( 22 of the Interna
Revenue Code.
dvce s requested whether ndvduas performng servces as
babystters for the customers of a babystter servce are empoyees of
that estabshment for Federa empoyment ta purposes.
n estabshment whch s engaged n the operaton of a compete
babystter servce furnshes ts customers wth babystters and assumes
fu responsbty wth respect thereto. The estabshment adver-
tses n the cassfed secton of the teephone drectory and by ds-
trbuton of busness cards through persona contact. Parents appy-
ng for babystters (from the estabshment) sgn an agreement where-
by a certan charge s f ed by the estabshment for the servces of
the babystters pus an addtona amount to the frm.
The ndvduas engaged as babystters are personay ntervewed
by the estabshment and ther quafcatons checked wth respect to
persona habts and character, as we as for ther abty to care for
chdren. card record s mantaned by the estabshment on each
babystter showng a pertnent nformaton wth respect to qua-
fcatons such as the ndvdua s name, address, former address, date
on heath card, date on poce dentfcaton card, persona references,
busness references, avaabty, |ob preference, etc. n avaabty
st s made up each day n order that each babystter may be gven
her turn for assgnment. The estabshment furnshes each babystter
a set of rues or nstructons coverng the servces requred. Those
rues or nstructons provde, among other thngs, that babystters
are not to take over as permanent any assgnment made to them; that
they are not to gve the parents ther persona teephone numbers;
that f parents nsst on havng such numbers, they may be gven, but
the estabshment must be notfed of any future appontments; that
a -hour mnmum engagement, pus transportaton fee, s obtaned
by the estabshment for the babystters; and that any suggeston by
the parents to bargan dfferenty s to be gnored. The rues further
provde that the babystters must not entertan on an assgnment;
that they must not ask how ate the assgnment w be; that they may
fee free to rest after a. m.; that f they become on an assgn-
ment or accept an assgnment whch they cannot fuf, they must
ca the estabshment; and that the chd must not be eft aone for
any reason. weeky report and accountng s made by the baby-
stter to the estabshment.
The estabshment retans the rght to e ercse drecton and con-
tro over the servces performed by the babystters to an e tent suf-
fcent to consttute an empoyer-empoyee reatonshp. ccordngy,
t s hed that the babystters are empoyees of the estabshment for
the purposes of the Federa Insurance Contrbutons ct and the
Federa Unempoyment Ta ct, and the wthhodng of ncome ta
at the source on wages under secton 1G22 of the Interna Revenue
Code.
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Regs. 12 , 0 .20 .
296
Reguatons 12 , Secton 0 .20 : Who are Rev. Ru.261
empoyees.
( so Secton 1607, Secton 03.20 , Regua-
tons 107.)
INT RN L R NU COD
pathoogst engaged to devote hs tme and abty to the manage-
ment of a pathoogca aboratory fcr a hospta under an agreement
whereby he may not assume outsde dutes to the detrment of hs
prmary servces to the hospta, may not contract to provde patho-
ogy servce to other hosptas wthout the wrtten consent of the
admnstrator of the hospta, and s requred to compy wth a rues
and reguatons of the hospta, s an empoyee of the hospta for
purposes of the Federa Insurance Contrbutons ct and the Federa
Unempoyment Ta ct.
dvce s requested whether a pathoogst who conducts a aboratory
n a hospta under the condtons herenafter set forth s an empoyee
of the hospta for the purposes of the Federa empoyment ta es.
Under a contract between the pathoogst and the hospta the hos-
pta agrees to furnsh space, equpment, uttes, and reated servces,
ncudng mantenance and repars for the aboratory. The patho-
ogst agrees to conduct and operate the hospta s aboratory as ts
drector and admnstratve head, and s the soe |udge of the scentfc
procedures used theren. e s requred to devote hs tme and abty
to the proper management of the aboratory, and thereby foster the
respectve nterest of the hospta and ts medca staff. e s requred
to compy wth the poces, rues, and reguatons of the hospta, sub-
|ect to State and Federa aws appcabe to hs professona practce.
In addton, he s requred to assume certan teachng and other dutes.
e may not assume outsde dutes to the detrment of hs prmary
servces to the hospta, nor sha he contract to provde pathoogy
servce to other hosptas wthout wrtten consent of the admnstrator
of the hospta.
The pathoogst receves a monthy compensaton equa to a stated
ercentage of a charges appearng on the books and records of the
ospta for servces rendered by the pathoogst and the aboratory.
owever, n the event hs monthy compensaton does not tota a guar-
anteed amount of 6a; doars per year, proper ad|ustment w be made
at the end of the year.
aboratory servces performed by the pathoogst and other
aboratory personne are consdered by the partes concerned to be
servces rendered by the hospta, and t s the responsbty of the
hospta to prepare bs, keep books and records, and coect for a
such servces. The pathoogst and other aboratory personne are
requred to prepare such day or perodc records and reports as may
be necessary to e pedte the mantenance by the hospta of proper
records of the work and servces performed n the aboratory. Such
day records and reports are consdered hospta records. The po-
ces of the aboratory are estabshed by the hospta and the pathoo-
gst. Laboratory charges are determned by the pathoogst after con-
sutaton wth the admnstrator of the hospta, and wth the approva
of the board of trustees. Such charges must be n accord wth the
prevang charges n the area.
The seecton of personne deemed necessary to the operaton of the
aboratory, ther tenure of empoyment, assgnment of dutes, pace of
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297
Regs. 12 , 0 .20 .
work, hours of work, and a other empoyment factors are determned
by the pathoogst ony after consutaton wth, and sub|ect to the
approva of, the hospta s admnstrator and ts board of trustees.
such personne are consdered by the hospta to be ts empoyees,
and are requred to observe rues and reguatons prescrbed by the
hospta for ts other empoyees.
Secton 0 .20 (c) of Reguatons 12 provdes n part that every
ndvdua s an empoyee f under the usua common aw rues the
reatonshp between hm and the person for whom he performs serv-
ces s the ega reatonshp of empoyer and empoyee. Such secton
further provdes that generay such reatonshp e sts when the per-
son for whom servces are performed has the rght to contro and
drect the ndvdua who performs the servces, not ony as to the
resut to be acompshed by the work but aso as to the detas and
means by whch that resut s accompshed. That s, an empoyee s
sub|ect to the w and contro of the empoyer not ony as to what
sha be done but how t sha be done. In ths connecton, t s not
necessary that the empoyer actuay drect or contro the manner n
whch the servces are performed; t s suffcent f he has the rght to
do so. The rght to dscharge s aso an mportant factor ndcatng
that the person possessng that rght s an empoyer. Other factors
characterstc of an empoyer, but not necessary present n every
case, are the furnshng of toos and the furnshng of a pace to work,
to the ndvdua who performs the servces.
From the facts presented, t s apparent that the hospta ether
e ercses or has the rght to e ercse such contro and drecton over
the pathoogst as to estabsh the reatonshp of empoyer and em-
poyee. ccordngy, t s hed that the pathoogst s an empoyee
of the hospta for the purposes of the Federa Insurance Contrbu-
tons ct and the Federa Unempoyment Ta ct. (Cf. S. S. T. 363,
C. . 1939-1 (Part), 291.)
Reguatons 12 , Secton 0 .20 : grcu- Rev. Ru. 159
tura abor.
INT RN L R NU COD
fu-tme empoyee of a greenhouse, who devotes at east 0 per-
cent of hs tme n the performance of agrcutura abor wthn
the meanng of secton 1 26(h) of the Federa Insurance Contrbu-
tons ct and the remanng 20 percent of hs tme n the perform-
ance of other servces of an ncdenta nature s consdered as beng
engaged to perform agrcutura abor on a fu-tme bass for the
purposes of such act. Where such an ndvdua has quafed as a
reguar empoyee of hs empoyer for a caendar quarter of a year,
the wages receved by Mm n each succeedng quarter are ta abe
tnder the provsons of the Federa Insurance Contrbutons ct so
ong as he earns 50 or more n cash wages and works for (e same
empoyer on 60 or more days on a fu-tme bass.
dvce s requested whether an empoyee of the operator of a green-
house, who devotes appro matey 0 percent of hs workng tme to
the growng and cutvatng of hortcutura products and the reman-
ng porton of hs tme n the performance of other servces of an
ncdenta nature s consdered to be engaged to perform agrcutura
servces on a fu-tme bass wthn the meanng of secton
1 26(b)(1)( ) of the Federa Insurance Contrbutons ct.
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Regs. 12 , 0 .20 .
29
In the nstant case, the operator of a greenhouse rases fowers and
other hortcutura commodtes and ses them at reta. of hs
busness operatons are conducted from one unt, whch ncudes a
greenhouse, dspay and saesroom, and garage, and n whch are pro-
duced one-haf or ess of the hortcutura commodtes marketed.
On October 1,1952, he engaged an empoyee to perform servces on a
fu-tme bass. The empoyee generay worked hours per week,
the workng hours varyng wth the number of dayght hours each
day. e performed servces on 6 days of each week durng the frst
quarter of 1953, devotng at east 0 percent of hs workng tme to
the actua growng and cutvatng of hortcutura products, whch
consttuted agrcutura abor, and the remanng porton of hs tme
to preparng bouquets and makng deveres durng rush perods.
Such atter servces coud not quafy as agrcutura abor under para-
graph ( ) of secton 1 26(h) of the act snce the operator dd not
produce more than one-haf of the commodtes marketed. e was
pad more than 50 for hs servces durng such quarter.
The term empoyment, as defned n the Federa Insurance Con-
trbutons ct n effect on and after anuary 1, 1951, does not ncude
agrcutura ahor performed n any caendar quarter by an em-
fdoyee for hs empoyer uness the cash remuneraton pad for snch
abor (wth certan specfed e ceptons) s 50 or more and such abor
s performed by an ndvdua who s reguary empoyed to perform
such agrcutura abor. In order for an empovee to be reguary
empoyed wthn the meanng of secton 1 26(b) (1) ( ) of the act
he must frst be contnuousy empoyed (not necessary n farm abor)
by the same empoyer durng a of a caendar quarter, whch s known
as the quafyng quarter/ and n the ne t foowng quarter he
must perform agrcutura abor for the same empoyer on a fu-
tme bass on 60 or more days.
In order to satsfy the requrement of the performance of agr-
cutura abor on a fu-tme bass on at east 60 days durng a caendar
quarter, the arrangement under whch an empoyee performs agr-
cutura abor for an empoyer must contempate the performance of
such abor on a fu-tme bass, and the empoyee must perform agr-
cutura abor for the empoyer on at east 60 days durng the caendar
quarter. Thus, the requrement of the performance of agrcutura
abor on a fu-tme bass reates to the arrangement under whch the
empoyee s engaged to perform agrcutura abor, whereas the re-
qurement of the performance of agrcutura abor on at east 60 days
durng a caendar quarter reates to the performance of agrcutura
abor T y an empoyee on the requred number of days durng such
caendar quarter. n arrangement for the performance of agrcu-
tura abor on a fu-tme bass means an arrangement under whch an
empoyee s engaged to perform agrcutura abor for a snge em-
poyer on the bass of a fu workday. The term fu workday as
used n the precedng sentence has reference to the fu workday pre-
vang n the partcuar ocaty for the type of agrcutura occupa-
ton n whch the empoyee s engaged. The fact that an empoyee
who performs agrcutura abor prmary for one empoyer aso per-
forms other servces of an ncdenta character for such empoyer or
any ncdenta servces for some other person does not prevent such
empoyee from beng engaged on a fu-tme bass n the performance
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299
Regs. 12 , 0 .20 .
of agrcutura abor for such empoyer. In determnng whether an
empoyee has performed agrcutura abor on at east 60 days durng
a caendar quarter, there sha be counted as 1 day
( ) any day or porton thereof on whch the empoyee ac-
tuay performs such abor; and
( ) any day or porton thereof on whch the empoyee does
not perform agrcutura abor but wth respect to whch cash
remuneraton s pad or payabe to the empoyee for such abor,
such as a day on whch the empoyee s sck or on vacaton.
n empoyee who reports for work on a partcuar day and, at the
drecton of hs empoyer, hods hmsef n readness to perform agr-
cutura abor w be consdered to be engaged n the actua perform-
ance of such abor on that day.
In the nstant case a contnung empoyer-empoyee reatonshp of
the type necessary to consttute a quafyng quarter wthn the
meanng of secton 1 26(b) (1) ( ) () (I) of the Federa Insurance
Contrbutons ct, as amended, e sted between the operator of the
greenhouse and hs empoyee durng the caendar quarter ended De-
cember 31,1952. Moreover, pursuant to the prncpes set forth above,
the empoyment agreement wth the operator of the greenhouse con-
tempated the performance of agrcutura abor on a fu-tme bass.
The fact that durng the caendar quarter ended March 31, 1953, the
empoyee devoted not more than 20 percent of hs tme to the per-
formance of servces whch do not consttute agrcutura abor, as
defned n secton 1 26 (h) of the Federa Insurance Contrbutons ct,
does not operate to prevent hs cassfcaton as beng engaged to
perform agrcutura servces on a fu-tme bass snce such servces
are of an ncdenta character. ccordngy, nasmuch as the em-
poyee performed agrcutura abor for the operator of the green-
house on a fu-tme bass on 60 or more days durng the caendar
quarter ended March 31, 1953, and earned cash remuneraton of 50
or more for such servces, abty for the ta es mposed under the
Federa Insurance Contrbutons ct was ncurred wth respect to the
wages for such servces.
Regt|atons 12 , Secton 0 .20 : grcu- Rev. u. 17
tura abor.
INT RN L R NU COD
(1) partnershp whch entered nto crop purchase agreements
wth varous growers of grapes and peaches en an acreage bass
does not quafy as the operator of a farm wthn the meanng of
secton 1 20(h)( )( ) of the Federa Insurance Contrbutons
ct, as amended, even though t conducts some, f not a, of the
operatons necessary for the producton and harvestng of such
crops; (2) the servces performed by the partnershp s empoyees
after 1050 n haung such crops to ts packng pant as we as
servces performed at the pant do not consttute agrcutura abor
for the purposes of such act; however, (3) the servces performed
by the partnershp s empoyees on the farms of the seers, pror to
and on or after anuary 1, 1951, n connecton wth the cutvaton,
harvestng, and other reated servces of such crops consttute
agrcutura abor wthn the meanng of such act.
dvce s requested whether a partnershp quafes as the operator
of a farm wthn the meanng of secton 1 26(h)( )( ) of the
Federa Insurance Contrbutons ct, as amended, through ts ac-
2 670 5 20
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Regs. 12 , 0 .20 .
300
tvty n connecton wth certan crop purchase agreements on an
acreage bass wth varous growers of grapes and peaches, and as to
the status of the partnershp s empoyees for the purposes of such act
t the begnnng of the growng season the partnershp n the n-
stant case entered nto crop purchase agreements wth the growers of
grapes and peaches of a certan varety, grown on specfed acreages
owned by the seers, for whch the partnershp pavs the seers a
f ed sum at the tmes and n the amounts specfed. The agreements
stpuate whether the necessary crop producton operatons such as
cutvatng, rrgatng, etc., are to be conducted by the partnershp
or by the seers. In a cases the partnershp pays for the fertzer
and suphur used, and ts empoyees do the necessary grdng, thn-
nng, eaf strppng, packng, oadng, haung, and packagng and
sometmes the cutvatng, rrgatng, fertzng, and prunng. The
partnershp owns and furnshes a the equpment used n ts opera-
tons. From about une 1 unt the end of the harvest season the
ta payer hres a reguar fed crew of 25 or 30 members and durng
the rush season an addtona crew.
Secton 1 26(h) of the Federa Insurance Contrbutons ct, as
amended by the Soca Securty ct mendments of 1950, provdes
n part as foows:
grcutura Laror. The term agrcutura abor ncudes a servce
performed

( ) ( ) In the empoy of the operator of a farm n handng, pantug,
dryng, packng, packagng, processng, freezng, gradng, storng, or dever-
ng to storage or to market or to a carrer for transportaton 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.
Secton 0 .20 (d) (5) of Reguatons 12 provdes that the opera-
tor of a farm as used n secton 1 26(h) ) ( ) of the act means an
owner, tenant, or other person, n possesson of a farm and engaged
n the operaton of such farm. If the partnershp n the nstant
case s hed to be the operator of a farm, the servces of ts empoyees
performed n handng, pantng, etc., as specfed n secton
1 26(h)( )( ), supra, woud consttute agrcutura abor and
woud be consdered ta abe empoyment ony f the condtons spec-
fed n secton 1 26(b)(1)( ) of the act are met; otherwse, those
servces w consttute ta abe empoyment wthout regard to the
provsons of secton 1 26(b) (1) ( ) of the act (see Rev. Ru. 159,
p. 297, ths uetn), uness e cuded by the operaton of secton
1 26(c) of the act.
Under the terms of the crop purchase agreements the seer does
not surrender, nor s there vested n the partnershp a rght of pos-
sesson to the and covered by the agreement. The partnershp s rght
of possesson e tends ony to possesson of the specfc crop grown on
the and and the payment made to the seer s for crop produced.
Whe the partnershp conducts or pays for certan operatons neces-
sary for the producton of the crop, the number of specfc operatons
to be conducted by each party s a matter of barganng or agreement
reated to the producton and utmate dsposton of a crop and not
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301
Regs. 12 , 0 .213.
the dscharge by the partnershp of dutes devovng upon t as the
operator of a farm.
Under such crcumstances the partnershp does not quafy as the
operator of a farm wthn the meanng of secton 1 26(h) ( ) ( )
of the act, as amended, and the servces performed after 1950 by ts
empoyees n haung to ts packng pant any agrcutura or hort-
cutura commodtes obtaned under ts crop purchase agreements, as
we as servces performed n ts pant n the handng, gradng, pack-
ng, etc., of such commodtes and deverng them to market or to a
carrer for transportaton to market, do not consttute agrcutura
abor wthn the meanng of the act.
owever, the servces performed by the partnershp s empoyees on
the farms of the seers covered by the crop purchase agreements, pror
to and on and after anuary 1, 1951, whch reate to the cutvaton
of the so and rasng of grapes and peaches, such as the appcaton
of fertzer, sufur, etc., rrgaton servces, grdng, thnnng, prun-
ng, eaf strppng, and other reated servces, as we as servces per-
formed n the harvestng and fed oadng of grapes and peaches,
consttute agrcutura abor wthn the meanng of secton
1 26(h)(1) of the act.
If one-haf or more of an empoyee s tme n the empoy of the
partnershp n a partcuar pay perod s spent n performng servces
whch consttute empoyment under secton 1 26(b) of the act, then
a of the servces of that empoyee for the partnershp n that pay
perod sha be deemed to be empoyment; however, f ess than one-
haf of the empoyee s tme s spent n performng servces whch con-
sttute empoyment, then none of hs servces sha be deemed to be
empoyment. For ths purpose, a pay perod s construed as a perod
(of not more than 31 days) for whch a payment of remuneraton
s ordnary made to the empoyee by the empoyer.
Reguatons 12 , Secton 0 .213: Unted States Rev. Ru. 1 7
and nstrumentates thereof.
( so Secton 1621, Secton 05.101, Reguatons
116.)
INT RN L R NU COD
Remuneraton pad by the Department of the rmy to cvan
nstructors at army educaton centers ocated n the Panama Cana
Zone for servces performed on a contract or fee bass, does not
consttute wages wth respect to empoyment for the purposes
of the Federa Insurance Contrbutons ct, as amended. owever,
such remuneraton pad to cvan nstructors who are ctzens or
resdents of the Unted States, consttute wages sub|ect to wth-
hodng of ncome ta at the source under secton 1622 of the
Interna Revenue Code.
dvce s requested whether the remuneraton for servces per-
formed on a contract or fee bass by cvan nstructors at army
educaton centers ocated n the Panama Cana Zone consttutes
wages for the purposes of the Federa Insurance Contrbutons
ct, as amended, and wthhodng of ncome ta at the source under
secton 1622 of the Interna Revenue Code.
Cvan nstructors performng servces n the army educaton
centers ocated n the Panama Cana Zone are engaged under
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Regs. 12 , 0 .213.
302
authorty of secton 2(c) of the rmed Servces Procurement ct
of 19 7, 62 Stat. 21, and paragraph 1 b() of Department of the
rmy Speca Reguatons 355-30-1, dated ugust , 1950, as
amended. Paragraph 1 b() of Speca Reguatons 365-30-1, as
amended, reatng to nstructors engaged on a fee bass, provdes
that such nstructors w not be apponted to postons n the com-
pettve servce as empoyees of the Department of the rmy, but
w have the status of ndependent contractors engaged on a fee bass
for servces separate and compete n themseves, and not computed
on a per dem or other tme bass. Instructors w be pad on the
bass of a specfc fee for each ndvdua teachng sesson, purey
on a performance bass wthout any buk, annua, or perodc method
of computaton.
Department of the rmy Speca Reguatons 355-30-1, as amended,
further provde that army educaton centers ncude factes, per-
sonne, and equpment provded and desgnated by the commandng
offcer for army educaton program actvtes. Tests desgned to pace
ndvdua students at varous educatona eves are avaabe from
the Unted States rmed Forces Insttute, herenafter referred to as
US F1. Instructons for admnstraton accompany the tests, and
the educatona pacement eves based upon ndvdua test scores
are prescrbed by the US FI. Group-study courses offered under
the army educaton program may be based upon ether US FI mate-
ras and tests or upon those of cvan nsttutons, but the two
types may not be ntermnged n any one course. When an army
educaton program group study cass whch utzes non-US F
materas s competed, a descrptve outne of the course, a dupcate
ndvdua cass record card for each student and the test answer
sheet must be forwarded to the approprate US FI. The outne
of the course must ncude the foowng:
(1) Tte, author, and copyrght date of each te t used.
(2) Length of course n hours, and number and frequency
of cass meetngs.
(3) Outne of quafcatons of nstructors. ( perence
quafcatons or number of hours of pertnent tranng.)
( ) copy of the end-of-course test used, wth certfcate
attached statng that t was admnstered and used under the
condtons and the manner requred for admnstraton and use
of US FI end-of-course tests.
Standards of progress have been estabshed whch students are
e pected to acheve, and the work of the nstructors s observed and
nspected to nsure that the students acheve such standards.
Secton 1 26(b) of the Federa Insurance Contrbutons ct, as
amended, provdes n part as foows:
The term empoyment means any servce, of whatever nature, per-
formed after 1 ) 50 ; e cept that such term sha not ncude
(C) Servce ptrforned n the empoy of the Unted States or n the
empoy of any nstrumentaty of the Unted States, f such servce s
performed

(v) hy any ndvdua as an empoyee who Is e cuded by ecutve
order from the operaton of the Cv Servce Retrement ct of 11 30
because he s pad on a contract or fee bass
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303
Regs. 12 , 0 .226.
Secton 1622 of the Interna Revenue Code provdes n part as
foows:
(a) Requrement of Wthhodng. very empoyer makng payment of
wages sha deduct and wthhod upon such wages a ta equa to 1 per centum
of the amount by whch the wages e ceed the number of wthhodng e emp-
tons camed, mutped by the amount of one such e empton as shown n
subsecton (b) (1), e cept that n the case of wages pad on or after November
1, 1951, and before anuary 1, 105 , the ta sha be equa to 20 per centum of
such e cess n eu of 1 per centum.
It s the opnon of ths ureau that the Department of the rmy
e ercses or has the rght to e ercse contro over the servces of the
nstructors at army educaton centers to an e tent suffcent to estab-
sh the reatonshp of empoyer and empoyee. If the reatonshp
of empoyer and empoyee e sts, the descrpton of the reatonshp
by the partes as anythng other than that of empoyer and empoyee
s mmatera. Thus, t s of no consequence that the empoyee s
desgnated as a partner, coadventurer, agent, or ndependent contrac-
tor. (See, however, sec. 1 20(e) of the ct.)
It s presumed that the servces of the nstructor-empoyees at army
educaton centers, pad on a contract or fee bass, are e cuded from
operaton of the Cv Servce Retrement ct by ecutve Order
915 of May 1, 19 2, and amendments thereto, uness ther servces
are covered under such ct by reason of contnuty of servce, ren-
statement, or otherwse. ccordngy, t s further the opnon of ths
ureau that remuneraton pad to cvan nstructors for servces
performed on a contract or fee bass at army educaton centers ocated
n the Panama Cana Zone s not sub|ect to the ta es mposed by the
Federa Insurance Contrbutons ct, as amended, but that remunera-
ton pad to cvan nstructors who are ctzens or resdents of the
Unted States for such servces consttutes wages for the purpose
of wthhodng of ncome ta at the source under secton 1622 of the
Code.
Refatons 12 , Secton 0 .226: Wages. Rev. Ru. 190
( so Secton 1607, Secton 03.227, Regu-
atons 107; Secton 1621, Secton 05.101,
Reguatons 116; Secton 22(n), Secton
29.22(n)-; Secton 23(a), Secton 29.23
(a)-; Secton 1 7, Secton 29.1 7-2,
Reguatons 111.)
INT RN L R NU COD
Reasonabe transportaton aowances pad by a company to ts
empoyees whe workng for a strcty temporary perod on a con-
structon pro|ect ocated at a dstance from ther prncpa or regu-
ar pace of empoyment do not consttute wages for empoyment
ta pu .-poses vnder subchapters , C, and D of chapter 9 of the In-
terna Revenue Code.
Treatment for federa Income ta purposes of aowances re-
ceved and actua e penses ncurred, by constructon workers for
day transportaton between ther prncpa or reguar pace of em-
poyment and a dstant constructon pro|ect where they are em-
poyed for a strcty temporary perod.
S. S. T. 13, C. R. 19 1-1, 0 , revoked.
Reconsderaton has been gven to S. S. T. 13, C. . 19 1-1, 0 ,
n whch t s hed that transportaton aowances pad to empoyees
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Regs. 12 , 0 .226.
30
of a company consttute wages for purposes of subchapters
and C, chapter 9, of the Interna Revenue Code.
It s stated n S. S. T. 13, supra, that the company pad ts em-
poyees aowances to cover ther day transportaton e panses to and
from a Federa pro|ect, where suffcent sked abor was not ava-
abe n the mmedate vcnty, pursuant to the foowng authorza-
ton contaned n an agreement between representatves of the Govern-
ment and certan abor unons:
The transportaton rembursement to the contractor sha be n a fat amount
for a trades concerned at 70 cents per day per man, and the workman sha
be rembursed for tbs transportaton n checks entrey separate from the
payro.
It has now been estabshed by addtona facts, not appearng n
S. S. T. 13, supra, that the empoyees n queston ved, and ordnary
worked at ther trades on oca constructon |obs, wthn the metro-
potan area of a certan cty, and further that they receved such
aowances ony for a perod of from 2 to months whe they were
constructng mtary factes on a ste ocated 1 mes from the
mts of that cty and some dstance beyond the suburbs generay
regarded as consttutng part of such metropotan area.
Sub|ect to mtatons not here appcabe, the term wages s
defned n sectons 1 26(a) and 1007(b) of subchapters and C of
chapter 9 of the Interna Revenue Code to mean a remuneraton
0 for empoyment, ncudng the cash vaue of a remuneraton pad
n any medum other than cash .
Secton 0 .226(a) of Reguatons 12 (whch supersedes secton
02.227(b) (2) of Reguatons 106), ssued pursuant to subchapter ,
chapter 9, of the Code, provdes n part as foows:
mounts pad specfcay ether as advances or rembursements for trav-
eng or other bona tde ordnary and necessary e penses ncurred or reasonaby
e pected to be ncurred n the busness of the empoyer are not wages. Traveng
and other rembursed e penses must be dentfed ether by makng a separate
payment or by specfcay Indcatng the separate amounts where both wages
and e pense aowances are combned n a snge payment.
Secton 03.227(a) of Reguatons 107, as amended by T. D. 5 05,
C. . 1950-2, 112, ssued pursuant to subchapter C, chapter 9, of the
Code contans dentca provsons. Furthermore, the correspondng
provsons reatng to the wthhodng of ncome ta at the source
on wages under secton 1621(a) of subchapter D, chapter 9, of the
( ode, and secton 05.101(c) of Reguatons 116, are substantay
the same as the above-cted provsons pertanng to subchapters
and C.
Reyng on S. M. 10 , C. . 1, 101 (1919), and ppea of Frank
II. Suvan, 1 . T. . 93, t was concuded n S. S. T. 13, supra,
that any amounts e pended by the nstant empoyees for transporta-
ton to and from ths constructon pro|ect dd not represent e penses
ncurred n the busness of the empoyer, but consttuted persona
e penses ncurred by the empoyees.
owever, t. s now recognzed, n vew of the decson n arry F.
Schurer v. Commssoner, 3 T. C. 5 , acquescence, C. . 19 , 2 ,
that S. M. 10 and the Suvan case must be dstngushed from the
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305
Regs. 12 , 0 .226.
stuaton presented heren. ach of the ta payers consdered n
those cases merey commuted between hs abode and hs prncpa or
reguar pace of busness. In the nstant stuaton, however, the
constructon workers dd not commute between ther abodes and ther
prncpa or reguar pace of empoyment, but ncurred day trans-
portaton e penses between the metropotan area n whch they
ordnary worked and a dstant constructon pro|ect where they were
empoyed for a strcty temporary perod. Snce t has now been
estabshed that these constructon workers ved and customary
carred on ther trades durng the ta abe year n such metropotan
area, and were not reguary empoyed at any specfc ocaton or by
any snge contractor, ther prncpa or reguar pace of empoyment
woud be consdered as that metropotan area. Thus, ther e penses
for day transportaton between that metropotan area and the
pro|ect n queston were necessary ncurred for busness reasons,
rather than for persona reasons as n the case of a commuter who es
hs resdence as a matter of persona convenence and preference at
a dstance from hs reguar pace of busness.
From the pont of vew of the empoyee consdered heren, a such
transportaton aowances receved are, of course, ncudbe n hs
gross ncome. Of. secton 29.23(a)-2 of Reguatons 111. owever,
when such a worker s empoyed for a strcty temporary (as dstn-
gushed from an ndefnte) perod on a constructon pro|ect stuated
at a dstance from the metropotan area n whch ne s reguary
empoyed, he may deduct, n computng ad|usted gross ncome under
secton 22(n) (3) of the Code, hs actua e penses ncurred for day
transportaton between hs prncpa or reguar pace of empoyment
and such |ob up to, but not e ceedng, hs rembursement therefor.
If hs actua e penses for such day transportaton e ceed hs rem-
bursement, the e cess thereof may be deducted as an ordnary and
necessary busness e pense ncurred n carryng on the empoyee
trade, but ony n computng net ncome and on condton that the
empoyee eects to temze hs actua deductons, n eu of computng
hs ta by usng the ta tabe or the optona standard deducton.
Snce the empoyee returns to the metropotan area at the end of
each day s work, he s not consdered to be traveng away from
home wthn the meanng of secton 23(a) (1) ( ) of the Code. See
Lous I r v. Commssoner, T. C. 902, and Fred Maron Osteen v.
Commssoner, 1 T. C. 1261. Thus, any e penses ncurred for meas
whe at, or en route to and from, such pro|ect consttute persona
and nondeductbe e penses.
From the empoyer s pont of vew, reasonabe transportaton aow-
ances pad to such empoyees whe workng for a strcty temporary
perod on a constructon pro|ect ocated at a dstance from ther prn-
cpa or reguar pace of empoyment represent payments made for
busness purposes drecty connected wth the conduct of the em-
poyers busness. Thus, such payments shoud be treated as rem-
bursements of e penses ncurred by the empoyee n the busness of
the empoyer, rather than of the empoyee s persona e penses. It
foows that such aowances for transportaton e penses (as dstn-
gushed from payments made for trave tme) represent amounts
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Regs. 12 , 0 .227.
300
pad specfcay as rembursements for bona fde ordnary and neces-
sary e penses ncurred or reasonaby e pected to be ncurred n the
busness of the empoyer wthn the meanng of the above-cted regu-
atons for empoyment ta purposes. In vew of the foregong, t
s hed that such aowances (when reasonaby segregated from te
payment of remuneraton for empoyment) do not consttute wages
for purposes of, and hence are not sub|ect to ta under, subchapters
, C, and D of chapter 9 of the Interna Revenue Code. ccordngy,
S. S. T. 13, supra, s hereby revoked.
though such transportaton aowances are not sub|ect to ncome
ta wthhodng under secton 1G22 of subchapter D of chapter 9 of
the Code, t s mportant to note that secton 29.1 7-2 of Reguatons
111 provdes that every empoyer payng an empoyee an aggregate
(n wages pus such aowances) of G00 or more n a caendar year
must report the empoyee s aowances not sub|ect to ncome ta wth-
hodng on Form 1099, n addton to the usua reportng of wages
sub|ect to wthhodng on Form W-2.
Reguatons 12 , Secton 0 .227: cusons Rer.R.135
from wages.
INT RN L R NU COD
In determnng whether a bona fde empoyment reatonshp
e sts n those eases where a member of one s famy performs
domestc servces In hs heme, for purposes of the taes Imposed by
the Federa Insurance Contrbutons ct, as amended, the e stence
of a contract of empoyment, the deendency status of the aeged
empoyee, the work hstory of the aeged empoyee, and the detas
of remuneraton pad are ma|or factors to be consdered.
dvce s requested reatve to the factors to be consdered n deter-
mnng whether a bona fde empoyer-empoyee reatonshp e sts, for
purposes of the ta es mposed by the Federa Insurance Contrbutons
ct (subch. of ch. 9 of the Interna Revenue Code), as amended, n
those cases where t s aeged that a member of one s famy s per-
formng domestc servces n hs home under an empoyer-empoyee
reatonshp. dvce s aso requested reatve to the e tent of con-
sderaton gven by the ureau to data secured and presented by
the Soca Securty dmnstraton, as we as rungs ssued by t
n connecton wth the soca securty benefts program, for the pur-
pose of determnng the abty of ndvduas for payment of the
ta es mposed by the Federa Insurance Contrbutons ct.
The ureau of Interna Revenue s responsbe for determnng the
status of an ndvdua for Federa ta purposes; however, n reach-
ng ts concuson nformaton from a sources, ncudng that nurt e
avaabe to the ureau by the Soca Securty dmnstraton, w
be carefuy consdered.
Secton 1 00 of the act mposes upon the ncome of every ndvdua
a ta equa to a certan percentage of the wages receved by hm
after December 31, 1936, wth respect to empoyment. Secton
1 10 of the act mposes upon every empoyer an e cse ta equa to the
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307
Regs. 12 , 0 .227.
same percentage of the wages pad by hm after December 31, 1936,
wth respect to empoyment.
The terms wages and empoyment are defned n secton 1 26
of the act. Under the terms of that secton, n order for the remunera-
ton pad by an empoyer to an empoyee for domestc servce n a
prvate home to consttute wages wth respect to empoyment, the
foowng tests must be met:
(1) bona fde empoyer-empoyee reatonshp must e st;
(2) the servce must not be performed by the ndvdua n the
empoy of hs son, daughter, or spouse, and f the empoyee s
under the age of 21 years the servce must not be performed n the
empoy of hs father or mother;
(3) the empoyee must be pad cash remuneraton n the caen-
dar quarter for such servce of 50 or more by the empoyer
(remuneraton pad for domestc servce n a prvate home n
other than cash does not consttute wages as that term s de-
fned n secton 1 26 of the act); and
( ) the empoyee must have performed domestc servce n a
prvate home of such empoyer for some porton of a day on at
east 2 days durng the caendar quarter (not necessary con-
secutve days), or for some porton of a day on at east 2 days
durng the precedng caendar quarter.
s a genera rue, tte dffcuty s e perenced n determnng
whether cash remuneraton of 50 or more was pad n a caendar
quarter, whether the servce was performed n the empoy of a rea-
tve as set forth n test (2), above, and whether domestc servce was
performed n a prvate home of the empoyer for the requred number
of days. Consderabe dffcuty has been encountered, however, n
determnng whether an n-aw or other cose reatve not mentoned
n (2), above, s an empoyee. Whe the basc prncpes are the
same n such cases as n those cases where no famy reatonshp
e sts, the nformaton necessary to appy the prncpes s sometmes
dffcut to obtan snce the workng arrangement n domestc empoy-
ment s usuay very nforma and the statements of thp partes to
the arrangement may be sef-servng nasmuch as there may be a
communty of nterests n the benefts whch ater may be derved
under the Soca Securty ct, as amended.
The foowng gudes may be used n determnng whether a true
empoyer-empoyee reatonshp e sts, or whether the domestc serv-
ces are performed under a famy or dependency arrangement:
Contract of empoyment. Ordnary, a forma wrtten contract
w not e st. If there s an ora or wrtten contract ts terms shoud
be e amned for the purpose of ascertanng when the agreement was
made, when rendton of the servces and the pay therefor began, what
supervson or contro was e ercsed and by whom, whether there were
any speca condtons, and the tme and nature of any changes that
occurred.
Cam of dependency for ncome ta purposes. If the aeged em-
poyer cams the aeged empoyee as a dependent for Federa or State
ncome ta purposes, that fact s strong but not concusve evdence
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Regs. 12 , 0 .227.
30S
that the arrangement s based on a famy reatonshp rather than an
empoyment reatonshp. Where the aeged empoyer s ncome s n
a ta bracket n whch an addtona dependency e empton woud be
of tte or no beneft to hm, the fact that the aeged empoyee s not
camed as a dependent shoud not be consdered as a matera factor.
Dscontnung the camng of an aeged empoyee as a dependent
durng the perod of the aeged empoyment, kewse, shoud not be
consdered as a matera factor.
Work hstory. The empoyment record of the aeged empoyee s
sgnfcant. Prevous empoyment, partcuary as a domestc, woud
favor the e stence of an empoyment reatonshp. On the other
hand, a record of no prevous empoyment tends to ndcate that the
ndvdua performs servces as a member of the famy group. The
aeged empoyer s record of hrng of domestcs s aso mportant.
For nstance, f the aeged empoyer had reguary empoyed a do-
mestc whose servces were termnated when the reatve assumed the
dutes, that fact woud tend to support an empoyer-empoyee re-
atonshp.
Remuneraton. There are certan factors n connecton wth the
source and purpose of payments made to an aeged empoyee that may
be hepfu n determnng whether an empoyment reatonshp ac-
tuay e sts. Remuneraton, ncudng payments n knd, whch
vares substantay from the prevang wage rates for the same or
smar servces shows famy consderaton rather than an empoyment
reatonshp. For Federa ta purposes the same payment s not
regarded as both remuneraton for servce and a contrbuton fcr
support. The source of the funds from whch an ndvdua s pad
does not necessary dentfy the empoyer, f any, but t may be n-
dcatve. The aeged empoyer s fnanca abty to hre domestcs
an 1 pay the wages s mportant. The amounts pad to the aeged
empoyee must, of course, be pad for servces rendered, and not for
e penses of runnng a househod.
s ndcated above, the e stence of a contract of empoyment, the
dependency status of the aeged empoyee, the work hstory, and the
detas of remuneraton are ma|or factors n determnng whether a
reatonshp of empoyer and empoyee e sts. owever, they are
not the soe factors. Many others may have a bearng on the deter-
mnaton. For nstance, f the aeged empoyee s owner or |ont
owner of the premses where the servces were performed, the arrange-
ment may be a renta agreement or a cooperatve arrangement. In
order to estabsh the e stence or none stence of an empoyment re-
atonshp, t s necessary to consder a the facts and crcumstances
n a partcuar case.
Where the tests set forth n numbers (2), (3), and ( ) above have
been met and there s doubt as to whether a bona fde empoyment
reatonshp e sts n a partcuar case, t s suggested that the fed
offces deveop the facts n the case by procurng the foowng
nformaton:
(1) certfed or photostatc copy of any wrtten agreement
under whch the servces were performed. If the agreement was

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309
Regs. 12 , 0 .227.
made oray, a statement of the terms and condtons of the
agreement.
(2) statement showng (a) where the aeged empoyee re-
sded durng the perod that the servces n queston were per-
formed, (b) whether the ndvdua was a member of the house-
hod n whch the servces were performed, (c) who owned or
eased the house or apartment n whch the servces were per-
formed, (d) the number of days per week and the number of
hours per day the aeged empoyee was requred to perform the
servces, and (c) who prescrbed the days and hours of empoy-
ment.
(3) Whether any nstructons were gven to the aeged em-
poyee as to how, when, and where the servces were to be per-
formed. If so, nstructons by whom.
( ) Whether the aeged empoyer or anyone n hs mmedate
famy prevousy camed, or now cams, the aeged empoyee
as a dependent for ncome ta purposes, f so, the year or years
n whch so camed.
(5) The nature of the servces performed by the aeged
empoyee.
(C) Whether the aeged empoyee was pad for the servces.
If so, whether pad n cash or by check.
(7) Whether the remuneraton receved by the aeged em-
poyee vares substantay from the prevang wage rates for the
same or smar servces.
( ) Whether payments or contrbutons were made to the
aeged empoyee pror to the date of the aeged empoyment.
If so, the amounts pad or contrbuted each week or month and
the reasons therefor.
(9) If any servce was performed before anuary 1, 1951, or
before the aeged empoyment reatonshp started, the manner
n whch the aeged empoyee was pad for such servce and at
what ntervas the payments were made.
(10) Whether the aeged empoyee fed an ncome a return
reportng the wages aeged to have been receved for the servces
n queston.
(11) If the aeged empoyee ved n the home of the aeged
empoyer, the ength of tme resded there and the ength of
tme wages were receved.
(12) Whether other domestcs are or have been empoyed n
the househod, f so, determne who was consdered to be the
empoyer of such ndvduas and how the work was dvded
among a the domestcs.
It s beeved that the gudes set forth above w enabe the fed
offces of the ureau to determne the status, under the Federa Insur-
ance Contrbutons ct, as amended, of ndvduas who perform
domestc servces n the prvate homes of reatves. owever, n
those cases where doubt e sts as to the status of such ndvduas, the
case shoud be transmtted to ths offce for consderaton. Corre-
spondence reatng to ths Revenue Rung shoud refer to ts number
and the symbos T: R: .
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Regs. 12 , 0 .227.
310
Reguatons 12 , Secton 0 .227: cusons Rev. RuL 2
from wages.
INT RN L R NU COD
mounts of 50 or more pad for each caendar quarter durng
1952 to an ndvdua who s reguary empoyed to perform domes-
tc servce n a prvate home consttute wages wth respect to
empoyment, for purposes of the Federa Insurance Contrbutons
ct, even though such ndvdua was temporary uuabe to perform
servces due to sckness. Such amounts are, however, e cuded from
the term wages f they are pad after the e praton of 6 caen-
dar months foowng the ast caendar month n whch the em-
poyee actuay performed servces for sue h empoyer.
dvce s requested whether amounts pad to an ndvdua en-
gaged to perform domestc servce n a prvate home consttute wages
for the year 1952, for purposes of the Federa Insurance Contrbu-
tons ct, even though such ndvdua was temporary unabe to
perform servces due to sckness.
n ndvdua has been empoyed to perform domestc servce n
the prvate home of a ta payer for appro matey 25 years. Due to
sckness she was unabe to perform servces durng the frst two quar-
ters of 1952 and performed servces ntermttenty as her heath per-
mtted durng the remander of the year; however, she was pad her
reguar wages durng the entre year. Such ndvdua has now re-
covered suffcenty to perform servces at ntervas.
Secton 0 .227(h) of Reguatons 12 provdes that the term
wages does not ncude cash remuneraton pad n any caendar
quarter by an empoyer to an empoyee for domestc servce n a
prvate home of the empoyer uness the cash remuneraton pad n a
caendar quarter for such servce s 50 or more, and the empoyee s
reguary empoyed by the empoyer n the caendar quarter n whch
the payment s made.
n ndvdua s deemed to be reguary empoyed by an empoyer
durng a caendar auarter ony f such ndvdua perforns domestc
servce n a prvate home of such empoyer for some porton of the
day on at east 2 days, whether or not consecutve, durng such ca-
endar quarter, or such ndvdua was reguary empoyed n the
)erfonnance of domestc servce n a prvate home of suct empoyer
urng the precedng caendar quarter (ncudng the ast caendar
quarter of 1950).
In determnng whether an empoyee has performed servce on
at east 2 days durng a caendar quarter, any day or porton thereof
on whch the empoyee actuay performs servces s counted as a
day. so counted as a day s any day, or porton thereof, on whch
the empoyee doe not perform servces, but wth respect to whch cash
remuneraton s pad or payabe to the empoyee for such servces,
such as a day on whch the empoyee s sck or on vacaton.
In the nstant case cash remuneraton of 50 or more was pad by
the empoyer n each of the caendar quarters durng whch the domes-
tc was sck. so, as the empoyee has performed servces for the
ta payer for the past 25 years and s contnung to work for the
ta payer when she s physcay abe, she s consdered to be reguary
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311
(Regs. 107, 03.227.
empoyed by such empoyer. It s accordngy hed that the amounts
pad to such ndvdua durng the tme she was temporary unabe
to perform servces due to sckness consttute wages wth respect to
empoyment for purposes of the act.
owever, the term wages does not ncude any payment made by
an empoyer to an empoyee on account of the empoyee s sckness, f
such payment s made after the e praton of 6 caendar months fo-
owng the ast caendar month n whch such empoyee actuay per-
formed servces for such empoyer. See secton 03.227(d) of regu-
atons 12 .
Reguatons 12 , Secton 0 .227: cusons
from wages.
INT RN L R NU COD
Premum pad on mpoyees nnutes by an empoyer e empt
from Federa ncome ta under secton 101(6) of the Interna Reve-
nue Code. (See Rev. Ru. 1 1, p. 111.)
SU C PT R O-T ON MPLOY RS OF IG T OR MOR
S CTION 1607. D FINITIONS
Reguatons 107, Secton 03.20 : Who are
empoyees.
nterna revenue code
Pathoogst engaged to conduct a aboratory n a hospta. (See
Rev. Ru. 261, p. 296.)
Reguatons 107, Secton 03.20 : Who are
empoyees.
INT RN L R NU COD
abystters engaged by an estabshment whch furnshes baby-
stter servces to ts customers. (See Rev. Ru. 233, p. 29 .)
Reguatons 107, Secton 03.227: Wages.
INT RN L R NU COD
Transportaton aowances pad to empoyees workng on a tempo-
rary constructon pro|ect ocated at a dstance from ther reguar pace
of empoyment. (See Rev. Ru. 190, p. 303.)
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Regs. 116, 05.101. 312
SU C PT R D.-COLL CTION OF INCOM T T
SOURC ON W G S
S CTION 1021. D FINITIONS
Reguatons 116, Secton 05.101: Wages.
INT RN L NU COD
Contrbutons requred of empoyees under artce 9 of the New-
York workmen s compensaton aw, assumed and pad by empoyers.
(See Rev. Ru. 130, p. 99.)
Reguatons 116, Secton 05.101: Wages.
INT RN L NU COD
Remuneraton pad to cvan nstructors, for servces performed
on a contract or fee bass at army educaton centers ocated n the
Panama Cana Zone. (See Rev. Ru. 1 7, p. 301.)
Reguatons 116, Secton 05.101: Wages.
INT RN L NU COD
Premum pad on mpoyees nnutes by an empoyer e empt
from Federa ncome ta under secton 101(6) of the Interna Reve-
nue Code. (See Rev. Ru. 1 1, p. 111.
Reguatons 116, Secton 05.101: Wages.
INT RN L NU COP
Transportaton aowances pad to empoyees workng on a tem-
porary constructon pro|ect ocated at a dstance from ther reguar
pace of empoyment. (See Rev. Ru. 190, p. 303.)
Reguatons 116, Secton 05.101: Wages.
INT RN L NU COD
Compensaton pad to babystters by an estabshment engaged n
furnshng babystter servces. (See Rev. Ru. 233, p. 29 .)
Reguatons 116, Secton 05.102: cusons T. D. 60 0
from wages.
TITL 20 INT N L R NU . C PT R I, SU C PT R D, P RT 05.
COLL CTION of ncome ta at source on wages
Reguatons 116 amended to conform to secton 321 of the Revenue
ct of .tn and to secton 20 of the Technca Changes ct of 1053
p. 50 , ths uetn .
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313 Regs. 116, 05,102
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
On December 13, 1952, there was pubshed n the Federa Regster
(17 F. R. 11350) a notce of proposed ruemakng to conform Regu-
atons 116 26 CFR, pt. 05 to secton 321 of the Re venue ct of
1951, reatng to earned ncome from sources wthout the Unted
States, approved October 20,1951. fter consderaton of such ree-
vant matter as was presented by nterested persons reatng to the rdes
proposed, the amendments to such reguatons set forth beow, n-
cudng such suppementa amendments as are necessary to conform
Reguatons 11G to secton 20 of the Technca Changes ct of 1953
p. 50 , ths uetn|, approved ugust 15,1953, are hereby adopted:
Paragraph 1. There s nserted mmedatey precedng secton
05.101 the foowng:
S C 321. RN D INCOM FROM SOURC S WIT OUT T
UNIT D ST T S R NU CT OF 1051, PPRO D OCTO-
R -M, 1(151 .

(b) Wthhodng of Ta on Waoes. Secton 1621(a)( )( ) (re-
atng o defnton of wa es) s hereby amended to read as foows:
( ) for servces for an empoyer (other than the Unted
States or any agency thereof) performed n a foregn country
by a ctzen of (he Unted States, f at the tme of the payment
of such remuneraton the empoyer s requred by the aw of
any foregn country to wthhod ncome ta upon such remu-
neraton, or t s reasonabe to beeve that such remuneraton
w be e cuded from gross ncome under the provsons of
secton Ota) (1) or (2). or .
(c) ffectve Dates. The amendment made by subsecton
(b) sha be appcabe wth respect to wa es pad on or after anuary
1, 1052.
S C. 20 . RN D INCOM FROM SOURC S WIT OUT T
UNIT D ST T S T C NIC L C NG S CT OF 1053, P-
PRO D UGUST 15, 1053 .

(b) Wthhodng of Tat Wages of Ctzens Outsde the Unted
States. So much of secton 1021(a)( ) (reatng to the defnton of
wages) as precedes subparagraph ( ) thereof s hereby amended to
read as foows:
( ) ( ) for servces for an empoyer (other than the Unted
States or any agency thereof) () performed by a ctzen of the
Unted States f, at the tme of the payment of such remuneraton,
t s reasonabe to beeve that such remuneraton w be e cuded
from gross ncome under secton 110(a), or () performed n a
foregn country by such a ctzen f, at the tme of the payment of
such remuneraton, the empoyer s requred by the aw of any
foregn country to wthhod ncome ta upon such remuneraton, or .
(c) ffectve Date. The amendments made by subsectons
(b) sbn not affect the abty of any empoyer to deduct and
wthhod the ta mposed by secton 16:22 n the case of any remuneraton
pad before the frst day of the frst month begnnng more than ten days
after the date of the enactment of ths ct.
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Regs. 116, 05.102.
31
Par. 2. Secton 05.102, as amended by Treasury Decson 5 91
C. . 1952-1, 196 , approved pr , 1952, s further amended as
foows:
( ) y nsertng mmedatey after anuary 1,19 , n the head-
ng of (h)(2) thereof and before anuary 1, 1952, so that such
headng w read as foows:
(2) Remuneraton pad on or after anuary 1, 19 , and before anuary 1,
1052, to ctzens resdent n foregn countres.
( ) y nsertng mmedatey after anuary 1, 19 , n the frst
sentence of the frst paragraph of (h) (2) thereof and before anu-
ary 1,1952, .
(C) y redesgnatng (h) (3) thereof as (h) ( ).
(D) y nsertng mmedatey after the ast paragraph of (h) (2)
thereof the foowng new subparagraph:
(3) Remuneraton pad on or after anuary 1, 1952, to ctzens n foregn
countres. (1) mnaton of doube wthhodng. The remuneraton pad
on or after anuary 1, 1952, for servces performed In a foregn country for
an empoyer (other than the Unted States or any agency or nstrumentaty
thereof) by a ctzen of the Unted States does not consttute wages under sec-
ton 1621(a) ( ) ( ) and hence s not sub|ect to wthhodng, If at the tme of
the payment of such remuneraton the empoyer s requred by the aw of any
foregn country to wthhod ncome ta upon such remuneraton.
The remuneraton s not e empt from wthhodng under ths subdvson f
the empoyer s not requred by the aw of a foregn country to wthhod ncome
ta upon such remuneraton. Mere agreements between the empoyer and the
empoyee whereby the estmated ncome ta of a foregn country s wthhed
from the remuneraton n antcpaton of actua abty under the aw of such
country w not suffce.
The e empton from wthhodng provded by ths subdvson does not appy
by reason of wthhodng of ncome ta pursuant to the aw of a possesson or
Terrtory of the Unted States or of r. potca subdvson of a foregn state.
() Resdent of a foregn country. The remuneraton pad on or after
anuary 1, 1952, and before September 1, 1953, for servces performed n a
foregn country, and the remuneraton pad on or after September 1, 1953, for
servces performed outsde the Unted States, for an empoyer (other than the
Unted States or any agency or nstrumentaty thereof) by a ctzen of the
Unted States does not consttute wages under secton 1621(a) ( ) ( ) and hence
s not sub|ect to wthhodng, f at the tme of payment t s reasonabe to
beeve that such remuneraton w be e cuded from gross ncome under the
provsons of secton 116(a) (1).
Secton 116(a)(1) provdes that, In the case of an ndvdua ctzen of the
Unted States who estabshes to the satsfacton of the Commssoner that he
has been a bona fde resdent of a foregn country or countres for nn unnter-
rupted perod whch ncudes an entre ta abe year, a amounts receved
from sources wthout the Unted States (e cept amounts pad by the Unted
States or any agency or nstrumentaty thereof) sha be e cuded from gross
ncome f such amounts consttute earned ncome, as defned n secton 116(a) (3),
whch s attrbutabe (o such unnterrupted perod. See secton 116(a) and
the reguatons thereunder.
The empoyer may, n the absence of cause for a reasonabe beef to the
contrary, presume that remuneraton for servces performed outsde the Unted
States (urng the ta abe year, or appcabe porton thereof, w be e cuded
from gross ncome under the provsons of secton 116(a)(1) for each ta abe
year n respect of whch the empoyee propery e ecutes and fes n dupcate
wth the empoyer a statement n the form set forth beow. owever, n the
case of payments made on or after anuary 1, 1952, and before Septem er 1.
1953, the presumpton sha appy ony to remuneraton for servces performed
n a foregn country or countres.
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315
Regs. 116, 05.102.
Statement fob Camng eneft of Secton 116(a)(1) for Caendar Year or Fsca Year egnnng and ndng
( ) My name s . My present address Is
I am empoyed by
( ) My ast address In the Unted States was .
The nterna revenue dstrct In whch I fed my ast ncome ta return s
(C) I fe my Income ta return on the caendar
(Do or do Dot)
rear bass.
(D) I fe my ncome ta return on the bass of the fsca year begnnng , 19_T , and endng , 19 .
( ) I am a ctzen of the Unted States.
(F) I have been a bona fde resdent of the foowng foregn country or
countres, namey, , for an unnterrupted perod whch began on
, 19
(G) I e pect to reman a bona fde resdent of a foregn country or countres
mm I he ate of ths statement unt the end of the ta abe year n respect of
hc ths statement Is fed.
(II) On the bass of the fncts n my case I have good reason to beeve that,
th respect to the above perod of foregn resdence fang wthn the ta abe
rear, I w satsfy the bona fde foregn-resdence requrement prescrbed by
secton 116(a) (1) of the Internn Revenue Code.
(I) I understand that any e empton from wthhodng of ta permtted by
reason of the fng of ths statement Is not a determnaton by the Comms-
soner of Interna Revenue that any remuneraton pad to me for any servces
erfanned durng the ta abe year s e cudabe from gross ncome under the
rovsons of secton 116(a) (1) of the Interna Revenue Code.
I decare under the penates of per|ury that ths statement has been e amned
)y me and to the es of my knowedge and beef s true and correct.
(Sgnature of ta payer)
ate , 19
If wth respect to any empoyee the empoyer was entted to presume for the
I consecutve ta abe years mmedatey precedng the empoyee s current ta abe
ear that the empoyee s remuneraton for servces performed n a foregn coun-
ry or countres durng such precedng ta abe years woud be e cuded from
;ross ncome under the provsons of secton 116(a) (1), be may, f such empoyee
s resdng n a foregn country on the frst day of such current ta abe year, pre-
-ume that. In the absence of cause for a reasonabe beef to the controry, the
emunenton for servces performed n a foregn country or countres durng
such current ta abe year and, n the case of payments made on and after Sep-
emer 1,1 3, any other remuneraton for servces performed outsde the Unted
States durng such year w be e cuded from gross ncome under the provsons
f secton 116(a) (1).
() Physca presence n a foregn country. The remuneraton pad on or after
anuary 1,11)52, and before September 1,1953, for servces performed n a foregn
ountry, and the remuneraton pad on or after September 1, 1953, for servces
erformed outsde the Unted States, for an empoyer (other than the Unted
tates or any agency or nstrumentaty thereof) by a ctzen of the Unted States
oes not consttute wages under secton 1621 (a) ( ) ( ) and hence s not sub|ect
o wthhodng, f at the tme of payment t s reasonabe to beeve that such
emuneraton w be e cuded from gross ncome under the provsons of secton
16(a) (2).
Secton 116(a)(2) provdes that, n the case of an ndvdua ctzen of the
|nted States who- durng any perod of 1 consecutve months s present n a
oregn country or countres durng at east 510 fu days n such perod, a
mounts receved from sources wthout the Unted States (e cept amounts pad
y the Unted States or any agency or nstrumentaty thereof) sha be e cuded
rom gross ncome f such amounts consttute earned ncome, as defned n secton
16(a) (3), whch s attrbutabe to such perod. For ta abe years endng before
2 670 5 21
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Regs. 116, 05.102.
31G
anuary 1, 1053, there Is no mtaton upon the amount whch may be e cuded
from gross ncome under secton 116(a)(2). For ta abe years endng after
December 31, 1952, but ony wth respect to amounts receved after such date,
the amount e cuded from gross ncome under the provsons of such secton sha
not e ceed 20,000 f the 1 -month perod ncudes the entre ta abe year. If the
1 -month perod does not ncude the entre ta abe year, the amount e cuded
from gross ncome under such secton for such ta abe year sha not e ceed an
amount whch bears the same rato to 20,000 as the number of days n the part
of the ta abe year wthn the 1 -month perod bears to the tota number of days
n such year. speca rue s appcabe to a fsca year begnnng n 1952 and
endng n 1953. See secton 116(a) and the reguatons thereunder.
The empoyer may, n the absence of cause for a reasonabe beef to the con-
trary, presume that remuneraton for servces performed outsde the Unted
States durng the ta abe year, or appcabe porton thereof, w be e cuded
from gross ncome under the provsons of secton 116(a) (2) for each ta abe year
n respect of whch the empoyee propery e ecutes and fes n dupcate wth the
empoyer a statement n the form set forth beow. owever, n the case of
payments made on or after anuary 1, 1952, and before September 1, 1953, the
presumpton sha appy ony to remuneraton for servces performed n a foregn
country or countres. In the case of payments made on or after September 1,
1903, the presumpton sha not appy after the tota payments made durng the
ta abe year of the empoyee equa 20,000 or such esser amount as may he
aowabe under secton 116(a) (2) on the bass of the facts shown n the state-
ment descrbed beow.
Statement op Camng eneft op Secton 116(a)(2) for Caendar Teae or Fsca Year egnnng and ndng
( ) My name s . My present address s
. I am empoyed by .
( ) My ast address n the Unted States was
The nterna revenue dstrct n whch I fed my ast ncome ta return s
(C) I fe my ncome ta return on the caendar year
(Do or do rot)
bass.
(D) I fe my Income ta return on the bass of the fsca year begnnng
, 19 , and endng , 19
( ) I am a ctzen of the Unted States.
(F) cept for occasona absences whch have not dsquafed me for the
beneft of secton 116(a) (2) of the Interna Revenue Code, I have been present n
the foowng foregn country or countres, namey, , durng the perod
of tme whch began on , 19
(0) I e pect to be present n a foregn country or countres, e cept for
occasona absences not dsquafyng me for the beneft of secton 116(a)(2),
from the date of ths statement unt the end of the ta abe year n respect of
whch ths statement s fed; or, f not for such perod, from the date of ths
statement unt the foowng date wthn such ta abe year, namey,
, 19
( ) On the bass of the facts In my case I have good reason to beere that
wth respect to the above perod of presence n a foregn country or countres
fang wthn the ta abe year, I w satsfy the 510 fu day requrement pre-
scrbed by secton 116(a) (2) of the Interna Revenue Code.
(1) In the event I become dsquafed for the e cuson provded by secton
116(a) (2) n respect of a or part of the above perod of presence n a foregn
country or countres fang wthn the ta abe year, I w mmedatey notfy
my empoyer, gvns suffcent facts to ndcate the part, f any, of such perod
fang wthn such year n respect of whch I am quafed for such e cuson.
( ) I understand that any e empton from wthhodng of ta permtted by
reason of the fng of ths statement Is not a determnaton by the Commssoner
of Interna Revenue that any remuneraton pad to me for any servces per-
formed durng the ta abe year s e cudabe from gross ncome under the pro-
vsons of secton 116(a) (2) of the Interna Revenue Code.
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317
Regs. 116, 05.201.
I decare under the penates of per|ury that ths statement has been e amned
by me and to the best of my knowedge and beef s true and correct.
(Sgnature of ta payer)
Date , 19
(v) Genera. Remuneraton pad on or after anuary 1, 1952, and before
September 1, 1053, n respect of servces performed n an area other than a
foregn country, for e ampe, the Unted States, a possesson of the Unted States,
or the hgh seas, sha not be e cuded from wages under secton 1621(a) ( ) ( ).
The reasonabe beef referred to n secton 1621(a) ( ) ( ) may be based upon
any evdence reasonaby suffcent to Induce such beef, even though such ev-
dence may be nsuffcent upon coser e amnaton by the Commssoner or the
courts fnay to estabsh the e cuson from gross Income, and e empton from
ta , aowed by secton 116(a) (1) or (2).
The orgna of -_-ac statement fed wth the empoyer pursuant to subdvsons
() and () sha be transmtted to the dstrct drector of nterna revenue
wth the empoyer s return on Form 9 1 requred by secton 05.601 for the
quarter of the caendar year wthn whch such statement s fed. The dup-
cate copy sha be retaned by the empoyer.
(Ths Treasury Decson s ssued under the authorty contaned n
sees. 1 29 and 3791 (53 Stat. 17 , 67; 20 U. S. C. 1 29, 3791), and
sec. 1627 (57 Stat. 13 ; 26 U. S. C. 1627), of the Interna Revenue
Code.)
O. Gordon Df k,
ctng Commssoner of Interna Revenue.
oproved ugust 27, 1953.
. Chapman Rose,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster ugust 31, 1953, :6 a. m.)
SF TI()N 1622. INCOM T COLL CT D
T SOURC
Reguatons 116, Secton 05.201: Requrement Rev. Ru. 29
of wthhodng.
( so Secton 1 01, Secton 0 .30 , Regua-
tons 12 .)
INT RN L R NU COD
Tabe whch may be used by empoyers n wthhodng Federa
ncome ta and empoyee ta under the Federa Insurance Contrbu-
tons ct from weeky wages pad on and after anuary 1, 195 .
The foowng tabe has been constructed for the convenence of
those empoyers who wsh to use a tabe whch combnes amounts to be
wthhed as Federa ncome ta and empoyee ta under the Federa
Insurance Contrbutons ct from weeky wages pad on and after
anuary 1, 195 .
The tabe refects the ower ncome ta wthhodng rate prescrbed
by secton 1622 of the Interna Revenue Code and the ngher empoyee
ta rate prescrbed by secton 1 00 of the Federa Insurance Con-
trbutons ct wth respect to wages pad on and after anuary 1,
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Regs. 1L6, 05.201.
31
195 . Such tabe supersedes the tabe set forth n Mm. 6703, C. .
1951-2,17 .
Snce the Interna Revenue Code provdes no tabe method for de-
termnng the amount of empoyee ta under the Federa Insurance
Contrbutons ct, the wage brackets shown n the tabe are functons
of the 2 percent Federa Insurance Contrbutons ct empo ee ta
rate, and the amounts of empoyee ta determned for the tabe are
computed to the nearest cent. The tabe s desgned to cover weeky
wages under 135.25 but can be e tended to weeky wages of 135.25
and over by utzng the same wage bracket ncrements and addng the
Federa Insurance Contrbutons ct empoyee ta at 2 percent to the
ncome ta to be wthhed. The amount of ncome ta to be wthhed
s determned by reference to the weeky ncome ta wthhodng tabe
provded by the Interna Revenue Code (see p. 20 of Crcuar , Rev.
anuary 195 , mpoyer s Ta Gude) n a cases e cept those where
the wage brackets used n the combned tabe fa wthn more than
one bracket of the weeky ncome ta wthhodng tabe (for e ampe,
13.75 to 1 .25). In such cases, the ncome ta to be wthhed s de-
termned n accordance wth the percentage method of wthhodng
(see p. 19 of Crcuar , Rev. anuary 195 ), whch permts the
roundng of wages to the nearest doar for purposes of computng the
amount to be wthhed.
The use of the combned tabe resuts n the correct aggregate wth-
hodng ony f wages for purposes of the ncome ta wthhodng and
for purposes of the Federa Insurance Contrbutons ct are dentca.
The tabe shoud not be used wth respect to the e cess over 3,600 of
wages pad to an empoyee n a caendar year or n other nstances
where the wages dffer.
For purposes of empoyer s quartery Federa ta returns (Form
9 1), there w be ho ob|ecton, n the case of empoyers usng the
combned wthhodng tabe, to (1) determnng the amount of Federa
Insurance Contrbutons ct empoyee ta wthhed by appyng the
2 percent Federa Insurance Contrbutons ct empoyee ta rate to
tota wages ta abe for purposes of such ct, and (2) determnng
the amount of ncome ta wthhed by subtractng such amount ot
Federa Insurance Contrbutons ct empoyee ta from the tota ta
wthhed.
Wth respect to empoyees annua recepts on Form W-2 for 195 ,
and thereafter, on whch empoyers are requred to show (1) tota
Federa Insurance Contrbutons ct wages pad, (2) empoyee 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, n the case of
empoyers usng the combned wthhodng tabe, to determnng the
Federa Insurance Contrbutons ct empoyee ta deducted from each
empoyee s wages n the year by appyng the 2 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 empoyee ta so deter-
mned from the tota ta wthhed from the empoyee s wages n the
year.
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319
(Regs. 116, 05.201.
Weeky wthhodng tabe combnng ncome ta and empoyees Federa Insurance
Contrbutons ct a (I percent)
Ths tabe to be used ony U wages or ncome ta wthhodng and wages for empoyees F. I. C. . ta are
nd the number o wthhodng e emptons camed I

1
2
3

9
10
t east
ut ess
than
The amount of Income ta and F 1. C.
. ta to be wthhed sha be-
to.no
1 .25....
o
M
n-

9 of
at
an
of
1 of
- .(
1 of
of
13.2S
13.75....
MM
0 27
a 27
0 27
T 27
0 27
S2.67
a37
a27
taw
0.27
027
13.75.
1 .25....
2. 0
.
.2
.2
.2
.2
.2
.2
.2
.2
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1 .25
1 .75....
2.69
.59
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.29
.29
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.29
.29
.29
.29
.29
1 .75
15.25.-..
3.00
.66
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.30
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115.2
15.75-...
3.11
. 1
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.31
.31
.31
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15.75
1 25
320
. 6
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.32
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.32
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16.25.
tR.75
3.33
1.03
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.33
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16.75-
17 25....
3. 0
1.06
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.3
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17.75....
.66
1. 15
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17.75-
1 .25
3.60
1.20
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1 .75
3. 7
1.37
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1 75
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3. 0
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19.75....
3. 9
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20.25
20.75
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21.75....
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23.25
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2. 26
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. 6
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. 6
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23.25
23.75
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2.37
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. 7
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2 .25
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2 .25
2 .75....
. 9
2. 59
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2 .75.
2. 25
5.00
2.66
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.60
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25 25
25.75
5. 11
2. 1
.61
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2 75
2 5.25 ...
5.20
2. 6
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2f 75....
5.33
3.03
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26.75-
27.25
5. 0
106
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27.75
5.55
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27.75
2 .25
5.60
126
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2 25
2 .75
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3.37
1.07
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. 7
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21 .25
6. 0
3. 6
1.12
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52 ).5
29.75
6. 9
3.59
1.29
.69
.69
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f29.75
30.25
6.00
3.66
1.32
.60
.60
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.60
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311.25
30.75
6.11
3. 1
1. 51
.61
.61
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30.75
31.25
6.20
3. 6
1.52
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.62
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31.25
31.75
6.33
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1.73
.63
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31.75.
32.25
6. 0
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1.72
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32.25
32.75
6.55
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1. 6
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3 .75
33.25....
6.60
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1.92
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33.75
6.67
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6. 0
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3 .7 ....
6. 9
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2.29
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3 .75
35.25
7.00
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132
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35.25
35.75....
7.11
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2.51
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3 .25 ...
7.20
6
2.52
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ma.
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7.33
6.03
2.73
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36.75
37.25....
7. 0
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37.75....
7.55
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3 .25....
7.60
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39.25
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39.75
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6.59
129
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1.25....
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162
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aeo
26
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1.5
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3.25
3.75....
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a
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f.75
7.25
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9.55
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Regs. 116, 05.201.
320
Weeky wthhodng tabe combnng ncome ta and empoyees Federa It
Contrbuton ct ta ( percent) Contnued
Ths tabe to be used ony 11 wages for Income ta wthhodng and wages or empoyees F. I.
dentca
C. . ta an
II wages are
nd the number of wthhodng e emptons camed :
t east
ut ess
than
The amount of Income ta and F. I. C. . ta to be wthhed sha be
.26
.75
9.67
7.37
.07
Z77
0.97
10.97
0.97
tO 67
.7
9.25
9. 0
7. 0
.12
2 7
.
.9
.9
.9
0 .2
9.75
9. 9
7.59
.29
299
.99
.99
.99
.99
9.7
60.26....
10.00
7.00
.32
2.
1.00
1.00
1.00
1.00
60.25
50.76
10.11
7. 1
6. 1
3. 21
1.01
1.01
1.01
L01
60.75
61.2 ....
10.20
7. 0
6.62
3.1
1.02
1.02
1.02
1.02
61.25
61.76
10.33
.03
.73
3.33
1.03
1.03
1.03
1.03
61.75
52.26
10. 0
.06
6.72
3.3
1.0
1.0
1.0
1.0
62.25
62.75
10.55
.15
5
165
1.25
1.06
1.05
LOS
62.75
63.26
10.00
a 2o
.92
15
1.2 .
1.06
1.00
1.0
63 .25
53.75
10.07
a 37
a 07
177
1. 7
1.07
1.07
1.07
3.75
.25....
10. 0
a 6
a 12
17
1.
1.0
1.0
1.0
6 .25
5 .7
10. 0
an
a29
3.99
1.69
1.09
1.09
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6 .75
56.25
11.00
a6e
a 32
19
1.0
1.10
1.10
L10
66.25
5.76
11.11
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a 6
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1.91
1.11
1.11
1.11
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56.26
11.20
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a 62
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1.12
1.12
1.12
50.25
6.76
11.33
9.03
6.73
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2.03
1.13
1.13
L13
66.76
7.25....
11. 0
9.00
a72
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1.1
L1
L1
67 .26
7.75....
11.55
9.16
6. 6
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2.25
1.1
1.16
LIS
67.75
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11.00
9.20
a 62
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2.2
1.16
1.16
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5 .25
5 .76
11.07
9.37
7.07
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1.17
1.17
1.17
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9.26
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7.12
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1.1
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1.1
6 .25
60.76
11. 9
9. 59
7.29
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2.69
1.19
L19
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0.2 ....
12.00
9.00
7.32
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2.6
1.20
1.20
1.20
00.25
60.75
12.21
9.91
7.61
31
2.91
1.21
1.21
L21
0.75
61.26....
12.22
9.92
7.62
32
2.92
1.22
1.22
L22
61.25
61.76....
12.23
9 93
7 63
33
2.93
1.23
1.23
1.23
61.75
62.26
12. 0
10.00
7.72
3
10
1.2
1.2
1.2
62.26
62.76....
12.55
10.25
7.95
65
136
1.26
L25
1.25
62.75
63.25....
12.50
10.26
7.96
66
136
1.26
L26
L 26
63.25
63.75....
12.67
10.27
7.97
67
3.37
1.27
L27
1.27
63 75
6 .26
12. 0
10. 6
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1. 2
6 .25
6 .75....
12.99
10.69
a 39
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179
1. 9
1.29
L 29
6 .75
65.25....
13.00
10.70
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a 10
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1.30
L 30
65.76
13.01
10.71
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1.31
66.75
66.26
13.20
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1.60
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1.32
66.25
66.76....
13. 3
11.13
a 73
6. 3
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1. 3
1.33
1.33
06.75
67.26....
13.
11.1
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a
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1.3
1.3
67.25
67.75....
13. 5
11.15
a 75
a 6
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1. 5
1.36
1. 3S
67.75
6 .25
13.00
11.26
a 92
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1.90
1.36
1.30
6 .25
6 .76....
13.77
11. 7
9.17
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2.27
1.37
1.37
0 .7
69.26
13.7
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2,2
1.3
1. 3
6 .26
69.76. ...
13.79
11. 9
9.19
a 9
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2,29
1.39
1.391
6 .7
70.25....
1 .00
11.00
9.32
a 6
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2.30
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1. 0
70.2
70.7 ....
1 .21
11. 1
9.01
7.31
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2,61
L 1
1. 1
70.75
71.25....
1 .22
11.92
9.02
7.32
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2.62
1. 2
1. 2
71.25
71.75....
1 .23
11.93
9.03
7.33
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2.03
1. 3
1. 3
71.75.
72.25....
1 . 0
12 06
9.72
7.3
0
2,70
L
1.
72.25
72.75....
1 .65
1225
9.95
7.65
35
3.05
1. 5
1. 6
72.75
73.25....
1 . 6
12.20
9.90
7.66
30
106
1. 6
1. 0
73.25
73.75
1 .67
12.27
9.97
7.67
37
107
1. 7
1. 7
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7 .26....
1 . 0
12. (1
10.12
7.7

110
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7 .26
7 .75....
1 .69
12. 09
10.39
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75.25....
15.00
12.70
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1. 60
75.25.
75.75....
15.01
12.71
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1
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1.61
1. 61
76.7
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15.20
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10.62
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1.62
76.25.
76.75....
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13.13
10.73
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76.7 , .,
77.25....
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77.2
77.75....
15. 5
13. 15
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1.65
77.7
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15 00
13.26
10.92
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3.60
1.56
1.66
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1 77
13. 7
11.17
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1.67
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79.25....
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15.79
13. 9
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79.79......
0.25....
10.00
13.06
11.32
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0 6
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1.90
1.60
0.26
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16.21
13.91
11. 01
6.31
a 91
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2.31
1.61
0.7
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10.22
13.92
11.02
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10.23
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1. 6
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2.75....
10.55
1 .25
11.96
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2 75
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10.56
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11.96
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S21
Regs. 116, 05.201.
Weeky wthhodng tabe combnng ncome ta and empoyees Federa Insurance
Contrbutons ct ta (2 percent) Contnued
hs tabe to be used ony f wages for Income ta wthhodng and wages for empoyees F. I. 0. . ta are
dentca
If wages are
nd the number of wthhodng e emptons camed s
ut ess
0
1
2
3

5
6
7

9
10
than
The amount of ncome ta and F. I. O. . ta to be wthhed sha be
3.75....
16.57
1 .27
11.97
9.67
7.37
5.07
2.77
1.67
1.67
1.67
1.67
.25
16. 0
1 . 6
12.12
9.7
7.
5.10
2.76
1.6
1.6
1.6
1.6
.75
16.99
1 .69
12 39
10.09
7.79
5. 9
3.10
1.60
1.60
1.69
1.69
5 25
17.00
1 .70
12. 0
10.10
7. 0
6.50
3.20
1.70
1.70
1.70
1.70
5.75
17.01
1 .71
12 1
10.11
7. 1
5.51
3. 21
1.71
1.71
1.71
1.71
6.25
17.20
1 . 6
12.52
10.1
7.
5.60
3.16
1.72
1.72
1.72
1.72
6 75
17. 3
15.13
12.73
10. 3
13
6. 3
3.63
1.73
1.73
1.73
1.73
7 25....
17.
15. 1
12.7
10.
1
5.
3.5
1.7
1.7
1.7
1.7
7 75
17. 5
16.15
12.75
10. 5
15
6. 6
3. 55
1.75
1.75
1.75
1.75
25
17.60
15.26
12.92
10.5
2
6.90
3.56
1.76
1.76
1.76
1.76
.75
17.77
15. 7
13. 17
10. 7
57
627
3.97
1.77
1.77
1.77
1.77
9 25
17.7
15.
13.1
10.
5
62
3.9
1.7
1.7
1 7
1 7
0.75
17. 7U
15. 9
13.19
10. 9
59
6 29
3.99
1.79
1.70
1.79
1.79
00.25
1 .00
15.66
13.32
10.9
6
630
3.96
1. 0
1. 0
1. 0
1. 0
90.75
1 21
15. 91
13.61
11.31
91
6. 1
.31
2.01
1. 1
1. 1
1. 1
91.25
1 22
15.92
13.62
11.32
.02
a 62
.32
2 02
1. 2
1. 2
1. 2
91.75
1 23
15.93
13.63
11.33
93
63
.33
2.03
1. 3
1. 3
1. 3
92.25....
1 . 0
16.06
13.72
11.3
9.0
6 70
.36
2.02
1.
1.
1.
92.75
1 55
16.25
13. 95
11.65
9.35
7.05
.75
2. 5
1. 5
1. 5
1. 6
93.25
1 56
16.26
13.96
11.66
9.36
7.06
.76
2. 6
1. 0
1. 6
1. 6
3.75
1 .57
16. 27
13.97
11.67
9.37
7.07
.77
2. 7
1. 7
1. 7
1. 7
9 .25
1 0
16. 6
1 .12
11.7
9.
7.10
.76
2. 2
1.
1.
1.
9 .75....
1 .99
16.69
1 .39
12 09
9.79
7. 9
5. 19
2.79
1. 0
1. 9
1. 0
05.25
19.00
16.70
1 . 0
12.10
9. 0
7.60
6.20
2 0
1.90
1.90
1.00
95.75....
19.01
16.71
1 . 1
12.11
9. 1
7.51
5.21
2. 1
1.91
1.91
1.01
96.25
19.20
16 6
1 .52
12.1
9.
7.50
5.16
2. 2
1.92
1.92
1.02
96 75
19. 3
17. 13
1 .73
12. 3
10.13
7. 3
6.53
3.23
1.93
1.93
1.93
97.25
19.
17.1
1 .7
12.
10.1
7.
5.5
3.2
1.9
1.9
1.9
97.75
19. 5
17. 15
1 . 75
12. 5
10.15
7. 5
6.56
3.25
1.95
1.95
1.95
9 .25....
19.60
17.26
1 .92
12 5
10.2
7.90
6.56
3.22
1.96
1.96
1.9
9 .75
19.77
17. 7
15. 17
11 7
10. 67
27
6.97
3.67
1.97
1.97
1.97
99.25....
19.7
17.
15.1
12.
10.6
2
. 9
3.6
1.9
1.9
1.9
99.75
19.79
17. 9
15.19
12 9
10.59
.29
5.99
3.69
1.99
1.99
1.99
100.25...
20.00
17.06
15.32
12.9
10.6
30
5.06
3.62
200
ZOO
200
100.75...
20.51
1 .11
15. 1
13.51
11.21
.91
6 61
.31
2.01
2.01
2.01
101.25...
2:. 52
1 12
15. 2
13.52
11.22
92
6.62
.32
2 02
2.02
2 02
101.75...
20.53
1 13
15. 3
13.53
11.23
93
663
.33
2.03
2.03
2.03
102.25...
20.5
1 1
15.
13.5
11.2
9
66
.3
20
20
2.0
102.75...
20.55
1 15
15. 5
13.55
11.25
.95
6.65
.35
2.05
2.05
205
103.25...
20.66
1 . 16
15. 6
13. 56
11.26
.96
6.66
.36
206
2.06
206
103.75...
20. 57
1 .17
15. 7
13. 57
11.27
97
6 67
.37
2.07
207
2.07
10 .25...
20. 5
1 .1
15.
13.5
11.2
9
6.6
.3
20
2.0
20
10 .75...
2 . 59
1 . 19
16. 9
13.59
11.29
99
6 69
.39
209
2.09
2.09
105.25...
21.00
1 .66
16.32
13.9
11.6
9.30
6.96
.62
2.2
2 10
210
105.75...
21. 51
19. 11
16. 1
1 .61
12.21
9.91
7. 61
6.31
3.01
211
211
100.25...
21.52
19. 12
16. 2
1 .52
12.22
9.92
7.62
6.32
3.02
2. 12
212
100.75...
21.53
19. 13
10. S3
1 .53
12.23
9.93
7.63
6.33
3.03
2.13
2.13
107 25...
21.5
19.1
16.
.1 .5
12.2
9.9
7.6
6.3
3.0
2 1
2.1
107.75...
21.55
19.15
16. 6
1 .55
12.25
9.95
7.65
6.36
3.05
2.15
2.15
10 .25...
21. 56
11). 16
16. 6
1 .56
12.26
9.96
7.66
5.36
3.06
2 16
2.16
10 .75...
21.57
19.17
16. 7
1 .57
12 27
9.97
7. 7
6.37
3.07
2. 17
2.17
109.25...
21.5
19.1
16.
1 .5
12.2
9.9
7.6
5. 3
3.0
2 1
2 1
21. 59
19.19
16. 9
1 .59
12 29
9.09
7.69
6.39
3.09
2.19
2.10
110.25...
22.00
19.66
17.32
1 .9
12.6
10.30
7.06
6. 62
3.2
220
220
110.75...
22.51
20.11
17. 1
15.51
13.21
10.91
. 61
6.31
.01
2.21
2 21
111.25...
22.52
20.12
17. 2
15.52
13.22
10.92
62
6.32
.02
2.22
2.22
111.75...
22.53
20.13
17. 3
15.53
13.23
10.93
63
6.33
.03
2.23
223
112.25...
22.5
20.1
17.
15.6
13.2
10.0
6
6.3
.0
22
22
112.75...
22.55
20.15
17. 5
15.55
13.25
10.95
.65
6.35
.05
2.25
2 25
113 25...
22.56
20. 16
17. 6
15. SO
13.26
10.96
66
6 36
. 06
2.26
226
113 75...
22.57
20.17
17. 7
15.57
13.27
10.97
67
6.37
.07
227
2.27
11 .25...
22.5
20.1
17.
15. 5
13.2
10.9
6
63
.0
2.2
22
11 .75...
22.59
20.10
17. 9
15.59
13.29
10.99
69
6 39
.09
220
220
115.25...
23.00
20.6
1 .32
15.9
13. 6
11.30
96
6 62
.2
230
230
115.75...
23.51
21.11
1 . 1
16 61
1 .21
11.91
9.61
7.31
5. 01
2 71
2.31
116.25...
23.62
21.12
1 2
16 52
1 .22
11.92
9.62
7.32
6.02
2.72
2 32
11075...
23.53
21. 13
1 3
16 53
1 .23
11.93
9.63
7.33
6.03
Z73
2.33
117 25...
23.5
21. 1
1
16.5
1 .2
11.9
9.6
7.3
5.0
2.7
2 3
117.75...
23.65
21.15
1 6
16 55
1 .26
11.95
9.65
7.36
6.05
2.75
2.35
11 .25...
23.66
21.16
1 6
16.56
1 .26
11.96
ft 66
7.36
5.06
2.76
2.36
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Regs. 116, 05.201.
322
Weeky wthhodng tabe combnng ncome ta and empoyees Federa Insurance
Contrbutons ct ta ( percent) Contnued
Ths tabc to be used ony f wages for ncome ta wthhodng and wages for empoyees F. I. C. . ta an
nd the number of wthhodng e emptons camed
t east
11 .25....
11 .75....
11 .2 ....
119 76....
120.25....
120 76....
121.25....
121.75....
122.26....
122.75....
123.25....
123.75....
12 .25..._
12 .75....
125.25....
125.75....
126.25....
126.7 ....
127.25.
127.75....
12 .25
12 .76....
129.25....
129.75
130.25
130.75
131.25
131.75
132.26
132.76
133.25
133.75
13 .25
13 .75
135.25 and,
ut ess
0
1
2
3

5
6
7

9
10
than
The amount of ncome ta and F. I. C. . ta to be wthhed
habe-
11 .75...
23. 57
21.17
1 . 7
16.57
1 .27
11.97
.67
7.37
5.07
2.77
:2.37
119.25...
23.5
21.1
1 .
16.5
1 .2
11.9
.6
7.3
5.0
2.7
2.3
119.75...
23.59
21.19
1 . M
16.69
1 .20
11.99
.6
7.39
6.09
2 9
239
120.25...
2 .00
21.66
19.32
16.9
1 .6
12.30
. 6
7.62
6.2
27m
2 0
120.75...
2 .51
22. 11
19. 1
17.51
15.21
12.91
10.61
.31
6.01
3.71
2. 1
121 26
2 . 52
22. 12
111. 2
17.52
15.22
12.92
10.62
.32
6.02
272
1C
121.75...
2 .53
22. 13
19. 3
17.53
16.23
12.93
10.63
.33
6.03
3.73

122.25...
2 .5
22. 1
19.
17.6
16.2
12.9
tt6
.3
6.0
3.7
2.
122.75...
2 .66
22. 15
19. 5
17.65
15.25
12.95
10.66
.35
6.05
3.7
2 5
123.25...
2 . 66
22. 16
19. 6
17. 6
15.2
12.96
1 .
.36
6.06
3.76
2 6
123.76...
2 . 7
22.17
19. 7
17.67
15.27
12,97
a 67
.37
6.07
3.77
2 7
2 .5
22.1
19.
17.6
15.2
12.
10.6
.3
tM
3.7
2
12 .75...
2 .69
22.19
19. 9
17.59
16.29
12.99
10. f .
.39
6.09
3.79
2
125.25...
2 .00
22.66
20.32
17.9
15. 6
13.30
n.96
.62
t
3.9
290
126.76...
2 .51
23. 11
20. 1
1 .51
16.21
13.91
11.61
9.31
7.01
.71
251
1211.25...
26.62
23. 12
20. 2
1 .52
a 22
13.92
11.62
.32
7.02
.72
252
126.75...
25.53
23.13
20. 3
1 .53
16. 23
13. 3
11.63
.33
7.03
.73
263
127.25...
26.5
23. 1
20.
1 .5
16.2
13.9
11.6
.3
7.0
.7
26
127.75...
26.55
23. 15
20. 6
1 .55
16.25
13.96
11.65
9.3
7.05
.75
261
12 .26...
25.66
23.16
20. 6
1 .56
16.26
13.96
11.66
9.36
7.06
.76
tM
12 .75...
26.67
23.17
20. 7
1 .57
16.27
13.97
11.67
9.37
7.07
.77
237
129.25...
25.5
23. 1
20.
1 .5
111. 2S
13.9
11.6
1.3
7.0
.7
2
129.75...
2 . 9
23.19
20. 9
1 .59
16. 29
13. 9
11.6
9.39
7.09
.79
2f
130.25...
26.00
23.66
21.32
1 .9
111. I
1 .30
11.96
9. 2
7.2
.9
2 60
130.76...
26.61
2 .11
21. 1
19.51
17.21
1 .91
12.61
10.31
.01
5.71
2 1
131.25...
26.62
2 .12
21. 2
19.52
17.22
1 .92
12.62
10. 32
.112
5.72
2 2
131.76...
26.63
2 .13
21. 3
19.53
17.23
1 . ra
12.63
10.33
.03
6.73
2 3
132.25...
26.5
2 . 1
21.
19.5
17.2
1 .9
12.6
a 3
.0
.7
2
132.75...
26.66
2 . 15
21. 6
19.56
17.26
1 .96
12.6
n.:;:
.05
5.75
2
133.25...
26.66
2 .16
21. 6
19.56
17.26
1 .96
12.66
a 3
.06
6.76
2 6
133.75...
26.57
2 .17
21. 7
19.57
17.27
1 .97
12.67
10.37
.07
6.77
2 7
13 .25...
26.6
2 .1
21.
19.5
17. 2
1 .9
12.6
10.3
.06
6.7
2
26.59
2 .10
21. 9
19.69
17.29
1 . 9
12.69
a39
.09
6.79
2
136.25...
27.00
2 .66
22.32
19.9
17.6
16.30
12.96
10.1.2
.2
6.9
2
20 percent of the e cess over 136.25 pus-
27.05
2 .71
22.37
20.03
3.o ac
.33 6.99 3.65
Reguatons 116, Secton 05.201: Requrement Rev. Ru. 295
of wthhodng.
INT RN L R NU COD
Tabes whch may be used by empoyers In wthhodng Federa
Income ta from wages pad for payro perods of 10 days and 2
days.
The foowng wthhodng tabes coverng payro perods of 10
days and 2 days have been constructed on the bass of the ower wth-
hodng rate prescrbed by secton 1622 of the Interna Revenue Code
wth respect to wages pad on and after anuary 1,195 .
The 10-day and 2 -day payro perod wthhodng tabes may be
obtaned by empoyers from the dstrct drectors of nterna revenue.
The percentage method of wthhodng and the reguar tabes cover-
ng weeky, bweeky, semmonthy, monthy, and day or msce-
aneous payro perods are found n Crcuar , Rev. anuary 195 ,
mpoyer s Ta Gude.
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323 Uegs. 116, 05.201.
If the payro perod wth respect to an empoyee s a 10-day perod
nd the
nd the
nbcr o wthhodng e emptons camed s
0
1
2
3

9
10 or
t east
ut ess
more
than
I aoon
I o n n he Oo 1-1
-u h-
0
20.00
t. of
10
to
to
0
O
0

0
to
to
20.00
22.60

.60
0
0
0
0
0
0
0
0
0
22.50.
25.00
.50
1.00
0
0
0
0
0
0
0
0
0
25.00.
27.50
. 50
1. 50
0
0
0
0
0
0
0
0
0
27.50 . ..
30 00
6.00
2.00
0
0
0
0
0
0
0
0
0
ISO no
32 50....
t 50
2.50
0
0
0
0
0
0
0
0
0
32.50
35.00....
6.00
S. 00
0
0
0
0
0
0
0
0
0
t .ro
37.50
6.50
3.00
0
0
0
0
0
0
0
0
0
I37.SO.
0.00
7.00
3. 50
.60
0
0
0
0
0
0
0
0
2.50
7.60
.00
1.00
0
0
0
0
0
0
0
0
W2.ro.
5.00
.00
.50
1.60
0
0
0
0
0
0
0
0
5.00. --
7 50
. 50
5.00
1.60
0
0
0
0
0
0
0
0
7 50 ....
50.00
9 00
6 50
2.00
0
0
0
0
0
0
0
0
50.00 ....
62.50....
9.00
6.00
2.60
0
0
0
0
0
0
0
0
5 )
56.00
9. 50
6.50
3.00
0
0
0
0
0
0
0
0
55.00......
67.50
10.00
7.00
3.60
.50
0
0
0
0
0
0
0
57.50.
60.00
10. 50
7.50
.00
.50
0
0
0
0
0
0
0
60.00
62.50....
11.00
7.60
.60
1.00
0
0
0
0
0
0
0
02.50
65.00....
11.50
.00
6.00
1.60
0
0
0
0
0
0
0
mm.
67.50....
12.00
.1so
6.60
2.00
0
0
0
0
0
0
0
(17.50. ...
70.0 ....
12 50
9. no
6.00
2.50
0
0
0
0
0
0
0
70.00
72.50....
13.00
9.50
too
.00
0
0
0
0
0
0
0
72.50
75.00..-.
13. 50
10.00
6.50
3.50
0
0
0
0
0
0
0
75 00
77 50
13.50
10. 50
7.00
.00
.60
0
0
0
0
0
0
77.50
0.00
1 .00
11 00
7.50
.50
.oo
0
0
0
0
0
0
0.00.
2.50
1 .50
11.60
.00
5.00
1.60
0
0
0
0
0
0
2.50
6 00
16.00
12.00
.60
5.00
2.00
0
0
0
0
0
0
.00
7.50
16.50
12.00
9.00
6.60
2.50
0
0
0
0
0
0
7.50
90.00
16.00
12. 50
9.50
6.00
3.00
0
0
0
0
0
0
00.00
92.50
16.50
13.00
10.00
6.50
3 50
0
0
0
0
0
0
2.50
95.00
17.00
13.50
10.50
7.00
3.50
.60
0
0
0
0
0
97 0
17.50
1 .00
10.50
7. 50
.00
1.00
0
n
0
0
0
97.50
m.on...
1 .00
1 . SO
11.00
.00
.50
1.50
0
0
0
0
0
100.00
105.00...
1 .50
15.00
12.00
.50
6.60
2.00
0
0
0
0
0
105.00
110.00...
19. so
16.00
13.00
9.60
6.00
3 00
0
0
0
0
0
110.00
115.00...
20.50
17.00
13.60
10.60
7.00
.00
.60
0
0
0
0
115.00
21.00
1 .00
1 .50
11.50
.00
50
1.50
0
0
0
0
120 00
125.00...
22.00
19.00
16. 50
12.00
9.00
5.50
2.50
0
0
0
0
125.00
130.00...
2100
19.50
16. 50
13.00
10.00
6.50
3.00
0
0
0
0
130.00
135.00...
2 .00
20.50
17.50
1 .00
10.50
7.50
.00
1.00
0
0
0
135.00
1 0.00...
25.00
21.50
1 .00
15.00
11.50
. 50
6.00
1.50
0
0
0
1 0.00
1 5.00...
26.50
22.50
19.00
16 00
12.50
9.00
6.00
2,50
0
0
0
1 5.00
150.00...
26. 50
23.60
20.00
16. 60
13.50
10.00
7.00
3.50
0
0
0
150.00
155.00...
27.50
2 .00
21.00
17.50
1 .50
11 00
7.50
.50
.OO
0
0
155.00
160.00...
2 -50
25.00
22.00
1 .50
15.00
12.00
.60
6.50
2.00
0
0
160.00 ..
165.00...
29.50
26.00
22.50
19. 50
16.00
13.00
9.50
6.00
3.00
0
0
166.00
170.00...
30.00
27.00
23.60
20.50
17.00
13.50
10.60
7.00
.00
.50
0
170.00
175.00...
31.00
2 .00
2 .60
21.00
1 .00
1 .50
11. 50
.00
.50
1.50
0
176.00
1 0.00...
32.00
2 . 50
25. . 0
22.00
19.00
15. 60
12.00
9.00
6.50
2. 50
0
1 0.00
1 6.00...
33.00
29.50
26.60
23.00
19. 50
16.50
13.00
10.00
6.50
3.50
0
1 5.00
100.00...
3 .00
30.50
27.00
2 .00
20.50
17.50
1 00
10. 60
7.50
.00
1.00
190.00
195.00...
3 .50
31.50
2 .00
25.00
21.50
1 .00
15.00
11.50
a 50
6.00
2.00
195.00
200.00...
35.60
32. 50
29.00
25.50
22. 50
19.00
16.00
12.50
9.00
6.00
2.50
300.00 .
2111.00...
37.00
33.60
30.50
27.00
23.50
20.50
17.00
1 .00
10.50
7.50
.00
210.00
220.00...
.50
36.50
32.00
29.00
25 SO
22 50
19.00
15.50
12.50
9.00
6.00
270.00
230.00...
0.50
37.00
3 .00
30.50
27.50
2 .00
21.00
17.50
1 .00
11.00
7 50
230.00 ..
2 0.00...
2.50
39.00
36.50
32.50
29.00
26.00
22.50
19.60
16.00
12.50
9.50
2 0.00
250.00...
.00
1.00
37.60
3100
31.00
27.60
2 50
21.00
1 .00
1 50
11.00
250.00
260.00...
6.00
2.50
39. 50
36.00
32.50
29.50
26.00
23.00
19.50
16.50
13.00
260.00 . ..
270.00...
7.50
.50
1.00
3 .00
3 .50
31.50
2 00
2 . 50
21. 50
1 .00
16.00
270.00
2 0.00...
9.50
6.00
3.00
39.50
36.60
33.00
3a 00
26.50
2a 00
20.00
16.60
2 0.00
290.00...
61.60
.00
. 50
1.50
3 .00
35 00
31.50
2 .50
25.00
21.50
aco
290.00
300.00...
63.00
50.00
6.50
a 00
0.00
36.50
33.60
30.00
27.00
23.50
2a oo
1 peroent of the ecess over 300 pus
300,011 and
ver_......
6 .00
50.50
7.50
.00
1.00
37. O
3 .50
31.00
27.50
2 .60
21.00
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Regs. 116, 05.201. 32
// the payro perod wth respect to an empoyee s a 2 -day perod
nd the wages are

ad the r
umber
o wthhodng e emptons ca
meda-
t east
ut ess
0
1
2
3

6
6
7

9
10 or
mora
than
The amount o ta to be wthhed sha be
to
66.00
to
to
to
to
to
to
to
to
to

166.00
63.00
1. 0
0
0
0
0
0
0
0
0
0
63.00
70.00
12.60
2. 0
0
0
0
0
0
0
0
0
1
70.00
77.00
12.60
.20
0
0
0
0
0
0
0
0
0
77.00
.00
1 .00
6.60
0
0
0
0
0
0
0
0

.00
91.00
16. 0
7.00
0
0
0
0
0
0
0
0
1
91.00
- Us. ...
16. 0
. 0
0
a
0
0
0
0
0
0
0
9 .00
106.00...
1 .20
. 0
0
0
0
0
0
0
0
0
1
105.00
112.00...
19.60
9. 0
1. 0
0
0
0
0
0
0
0
1
112.00
119.00...
21.00
11.20
2. 0
0
0
0
0
0
0
0
1
119.00
126.00...
133.00...
1 0.00...
22. 0
23. 0
26.20
12.60
1 .00
15. 0
.20
.20
6.60
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
126.00
0
0
133.00
0
1 0.00
1 7.00...
26.20
16. 0
7.00
0
0
0
0
0
0
0
0
1 7.00
15 .00...
161.00...
16 .00...
175.00...
1 2.00...
1 9.00...
26.60
2 .00
29. 0
30. I
32.20
33.60
1 .20
19.60
21.00
21.00
22. 0
23. 0
. 0
9. 0
11.20
12.60
1 .00
16. 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
0
0
0
0
0
0
0
0
0
0
0
0
0
0
16 .00
1. 0
1. 0
161.00
16 .00
2. 0
.20
6.60
176.00
1 2.00
1 9.00
196.00...
35.00
26.20
16. 0
7.00
0
0
0
0
0
0
0
196.00
203.00...
210.00...
217.00...
22 .00...
36. 0
7. 0
37. 0
39.20
26.60
2 .00
29. 0
30. 0
16. 0
1 .20
19.60
21.00
. 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
203.00
210.00
217.00
9. 0
11.20
12.60
1. 0
2. 0
22 .00
231.00...
23 .00...
0.60
2.00
2.20
33.60
22. 0
23. 0
1 .00
1 .00
. 20
6.60
0
0
0
0
0
0
0
0
0
0
0
0
231.00
23 .00
2 6.00...
262.00...
3. 0
. 0
3.60
36.00
26.20
26.60
16. 0
16. 0
7.00
. 0
0
0
0
0
0
0
0
0
0
0
0
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2 6.00
36. 0
37. 0
39.10
0.60
2.00
2 .00
29. 0
29. 0
30. 0
33.60
1 .20
o. no
21.00
22. 0
23. 0
9. so
9. 0
11.20
12.60
15. 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 2.00
269.00...
266.00...
273.00...
2 0.00...
29 .00...
6.20
7.60
9.00
60. 0
61. 0
1. 0
2. 0
.20
6.60
259.00
30 .00...
322.00...
336.00...
360.00...
36 .00...
6 .60
67. 0
6 . 0
61.60
6 . 0
. 0
36. 0
37. 0
0.60
3. 0
6.20
20. GO
29. 0
32.20
33.C0
36. 0
16. 0
19.60
22. 0
25.20
2 .00
. 0
11.20
12.60
15. 0
1 .20
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
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: . . .
:7. o
1. 0
.20
7.00
. 0
336.00
60. 0
63.20
5 .60
0
360.00
37 .00...
392.00...
06.00...
20.00...
67. 20
70.00
71. 0
7 .20
57. 0
60.20
63.00
66. 0
9.00
39.20
2.00
. 0
6.20
29. 0
32.20
36.00
37. 0
21.00
23. 0
26.20
2 .00
11.20
1 .00
16. 0
10.60
2 0
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7.00
9. 0
0
0
0
0
0
0
0
0
0
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36 .00
37 .00
50. 0
53.20
56.00
t

3 2.00
06.00
20.00
3 .00...
77.00
67 20
6 . 0
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0.60
30. 0
21.00
12.60
2 0
0
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3 .00
.00...
79. 0
70.00
61.60
61. 0
2.00
33.60
23. 0
16. 0
6.60
0
0
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62.00...
2. 60
72. 0
63.00
6 .60
. 0
36. 0

16. 0
. 0
0
0
62.00
76.00...
90.00...
60 .00...
61 .00...
632.00...
M6.00...
560.00...
6 .00...
616.110...
6 .00...
672.00...
700.00...
72 .00...
766.00...
7 .00...
12.00...
0.00...
.00
6. 0
9. 60
92. 0
96. .0
96.60
99. 0
I03.ro
107. 0
113 0
119.00
12T. 20
12 . 0
133.00
13 . ro
1 .20
1 . 0
75.60
7 . 0
79. 0
2. 60
6. 0
.20
91.00
93. 0
99. I
65. 0
6 .60
71. 0
7 .20
76.60
7 . 0
1.20
6. 0
9.60
96.20
99. 0
106.00
110.60
11 . M
120. 0
12 .60
130.20
67. 0
5 . 0
61.60
6 . 0
67. :o
70.00
71. 0
76.60
1.20
6. 0
91.00
96.20
100. 0
106. 0
110. 60
116.20
120. 0
7.60
50. 0
37. 0
0.60
3. 0
6.20
f.00
50. 0
63.20
57. 0
63.00
67.20
72, 0
77.00
2.60
.20
92. 0
9 .00
102 )
29. 0
32.20
33.60
36. 0
39.20
2.00
. 0
7.60
63.20
6 . 0
63.00
6 60
72. 0
7 . 0
.00
.20
93. 0
19.60
22. 0
26.20
2 .00
29. 0
32 20
35.00
30.20
3. 0
9.00
6 .60
6 . 0
6 . 0
6 .60
7 .20
79. 0
.00
11. 20
12 60
15. 0
1 .20
21.00
23. 0
21.20
29. 0
36. 00
39.20
. 0
60 0
6 .60
60.20
6 . 0
70.00
75.60
1. 0
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7.00
9. 0
11.20
1 .00
. 0
21.00
26. 20
30. 0
3 O0
0. 60
6.20
60. 0
56.00
60.20
66. 0
0
76.00
90.00

53.20
6 .60
57. 0
60.20
63.00
65. 0
71. 0
77.00
1.20
6. 0
91.00
96.60
102.20
106. 0
112.00
0
0
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2 0
6.60
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1L
16.90
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51 .00
632.00
15 6 00
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61600
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n.
6 .00
109.20
11 . 0
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6.20
672.00
700 00
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13 . 0
1 0.00
72 .00
766.00
61. 0
7 .00
12.00
1 percent o the e cess over 0 pus

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1 1. 0
133.00
123.20
11 . 0
106.00
96.60
6. 0
77.00
M
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325 Regs. 3, etc.
C PT R 10. DMISSIONS ND DU S
SU C PT R . DMISSIONS
S CTION 1700. T
Reou.atons 3, nr. Rev. Ru. 296
INT RN L R NU COD
empton from Federa e cse ta es e tends to foregn dpo-
matc, consuar, and other offcers, and agences of foregn govern-
ments. M. T. 7, C. IS. 19 3, 1151, and M. T. 19, 0. . 19 , 5 ,
revoked.
dvce s requested as to the e empton from Federa e cse ta es
e tended to foregn dpomatc, consuar, and other offcers, and
agences of foregn governments.
mbassadors, mnsters, and other duy accredted dpomatc repre-
sentatves of foregn governments, together wth the members of ther
fames vng wth them, and members of ther househods, ncudng
attaches, secretares, and cerks (but not servants), who are not ctzens
of the Unted States, nor permanent resdents of the Unted States n
an mmgrant status, and who are natonas of the country of the
dpomatc msson where empoyed, (1) are not requred to pay
Federa e cse ta es, the ega ncdence of whch woud otherwse
fa upon them, and (2) f any such person purchases from the manu-
facturer thereof an artce otherwse sub|ect to a Federa e cse ta
on saes by manufacturers, or purchases from a retaer an artce other-
wse sub|ect to a Federa e cse ta on saes by retaers, the transacton
w not be ta ed.
The frst cassfcaton, that s, Federa e cse ta es the ega ncdence
of whch woud otherwse fa upon the dpomatc representatves,
ncudes: The ta es on admssons and dues mposed under chapter 10
of the Interna Revenue Code; the ta wth respect to safe depost
bo es under chapter 12 of the Code; the ta es wth respect to tee-
graph, teephone, rado and cabe factes under subchapter of
chapter 30 of the Code; the ta on the transportaton of persons under
subchapter C of chapter 30 of the Code; the ta on the transportaton
of property under subchapter of chapter 30 of the Code; and the
documentary stamp ta es reatng to the ssuance and transfer of shares
of stock and corporate securtes, and reatng aso to certan foregn
nsurance poces, and conveyances of reaty sod, mposed under
chapters 11 and 31 of the Code.
The second cassfcaton ncudes the manufacturers e cse ta es
mposed under chapter 29 of the Code; the retaers e cse ta es m-
posed under chapters 9 and 19 of the Code, and the ta on the sae
or use of dese fue mposed under chapter 20 of the Code.
Consuar offcers of foregn governments, and other offcers (other
than dpomatc representatves), as we as agences and commssons,
of foregn governments are not requred to pay Federa e cse ta es,
the ega ncdence of whch woud otherwse fa upon them (the
frst cassfcaton above), n respect of transactons arsng n the
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Regs. 3, etc.
32G
performance of ther offca functons for whch payment s made by
the foregn government. owever, t s to be noted that the prveges
of ths group do not e tend to the manufacturers and retaers e cse
ta es (the second cassfcaton above).
The foregong prveges are not dependent upon treaty provsons
and appy rrespectve cf whether there s a treaty n force between the
Unted States and the foregn government reatve to ts consuar
offcers or other offcers, agences, or commssons.
There are n force a number of treates between the Unted States
and foregn governments whch confer ta e emptons upon consuar
offcers. In genera, consuar offcers are e empted by those treates
from Federa e cse ta es, the ega ncdence of whch woud other-
wse fa upon them (the frst cassfcaton above), wthout regard to
whether the transacton s offca or persona, but sub|ect to the con-
dtons that the consuar offcers are not ctzens of the Unted States
and are not engaged n professona busness, trade, manufacture, or
commerce wthn the Unted States. It s to be noted, therefore, that
under the prveges specfed n the precedng paragraphs, consuar
offcers are not requred to pay the e cse ta es ncuded n the frst
cassfcaton above n respect of offca transactons regardess of ther
ctzenshp or ther professona or busness actvtes, whereas, by
vrtue of the treaty e emptons, certan consuar offcers who compy
wth the condtons as to ctzenshp and as to professona or busness
actvtes are, uness otherwse herenafter noted, aso e empt n re-
spect of persona transactons from the e cse ta es ncuded n the
frst cassfcaton above. Treates wth the natons sted beow have
ths effect wth respect to the casses of consuar representatves named.
rgentna Consus genera and consus.
ustra Consuar offcers and empoyees n consuates.
egum Consus genera, consus, vce consus, and consuar agents.
ova Consus genera, consus, and offcers and persons attached to the
consuate.
raz Consuar agents and empoyees of consuates.
Coomba Consus genera, consus, and ther chanceors or secretares.
Costa Rca Consuar offcers or empoyees.
Cuba Consuar agents and empoyees of consuates.
Denmark Consus genera, consus, and persons attached to ther necessary
servce and vce consus.
cuador Consuar agents and empoyees of consuates.
Savador Consuar offcers.
stona Consuar offcers.
Fnand Consuar offcers.
France Consus genera, consus, vce consus, or consuar agents, as we as
ther consuar pups, chanceors, and secretares.
Germany Consuar offcers and empoyees n consuates.
Greece Consus genera, consus, vce consus, and consuar agents.
onduras Consuar offcers.
Itay Consuar offcers.
Latva Consuar offcers.
Lbera Consuar offcers Incudng empoyees n a consuate.
Me co Consuar offcers and empoyees n consuates.
Ncaragua Consuar agents and empoyees of consuates.
Norway Consuar offcers.
Panama Consuar agents and empoyees of consuates.
Paraguay Consus genera and consus.
Peru Consuar agents and empoyees of consuates.
Phppnes Consuar offcers and empoyees n consuates.
Rumana Consus genera, consus, vce consus, and consuar agents.
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327
IRegs. 3, 101 2.
Span Consus genera, consus, vce conRus, consuar agents, consuar chan-
ceors, secretares, and cerks.
Sweden Consus genera, consus, vce consus, deputy consus genera, deputy
consus, and consuar agents.
Swtzerand Consus genera, consus, and vce consus.
Thaand Consus genera, consus, vce consus, and other consuar offcers or
agents.
Unted ngdom Consuar offcers of empoyees. ( cept documentary stamp
ta es mposed under chapters 11 and 31 of the Code, reatng to the ssuance and
transfer of shares of stock and corporate securtes, foregn nsurance poces,
and conveyances of reaty sod.)
Uruguay - Consuar agents and empoyees of consuates.
Yugosava Consus genera, consus, vce consus, and consuar agents.
Zanzbar Consus genera, consus, and consuar agents.
M. T. 7, C. . 19 3,1151, and M. T. 19, C. . 19 , 5 , are hereby
revoked.
Reguatons 3, Secton 101.2: Meanng of Rev. u. 12
admsson/
INT RN L R NU COD
Payments coverng admsson charges to athetc and other events
of educatona nsttutons made by the eterans dmnstraton on
behaf of veterans attendng such nsttutons are not sub|ect to the
ta on admssons mposed under secton 1700(a) of the Interna
Revenue Code.
dvce s requested whether charges for admsson to athetc and
other events mposed wth respect to veterans attendng educatona
nsttutons, payment of whch s made by the eterans dmnstra-
ton, are e empt from the ta on admssons mposed by secton
1700(a) of the Interna Revenue Code.
Secton 3 of the act of ugust 12,1935, 9 Stat. 607, reatng to bene-
ft payments to veterans, provdes n part that Payments
made to or on account of a benefcary under any of the aws reatng
to veterans sha be e empt from ta aton . (See Mm.
11, C. . -1, 97.) The act of March 2 , 19 3, 57 Stat. 3, pro-
vdng for the vocatona rehabtaton of veterans, and the Servce-
men s Read|ustment ct of 19 , 5 Stat. 2 , provdng for ad for
the read|ustment n cvan fe of returnng Word War II veterans,
provde for certan beneft payments by the eterans dmnstraton
on behaf of veterans. These payment are sub|ect to the provsons
of secton 3 of the act of ugust 12, 1935. so, the Servcemen s
Read|ustment ct of 19 specfcay provdes, e cept as otherwse
provded theren, that the provsons of the act of ugust 12, 1935,
sha be appcabe under that act.
In vew of the foregong, t s hed that payments coverng admsson
charges to athetc and other events of educatona nsttutons made
by the eterans dmnstraton on behaf of veterans attendng such
nsttutons under the above-mentoned acts are not sub|ect to the ta
on admssons mposed by secton 1700(a) of the Code.
Reguatons 3, Secton 101.2: Meanng of Rev. Ru. 175
admsson.
INT RN L revenue cope
The ta on admssons Imposed by secton 1700(a) of the Interna
Revenue Code appes to charges made by a beach cub for the sea-
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Regs. 3, 101.2.
323
sonn use of cabns and cabanas, and to day charges for guests,
where admsson to the premses s ganed by the payment of such
charges.
dvce s requested whether the ta on admssons mposed by sec-
ton 1700(a) of the Interna .Revenue Code appes to charges made
for the seasona use of cabns and cabanas and to day charges for
guests under the foowng crcumstances.
beach cub operated by a prvate enterprse for proft mantans
cabns, cabanas, swmmng poos, wadng poos for chdren, and a
dancng area. The property s not open to the pubc. The cabns
and cabanas are eased on a seasona bass. The ease of a cabn or
cabana enttes the essee and hs famy to the rght of admsson to
the grounds and to the use of a factes for the season. It aso
enttes hm to have day guests at a stated charge per person. The
beach cub does not quafy as a soca, athetc, or sportng cub or
organzaton wthn the meanng of secton 1710(a) (1) of the Code,
snce the essees have no voce n the management of the enterprse
nor any of the other usua prveges granted to members of such soca,
athetc, or sportng cubs.
Secton 1700(a) mposes a ta on admssons to any pace, ncud-
ng admsson by season tcket. Secton 101.2 of Reguatons 3 pro-
vdes that the ta appes to the amount whch must be pad n order
to gan admsson to a pace.
It has been the pocy of the Interna Revenue Servce not to regard
seasona charges of the nature descrbed as charges for admsson.
Therefore, such charges have not been sub|ected to the ta mposed
by secton 1700(a) of the Code, athough the day charges for guests
have been regarded as ta abe admsson charges. Upon reconsder-
aton, t s now hed that, snce the seasona ease of a cabn or cabana
from the cub enttes the essee and hs famy (n each case specfcay
mted to the number of persons) to admsson to the ground and to
the use of the factes mantaned by the cub, the charge made for
the ease of the cabn or cabana, as we as the day charges for guests,
consttute charges for the rght of admsson, and as such are sub|ect
to the ta on admssons mposed by secton 1700(a) of the Code.
Cf. Rev. Ru. 177, page 3 1.
ecause of the pocy heretofore mantaned regardng the non-
appcaton of the ta on admssons to such seasona charges, under
the authorty contaned n secton 3791 b) of the Code, the nstant
rung w not be apped retroactvey wth respect to any seasona
charges made and pad pror to October 1, 1953, for the current
season.
Reguatons 3, Secton 101.2: Meanng of
admsson.
INT RN L ND COD
ppcaton of ta to day ground fees pad to a prvate cub
the purposes of whch ncude the promoton of nudsm. (See Rev.
Ru. 253, p. 3 2.)
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329
IRegs. 3, 101.15.
Reguatons 3, Secton 101.3: Meanng of
the term pace.
( so Secton 3 69, Reguatons 2, Sec-
ton 130.51.)
Rev. Ru. 223
INT RN L R NU COD
n amount pad for a rde on a mnature or subgauge raway fur-
nshng pont to pont transportaton servce for the accommodaton
and convenence of the pubc s not consdered an amount pad for
admsson to a pace wthn the meanng of secton 1700(a) of the
Interna Revenue Code, but rather a charge for transportaton and s
not sub|ect to the ta on admssons mposed by that secton. Where
the amount pad for transportaton on such a raway e ceeds 35 cents,
the amount so pad s sub|ect to ta on the transportaton of persons
mposed by secton 3 69 of the Code. mounts pad for rdes on a
mnature raway whch s operated as an amusement devce and not
for the purpose of furnshng pont to pont transportaton for the
accommodaton and convenence of the pubc consttute amounts
pad for admsson to a pace or defnte ocaton wthn the mean-
ng of secton 1700(a) of the Code and are sub|ect to the ta mposed
thereunder. See M. T. 30, C. . 19 -2,167.
Reguatons 3, Secton 101.13: ass, rate, Rev. Ru. 176
and computaton of ta .
The cabaret ta mposed by secton 1700(e) of the Interna Revenue
Code does not appy to amounts for food, refreshment, or merchandse
pad by entertaners, watresses, or other empoyees of a cabaret durng
the tme they are engaged n the performance of ther respectve dutes,
snce the ta mposed Dy that secton appes ony to amounts pad by
or for patrons or guests of a cabaret.
The renta of aD atetc fed, on a varabe bass, by a hgh schoo
for the purpose of hodng ts athetc events woud not defeat ts
e empton from the admssons ta under secton 1701(a)(1)( )
() of the Interna Revenue Code.
dvce s requested whether a hgh schoo s e empton from adms-
sons ta under secton 1701(a) (1) ( ) () of the Interna Revenue
Code woud be affected f the hgh schoo pad rent on a varabe
bass for the use of an athetc fed on whch to hod ts athetc events.
In the nstant case, an athetc fed s avaabe to a hgh schoo for
the purpose of hodng ts athetc events on such fed. n agreement
has been reached between schoo authortes and the owners of the
athetc fed whereby the schoo w pay for the drect e penses of
nterna revenuh: code
S CTION 1701. MPTIONS FROM T
Reguatons 3, Secton 101.15: emptons
from ta .
INT RN L R NU COD
Rev. Ru. 125
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Regs. 3, 101.15.
330
each game, such as the costs of ghts, ground upkeep, suppes, and
nsurance. In addton, the frst 100 of net proceeds are to be re-
taned by the schoo for ts purposes, the second 100 sha be pad
to the owners of the fed as a renta fee for the schoo s use of the fed,
and the baance remanng sha be retaned by the schoo. Where the
gate recepts from any event are not suffcent for the payment of the
drect e penses, the frst 100 credt and the renta fee, the owners
w wave the requrement of that fee.
Secton 1701 of the Interna Revenue Code provdes n part as
foows:
S C. 1701. MPTIONS FROM T .
No ta sha be eved n respect of
(a) Certan Regous, ducatona, or Chartabe ntertanments, etc.
(1) In genera. any admssons a the proceeds of whch
nure
( ) e cusvey to the beneft of

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

f no part of the net earnngs thereof nures to the beneft of any prvate
stockhoder or ndvdua;

(21 None empt admssons. The e empton provded under paragraph
(1) sha not appy n the case of admssons to ( ) any athetc game or
e hbton uness the proceeds nure e cusvey to the beneft of an ee-
mentary or secondary schoo or uness n the case of an athetc game
between two eementary or secondary schoos, the entre gross proceeds from
such me nure to the beneft of a hospta for crpped chdren, ( )
wrestng mutches, prze fghts, or bo ng, sparrng, or other pugstc
n:atches or e hbtons, (C) carnvas, rodeos, or crcuses n whch any pro-
fessona performer or operator partcpates for compensaton, or (D) any
moton pcture e hbton.
dmssons, or charges n e cess of the reguar or estabshed prce
of admssons, are not e empt merey because the proceeds are to be
used for educatona purposes. The prmary condtons are that (1)
a the proceeds of the admssons or e cess charges, as the case may be,
nure to the beneft of a quafed educatona nsttuton, and (2)
the event s not of a type descrbed n secton 1701(a) (2) of the Code.
The term a the proceeds means a the proceeds of the reguar ad-
msson charges or e cess charges, as the case may be, after payment
of actua and reasonabe e penses ncurred n presentng the event
If the e penses are n e cess of what s reasonabe and necessary under
the crcumstances, a the proceeds woud not be deemed to nure
e cusvey to the beneft of the e empt organzaton. (Sec. 101.15
of Reguatons 3.)
It s hed that the payment of drect e penses, pus a renta fee for
the use of an athetc fed by a hgh schoo on the foregong bass,
consttutes a reasonabe and necessary e pense and woud not defeat
the schoo s e empton under secton 1701(a) (1) ( ) () of the In-
terna Revenue Code.
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331 Regs. 3, 101.15.
Reguatons 3, Secton 101.15: emptons Rev. Ru. 126
from ta .
INT RN L R NU COD
The e empton from the ta on admssons provded for educa-
toua nsttutons by secton 1701 (a) (1) ( ) ( ) of the Interna
Revenue Code does not appy to admssons to pays conducted by
a tte theater organzaton, the proceeds of whch nure to the
beneft of such organzaton.
dvce s requested whether the e empton from the ta on adms-
sons provded by secton 1701(a) (1) ( ) () of the Interna Revenue
Code s appcabe to admssons to pays conducted by a tte
theater organzaton, the proceeds of whch nure to the beneft of
such organzaton.
In the nstant case, the purpose of the tte theater s to provde
for the peope of the communty the opportunty of sef e presson n
the drama and kndred feds. The organzaton has been hed e empt
from Federa ncome ta under secton 101 (6) of the Interna Revenue
Code, as beng organzed and operated e cusvey for educatona
purposes.
Secton 1701 of the Code provdes n part as foows:
S C. 1701. MPTIONS FROM T .
No ta sha be eved n respect of
(a) Certan Regous, ducatona, ob Chartabe ntertanments, etc.
(1) In Genera. any admssons a the proceeds of whch
Inure
( ) e cusvey to the beneft of

() an educatona nsttuton whch s e empt under secton
101(6) or whch s an educatona nsttuton of a government or
potca subdvson thereof, f such organzaton normay man-
tnns a reguar facuty and currcuum and normay has a regu-
ary organzed body of pups or students n attendance at the pace
where ts educatona actvtes are reguary carred on;
Secton 101.15(b) (3) of Reguatons 3 provdes that admssons, or
e cess charges, a the proceeds of whch nure e cusvey to the
beneft of an educatona nsttuton are e empt from the ta provded
() the educatona nsttuton s e empt from Federa ncome ta un-
der secton 101 (6) of the Code, or s an educatona nsttuton of a gov-
ernment or potca subdvson thereof, () the nsttuton normay
mantans a reguar facuty and currcuum and normay has a regu-
ary organzed body of pups or students n attendance at the pace
where ts educatona actvtes are reguary carred on, and () no
part of the net earnngs thereof nures to the beneft of any prvate
stockhoder or ndvdua. Generay, ths e empton appes n the
case of nsttutons engaged n the presentaton of forma nstructon,
such as eementary and hgh schoos, coeges and unverstes, through
the medum of a reguar facuty and currcuum wth a reguary
organzed body of pups or students n attendance.
The fact that an organzaton may be e empt from Federa ncome
ta under secton 101(6) of the Code does not of tsef quafy the
organzaton for e empton from the admssons ta . It s the poston
of the ureau that a tte theater organzaton s not an educa-
2 670 0 22
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Regs. 3, 101.15. 332
tona nsttuton of the knd contempated by secton 1701(a)(1)-
( ) () of the Code so as to entte t to e empton from the coecton
of the admssons ta , snce t does not meet the statutory requrements
regardng a reguar facuty and currcuum and a reguary organzed
body of pups or students. ccordngy, t s hed that the ta on
admssons mposed by secton 1700 (a of the Code, appes to charges
for admsson to performances by a tte theater organzaton, the
proceeds of whch nure to ts beneft.
Reguatons 3, Secton 101.15: emptons Rev. Ru. 127
from ta .
INT RN L R NU COD
Organzatons of the type commony supported by communty
chests whch are engaged n character budng, ctzenshp tranng,
combatng uveue denquency, and ke programs, are performng
a chartabe functon wthn the meanng of paragraph () of sec-
tons 1701 (a) (1) ( ) of the Interna Revenue Code. Such organza-
tons, e empt under secton 101(6) of the Code, whch are prmary
supported by contrbutons from the genera pubc, are entted to
e empton from admssons ta under secton 1701(a) (1) ( ) ()
of the Code wth respect to any admssons the proceeds of whch
nure to ther beneft.
dvce s requested whether organzatons of the type commony
supported by communty chests whch are engaged n character bud-
ng and ctzenshp tranng of young peope as a servce to the com-
munty are e empt under secton 1701(a)(1)( ) of the Interna
Revenue Code frcm the ta on admssons.
Secton 1701 of the Code provdes n part as foows:
P C. 1701. MPTIONS FROM T .
No ta sha be eved In respect of
(a) Certan Regous, ducatona, or Chartabe ntertanments, etc.
(1) In genera. any admssons a the proceeds of whch
nure
( ) e cusvey to the beneft of

() an educatona nsttuton whch s e empt under secton
101(6) or whch s an educatona nsttuton of a government or
potca subdvson thereof, f such organzaton normay man-
tans a reguar facuty and currcuum and normay has a regu-
ary organzed body of pups or students n attendance at the
pace where ts educatona actvtes are reguary carred on;
() a corporaton or any communty chest, fund, or foundaton
organzed and operated e cusvey for chartabe purposes, e empt
under secton 101(6), f such corporaton or organzaton s sun-
ported, n whoe or n part, by funds contrbuted by the Unted
States or any State or potca subdvson thereof, or s prmary
supported by contrbutons from the genera pubc;
(2) None empt admssons. The e empton provded under paragraph
(1) sha not appy n the case of admssons to ( ) any athetc game or
e hbton uness the proceeds nure e cusvey to the beneft of an ee-
mentary or secondary schoo or uness n the case of an athetc game between
two eementary or secondary schoos, the entre gross proceeds from such
game nure to the beneft of a hospta for crpped chdren, ( ) wrestng
matches, prze fghts, or bo ng, sparrng, or other pugstc matches or e -
hbtons, (C) carnvas, rodeos, or crcuses n whch any professona per-
former or operator partcpates for compensaton, or (D) any moton pcture
e bbton.
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333
Regs. 3, 101.15.
Secton 101.15(b)( ) of Reguatons 3, as amended by Treasury
Decson 6007, C. . 1953-1, 12, at page 1 , provdes that adms-
sons, or e cess charges a the proceeds of whch nure e cusvey
to the beneft of a corporaton or any communty chest, fund or founda-
ton organzed and operated e cusvey for chartabe purposes are
e empt from admssons ta where such corporaton or organzaton
s (1) e empt from Federa ncome ta under secton 101(6) of the
Code, and (2) supported, n whoe or n part, by funds contrbuted
by the Unted States or any State or potca subdvson thereof, or
(3) prmary supported by contrbutons from the genera pubc.
Such e empton appes ony f no part of the net earnngs of the
organzaton nures to the beneft of any prvate stockhoder or nd-
vdua. Chartabe organzatons supported by contrbutons receved
from the genera pubc, n order to show that they are prmary sup-
ported n such manner, must estabsh that more than 50 percent of
a the ncome receved by the organzaton, s derved from that
source. mounts pad for admssons are not regarded as contrbu-
tons for purposes of ths e empton.
It s hed that organzatons of the type commony supported by
communty chests whch are engaged n character budng, ctzenshp
tranng, combatng |uvene denquency, and ke programs, are per-
formng a chartabe functon wthn the meanng of paragraph ()
of secton 1701(a) (1) ( ) of the Interna Revenue Code. Such or-
ganzatons, e empt under secton 101(6) of the Code, whch are pr-
mary supported by contrbutons from the genera pubc, are
entted to e empton under secton 1701(a) (1) ( ) () of the Code
from the admssons ta wth respect to any admssons the proceeds
of whch nure to ther beneft. owever, the fact that an organza-
ton may quafy as chartabe w not precude t from recourse to
paragraph () of secton 1701(a) (1) ( ) of the Code f t quafes
under the atter paragraph.
Reguatons 3, Secton 101.15: emptons Rev. Ru. 136
from ta .
INT RN L R NU COD
Nonproft hosptas whch admt and treat patents on a charty
bass are consdered to be organzed and operated e cusvey for
chartabe purposes wthn the meanng of secton 1701(a) (1) ( )
() of the Interna Revenue Code. Such hosptas must receve
more than 50 percent of ther revenue from contrbutons from the
genera pubc n order to quafy for the e empton from the ta
on admssons.
osptas operated and mantaned by the Unted States, a State,
or a potca subdvson thereof, beng pubc wefare nsttutons,
are chartabe Insttutons wthn the meanng of secton 1701(a)
(1) ( ) () of the Code. Prvate hosptas, otherwse quafed,
whch are supported to any degree by contrbutons from the Unted
States, a State, or a potca subdvson thereo , are kewse
entted to the e empton.
dvce s requested reatve to the means of determnng whether
a hospta quafes as a chartabe organzaton for purposes of the
e empton from the ta on admssons provded by secton
1701(a) (1) ( ) () of the Interna Revenue Code.
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Regs. 3, 101.15.
33
Secton 1701 of the Code provdes n part as foows:
S C. 1701. MPTIONS FROM T .
No ta sha be eved n respect of
(a) Certan Regous, ducatona, or Chartabe ntertanments, etc.
(1) In genera. any admssons a the proceeds of whch nure
( ) e cusvey to the beneft of

() a corporaton or any communty chest, fund, or foundaton
organzed and operated e cusvey for chartabe purposes, e empt
under secton 101(0), f such corporaton or organzaton s sup-
ported, n whoe or n part, by funds contrbuted by the Unted States
or any State or potca subdvson thereof, or Is prmary sup-
ported by contrbutons from the genera pubc;
It s hed that n order for a nonproft hospta, not operated or
supported by the Unted States, a State, or potca subdvson
thereof, to quafy as an organzaton operated e cusvey for char-
tabe purposes wthn the meanng of secton 1701(a) (1) ( ) ()
of the Code, t s necessary ony to estabsh that patents who cannot
pay for hospta care are admtted and treated on a charty bass.
owever, n order to quafy for the e empton wth respect to the
ta on admssons, such hospta must be prmary supported by
contrbutons from the genera pubc, that s, t must receve more
than 50 percent of ts revenue from such source. In makng such
determnaton, drect gfts from ndvduas or corporatons, egaces,
bequests, endowments, etc., and any ncome therefrom, and aoca-
tons from communty chests, or smar fundr arsng from socted
pubc contrbutons, are consdered to be contrbutons from the
genera pubc. Legaces, bequests, endowments, etc., whch are added
to the permanent fund of a hospta, are consdered contrbutons
from the genera pubc for the year n whch receved. fter that
tme, ony the ncome from such egaces, bequests, and endowments
may be consdered as contrbutons from the genera pubc. Revenue
receved from pay patents s consdered as earned ncome n deter-
mnng the amount of support from contrbutons from the genera
pubc.
It s aso hed that hosptas operated and mantaned by the Unted
States, a State, or potca subdvson thereof, as pubc wefare
nsttutons, are, -per se, chartabe nsttutons and are entted to the
benefts of the e empton, even though patents who can afford to pay
are requred to remburse such nsttutons for the cost of treatment.
In ths connecton, a prvatey operated nonproft hospta, whch
uafes as a chartabe nsttuton and whch s supported to any
egree by contrbutons from the Unted States, a State, or potca
subdvson thereof, s kewse entted to the beneft of the e empton.
Reguatons 3, Secton 101.15: emptons Rev. Ru. 1G1
from ta .
INT RN L R NU COD
The e empton provded by secton 1701 (b) of the Interna Rev-
enue Code wth respect to admssons to agrcutura fars appes
to a separate charge, made n addton to the genera admsson
charge, for admsson to grandstand events whch quafy n ther
own rght as agrcutura fars, such as e hbtons of catte or oter
farm anmas.
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335
Regs. 3, 101.15.
dvce s requested whether the e empton provded by secton
1701(b) of the Interna Revenue Code wth respect to admssons to
agrcutura fars appes to a charge, made n addton to the genera
admsson charge, for admsson to a grandstand.
Secton 1701 (b) of the Code provdes n part as foows:
S C. 1701. MPTIONS FROM T .
No ta sha be eved n respect of

(b) grtctttuba Fars. ny admssons to agrcutura fars f no part of
the net earnngs thereof nures to the beneft of any stockhoders or members of
the assocaton conductng the same f the proceeds therefrom are used e -
cusvey for the mprovement, mantenance, and operaton of such agrcutura
fars;
Secton 101.15(d) of Reguatons 3, as amended by Treasury De-
cson 6007, C. . 1953-1, 12, at page 20, provdes that the e emp-
ton afforded wth respect to agrcutura fars s mted to the gen-
era admsson charge to the far grounds or to any addtona pay-
ment for seatng accommodatons offered n connecton wth any free
event hed n connecton wth the far. The term agrcutura fars
ncudes, n genera, a e hbtons of farm produce, vestock, poutry,
fowers, or the ke hed for the promoton or advancement of agrcu-
ture, ncudng hortcuture.
It s hed that the e empton provded by secton 1701(b) of the
Code wth respect to admssons to agrcutura fars appes to a
separate charge, made n addton to the genera admsson charge,
for admsson to grandstand events whch quafy n ther own rght
as agrcutura fars, such as e hbtons of catte or other farm
anmas.
Where, n addton to the genera admsson charge a separate
charge s made for grandstand events whch do not quafy n ther
own rght as agrcutura fars, such as rodeos or races, and ony those
persons who have pad the separate charge are permtted to vew the
entertanment from the grandstand, the separate charge and any
other charge made for a grandstand seat under smar condtons are
sub|ect to admssons ta under secton 1700(a) of the Code. ow-
ever, f a persons who have pad the genera admsson charge are
entted to vew such events wthout payment of an addtona charge,
any addtona payments for seatng accommodatons (e. g. grand-
stand seats) provded n connecton wth the free events s consdered
an e tenson of the genera admsson charge to the far and s e empt
from ta under secton 1701 (b) of the Code.
Reguatons 3, Secton 101.15: emptons Rev. Ru. 163
from ta .
LNT N L R NU COD
Charges for admssons to a p ay presented by an assocaton, the
proceeds of whch nure to the beneft of a unversty whch quafes
for e empton under secton 1701(a) (1) ( ) () of the Interna
Revenue Code for use n provdng a schoarshp for an ndvdua to
be desgnated by the assocaton, are e empt from the ta on
admssons.
dvce s requested whether e empton from the admssons ta
may be granted under secton 1701(a) (1) ( ) () of the Interna
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ReRs. 3, 101.15.
336
Revenue Code where the proceeds from a pay nure to the beneft of
a unversty and are specfcay desgnated for use as a schoarshp
for an ndvdua.
In the nstant case, an assocaton presents pays each year and turns
over the proceeds to a unversty whch quafes for e empton from
the ta on admssons under secton 1701(a) (1) ( ) () of the Code.
The proceeds nure to the unversty under an agreement that the funds
w be used n provdng a schoarshp for an ndvdua to be specf-
cay desgnated by the assocaton. The schoar s seected from the
hgh schoo graduates of the same communty.
Secton 1701 of the Code provdes n part as foows:
S C. 1701. MPTIONS FROM T .
No ta sha be eved n respect of
(. ) Certan Regous, ducatona, on Chartabe ntertanments, etc.
(1) In Genera any admssons a tbe proceeds of whch
nure
( ) e cusvey to the beneft of

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

f no part of the net earnngs thereof Inures to the beneft of any prvate
stockhoder or Indvdua;
It s hed that charges for admssons to a pay presented by an
assocaton, the proceeds of whch nure drecty to a unversty whch
quafes for e empton under secton 1701(a) (1) ( ) () of the Code,
are e empt from the ta on admssons mposed by secton 1700(a)
of the Code, even though the funds are used by the unversty n pro-
vdng a schoarshp for an ndvdua to be desgnated, by the
assocaton.
U nuL ToNS 3, Secton 101.15: emptons Rev. Ru. 16
from ta .
INT RN L R NI COD
hstorc museum whch s not mantaned In connecton wth a
hstorc ste, bouse, or shrne, does not quafy for e empton under
secton 1701(e) (2) of the Interna Revenue Code.
dvce s requested whether a nonproft socety s entted to e emp-
ton from the ta on admssons under secton 1701 (e) (2) of the In-
terna Revenue Code wth respect to charges for admsson to a
museum whch t mantans.
In the nstant case, the socety was organzed for the purpose of
creatng and fosterng an nterest n the hstory of the terrtory sur-
roundng t; to mantan a marne museum whch aso contans house-
hod arts and crafts; to coect and provde for the proper custody of
marne and hstorca documents and recs; and to take and hod
hstorc stes and to provde proper care thereof.
Secton 101.15(d)(5) of Reguatons 3, as amended by Treasury
Decson G007, C. . 1953-1, 12, at page 21, provdes that admssons
to hstorc stes, houses, and shrnes, and museums conducted n con-
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337
Regs. 3, 101.15.
necton therewth, mantaned and operated by a socety or organza-
ton devoted to the preservaton and mantenance of such hstorc stes,
houses, shrnes, and museums are e empt from ta , f no part of the
net earnngs thereof nures to the beneft of any prvate stockhoder
or ndvdua. Ths e empton appes regardess of the dsposton
made of the proceeds from, the admssons. storc museums not
mantaned n connecton wth hstorc stes, houses, or shrnes are
not entted to e empton wth respect to admssons thereto.
Whether or not an organzaton conducts a museum n connecton
wth a hstorc ste, house, or shrne s a queston of fact to be estab-
shed by substantatng evdence. In the nstant case, the evdence
submtted fas to estabsh the e stence of that fact. ccordngy,
t s hed that such museum s not entted to e empton under secton
1701(e) (2) of the Code, and charges for admsson thereto are sub|ect
to the ta on admssons mposed by secton 1700(a) of the Code.
.ouaton 3, Secton 101.15: emptons Rev. Ru. 2 5
from ta .
1NT N L R NU COD
baet company operated as a nonproft orsanzntfon for the pur-
pose of educatng taented persons of the area n the art of dancng
s consdered to be h cvc or communty membershp assocaton
wthn the meanng of secton 1701 (c) of the Interna Revenue Code,
and the baet performances conducted by such an organzaton are
ncuded wthn the term concerts as used n that secton.
dvce s requested whether a baet company under the foowng
crcumstances consttutes a cvc or communty membershp assoca-
ton wthn the meanng of secton 1701(c) of the Interna Revenue
Code, and whether t s entted to the e empton from ta on ad-
mssons to performances whch t conducts.
The baet company, a nonproft organzaton, was desgned for the
purpose of furtherng the artstc standards and educaton of taented
youth n the area n the art of dancng. It was ncorporated under
the aws of the State n whch t operates and s drected by ts offcers
and e ecutve commttee. Membershp n the baet s awarded to
those passng a wrtten e amnaton and a ve test of dancng abty.
t the end of the season a performance s gven by the members of
the baet for the pubc of the area. The dancers, dancng drectors,
and the supportng organzaton gve ther servces wthout compen-
saton. Fnanca support s derved from gfts from patrons and
from membershp dues.
Secton 1701(c) of the Code provdes that no ta s due wth respect
to payments for admsson to concerts conducted by a cvc or com-
munty assocaton operatng under a consttuton, byaws, or other
rues or reguatons provdng for a defnte cass of membershp, f no
part of the net earnngs nures to the beneft of any member or
stockhoder.
It s hed that the nstant organzaton s a type of cvc or com-
munty assocaton contempated by secton 1701(c) of the Code. It
s further hed that baet performances presented by cvc or com-
munty membershp assocatons may be ncuded wthn the term
concerts as used n that secton. ccordngy, f no part of the net
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Regs. 3, 101.15.1
33S
earnngs nures to the beneft of any member the proceeds from baet
performances conducted by the baet company are e empt from the
ta on admssons mposed by secton 1700(a) (1) of the Code.
Reguatons 3, Secton 101.15: emptons Rev. u. 2 6
from ta .
INT RN L R NU COD
The e empton from ta on admssons to concerts conducted by a
cvc or communty membershp assocaton provded by secton
1701(c) of the Interna Revenue Code appes wth respect to con-
certs gven by such an assocaton even though t s not engaged soey
n musca pursuts. owever, where a snge charge covers admsson
to a seres of concerts and to a number of other performances not
quafyng as concerts the e empton provded by that secton appes
ony wth respect to that part of the admsson aocabe to the concerts.
The term concerts ncudes baet and dance performances presented
by a cvc or communty membershp assocaton. (See Rev. Ru. 2 5,
p. 337, ths uetn.)
Reguatons 3, Secton 101.15: emptons ev. Ru. 262
from ta .
INT RN L R NU COD
contrbuton from the Unted States for the purpose of adng n
the constructon of a prvatey operated nonproft hospta const-
tutes funds for the sup ort of the hospta wthn the meanng of
secton 1701(a) (1) ( ) () of the Interna Revenue Code for the
year n whch the contrbuton s made. mounts pad by a State
or potca subdvson thereof for the care of ndgent patents n
a prvatey operated nonproft hospta kewse consttute contrbu-
tons toward the support of the hospta wthn the meanng of
secton 1701 (a) (1) ( ) (111) of the Code.
dvce s requested whether a contrbuton from the Unted States
for the purpose of adng n the constructon of a prvatey operated
nonproft hospta or amounts pad by a State or potca subdvson
thereof for the care of ndgent patents n such a hospta consttute
contrbutons toward the support of the hospta wthn the meanng
of secton 1701(a) (1) ( ) () of the Code.
Secton 1701 or the Code provdes n part as foows:
S C. 1701. MPTIONS FROM T .
No ta sha be eved n respect of
(a) Certan Regous, ducatona, ok Cabtae ntertanments, etc.
(1) In genera. any admssons a the proceeds of whch Inure
( ) e cusvey to the beneft of

( ) a corporaton or any communty chest, fund, or foundaton
organzed and operated e cusvey for chartabe purposes, e empt
under secton 101(6), f such corporaton or organzaton s sup-
ported, n whoe or n part, by funds contrbuted by the Unted
States or any State or potca subdvson thereof, or s prmary
supported by contrbutons from the genera pubc;
prvatey operated nonproft hospta e empt under secton 101 (6)
of the Code quafes as a corporaton, fund, or foundaton organzed
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339
Regs. 3, 101.15.
and operated e cusvey for chartabe purposes wthn the meanng
of secton 1701(a) (1) ( ) () of the Code f t estabshes that pa-
tents who cannot pay for hospta care are admtted and treated on
a charty bass. owever, n order to quafy for the e empton wth
respect to the ta on admssons, such hospta must further estabsh
that t s supported n part by contrbutons from the Unted States, a
State, or potca subdvson thereof, or that t s prmary supported
by contrbutons from the genera pubc. Cf. ev. Ru. 136, page 333,
ths uetn.
It s hed that a contrbuton made by the Unted States for the
purpose of adng n the constructon of a prvatey operated non-
proft hospta, wnch quafes as a chartabe nsttuton, consttutes
funds for the support of the hospta wthn the meanng of secton
1701(a)(1) ( ) () of the Code and the hospta s entted to the
e empton provded by that secton for the year n whch the contr-
buton s made.
It s further hed that amounts pad by a State or potca subdv-
son thereof for the care of ndgent patents n a prvatey operated
nonproft hospta, whch quafes as a chartabe nsttuton, const-
tute contrbutons toward te support of the hospta and entte t to
the e empton provded by secton 1701(a) (1) ( ) () of the Code,
kouatons 3, Secton 101.15: emptons Rev. Ru. 203
from ta .
INT RN L R NU COD
Charges for admsson to a performance consstng of a moton
pcture and a ecture, the proceeds of whch nure to an educatona
nsttuton, are not e empt from the admssons ta mposed by sec-
ton 1700(a) of the Interna Revenue Code.
dvce t requested whether charges for admsson to a performance
consstng of a moton pcture and a ecture, the proceeds of whch
nure to an educatona nsttuton, are e empt from the admssons
ta mposed under secton 1700(a) of the Interna Revenue Code.
In the nstant case, a ecture was gven whch was ustrated by
moton pctures. The proceeds from the ecture nured to a schoar--
shp fund of an educatona nsttuton whch quafes for e empton
under secton 1701(a) (1) ( ) () of the Code. The pctures, us-
tratng the e perences of the ecturer on a word cruse, were taken by
amateur photographers. n amateur operated and donated the use
of the pro|ector for showng the pctures.
Secton 1701 of the Code provdes n part as foows:
S C. 1701. MPTIONS F OM T .
No ta sha be eved n respect of
(a) Certan Regous, ducatona, ob Chartabe ntertanments, etc.
(1) In genera.
( ) e cusvey to the beneft of

() an educatona nsttuton whch Is e empt under secton 101(6)
or whch s an educatona Insttuton of a government or potca sub-
dvson thereof, If such organzaton normay mantans a reguar
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ReRS. 3, 101.15.
3 0
facuty and currcuum and normay has a reguary organzed body of
pups or students n attendance at the pace where ts educatona ac-
tvtes are reguary carred on;

If no part of the net earnngs thereof nures to the beneft of any prvate
stockhoder or ndvdua;

(2) None empt DMssroNS. The e empton provded under paragraph
(1) sha not appy In the case of admssons to (D) any moton
pcture e hbton.
The provson of secton 1701(a) (2) (D) of the Code s mandatory
and unquafed, and appes wthout regard to the character of the
organzaton to whch the proceeds of the admsson charges nure.
Snce the aw makes no dstncton n the cassfcaton or purpose of
the moton pcture e hbton, educatona nsttutons are abe for
the coecton and payment of the admssons ta wth respect to a
moton pcture e hbtons sponsored by them. ccordngy, t s hed
that a performance consstng of a moton pcture and a ecture con-
sttutes a moton pcture e hbton for the purposes of the statute and
the charges for admsson thereto, the proceeds of whch nure to an
educatona nsttuton, are sub|ect to the admssons ta mposed by
secton 1700(a) of the Interna Revenue Code.
In a case where a ecture s ustrated ony by the use of sdes, the
performance does not consttute a moton pcture e hbton and the
charges for admsson thereto, the proceeds of whch nure to an organ-
zaton e empt under secton 1701 of the Code, are not sub|ect to the
admssons ta .
Reguatons 3, Secton 101.15: emptons Rev. Ru. 297
from ta .
INT RN L R NU COD
Organzatons of the type commony supported by communty chests
whch are engaged n furtherng the standards of heath and hygene
n a communty by provdng heath servces and nstructon are
performng a chartabe functon wthn the meanng of paragraph
() of secton 1701(a) (1) ( ) of the Interna Revenue Code. Such
organzatons, e empt under secton 101 (6) of the Code, whch are pr-
mary supported by contrbutons from the genera pubc, are entted
to e empton from admssons ta under secton 1701(a) (1) ( ) ()
of the Code wth respect to any admssons the proceeds of whch
nure to ther beneft, e cept as otherwse provded bv secton
1701(a) (2) of the Code. Cf. Rev. Ru. 127, page 332, ths uetn.
Reguatons 3, Secton 101.15: emptons Rev. Ru. 20
from ta .
INT RN L R NU COD
The Cv r Patro s e empt from ncome ta under secton
101(0) of the Interna Revenue Code and mantans, as a substanta
part of ts actvtes, a reguar facuty and currcuum to provde
avaton educaton and normay has a reguary organzed body of
students. ed, the Cv r Patro meets the requrements of sec-
ton 1701(a) (1) ( ) () of the Code and charges for admsson to
an ar show condu :ted by a squadron of the Cv r Patro, the pro-
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3 1
Regs. 3, S 101.22.
ceeds of whch nure to such squadron s beneft, are not sub|ect to the
ta mposed by secton 1700(a) of the Code.
SU C PT R . DU S
S CTION 1710. T
Reguatons 3, Secton 101.22: Meanng of Rev. Ru. 177
dues or membershp fees.
INT RN L R NU COD
The ta on dues and Intaton fees Imposed by secton 1710(a)
of the Interna Revenue Code appes to charges made by a beach
cub to ts members for the use of cabns and cnbanas for the summer
season, where bathng and swmmng prveges are obtaned ony
by payment of such charges.
dvce s requested whether the ta on dues and ntaton fees m-
posed by secton 1710(a) of the Interna Revenue Code appes to
charges made to members of a beach cub for the use of cabns and
cabanas for the summer season under the foowng crcumstances.
beach cub mantans, among ts factes, cabns and cabanas for
the use of ts members. Dues of 25 per year are pad for famy
membershp and 12.50 per year for snge membershp. The mem-
bers are entted to vote n the management of the affars of the cub,
and to share pro rata n any dstrbuton of the proceeds of the cub
property n the event of the sae or dssouton of the cub. To obtan
bathng and swmmng prveges for the season, members are re-
qured to pay, n addton to dues, charges for the use of the cabns
and cabanas for the summer season.
Secton 1710(a)(1) of the Code mposes a ta equvaent to 20
percent of any amount pad as dues or membershp fees to any soca,
athetc, or sportng cub or organzaton, f the dues or fees of an
actve resdent annua member are n e cess of 10 per year. Secton
1712(a) defnes the term dues to ncude any charge for soca
prveges or factes, or for gof, tenns, poo, swmmng, or other
athetc or sportng prveges or factes for a perod of more than
6 days.
It has been the pocy of the Interna Revenue Servce to regard a
beach cub, organzed and operated n the manner descrbed, as a
soca, athetc, or sportng cub or organzaton wthn the meanng
of secton 1710(a)(1) of the Code. Therefore, dues and fees pad
by members of such a cub were sub|ected to the ta on dues and
ntaton fees mposed by secton 1710(a) of the Code.
It s now hed that snce members obtan bathng and swmmng
prveges ony by payment of the charges for the cabns and cabanas,
such charges consttute charges for bathng and swmmng prveges
wthn the meanng of secton 1712(a) of the Code, and are kewse
sub|ect to the ta on dues under secton 1710(a) (1) of the Code. Cf.
Rev. Ru. 175, page 327, n ths uetn.
ecause of the pocy heretofore mantaned regardng the non-
appcaton of the ta to charges for cabns and cabanas, under the
authorty of secton 3791(b) of the Code the nstant rung w not
be apped retroactvey wth respect to such charges made and pad
pror to October 1, 1953, for the current season.
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Regs. 3, 101.2 .
312
Reguatons 3, Secton 101.2 : Determnaton Rev. Ru. 253
of character of cub.
( so Secton 1700, Secton 101.2.)
INT RN L U COD
prvate cub the purposes of whch Incude the promoton of
nudsm and whch mantans quarters and factes for soca
and recreatona actvtes of ts members, consttutes a soca,
athetc, or sportng cub wthn the meanng of secton 1710 of the
Interna Revenue Code.
ppcaton of the ta on dues and ntaton fees mposed by
secton 1710 of the Code, and of the ta on admssons mposed by
secton 1700 of the Code, to amounts pad to the cub as dues, for
subeases of parces of ground, regstraton fees, and day ground
fees.
dvce s requested concernng the appcaton of the ta mposed
by secton 1710 of the Interna Revenue Code to dues and other charges
pad by members of a prvate cub the purposes of whch ncude
the promoton of nudsm. dvce s aso requested concernng the
appcaton of the ta on admssons mposed by secton 1700 of the
Code to amounts pad as day ground fees.
In the nstant case, an organzaton mantans and and factes for
a prvate cub, the purpose of whch s to provde secuson for the
e posure of the members to ar and sunght wthout moestaton
by or offense to others, and to acquant and educate others of ke mnd
wth the benefts, both psychoogcay and physcay, of ths mode of
recreaton and vng. The cub mantans for ts members outdoor
factes, whch ncude a swmmng poo, voeyba, court, tenns
court, and other such recreatona factes. The cub aso mantans
on the premses a cubhouse, dnng ha, and prvate and renta cabns.
The cubhouse s used n the evenng for dancng, readng, and other
forms of ndoor recreaton.
The cub has three casses of membershp, desgnated as , , and
C. members are requred to pay dues of 10 per year. Cass
members are requred to mantan a subease on a parce of ground
wthn the organzaton s premses for whch they pay an annua
charge of 0. Those accepted as cass members after a specfed
date must pay an addtona regstraton fee of 50. Cass members
are aso requred to mantan a subease on a parce of ground. Cass
C members are ony requred to pay day ground fees at 1.50 per
famy n addton to the yeary dues. Guests of any of the members
are requred to pay day ground fees of 1.50 per famy. The cass
and members have votng prveges and, n the event of the sae
of the assets of the cub, they w receve ther proportonate shares
of the proceeds from the sae.
Secton 1710(a) (1) of the Code mposes a ta equvaent to 20 per-
cent of any amount pad as dues or membershp fees to any soca,
athetc, or sportng cub or organzaton, f the dues or fees of an
actve resdent annua member are n e cess of 10 per year. Secton
1710(a) (2) of the Code mposes a ta equvaent to 20 percent of any
amount pad as ntaton fees to such a cub or organzaton, f such
fees amount to more than 10, or f the dues or membershp fees, not n-
cudng ntaton fees, of an actve resdent annua member are n
e cess of 10 per year. The purposes and actvtes of a cub or or-
ganzaton determne ts character for the purposes of the ta .
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3 3
IRegs. 3, 101.2 .
It has been the pocy for the Interna Revenue Servce not to regard
a cub, the purposes of whch ncude the promoton of nudsm, as
a soca, athetc, or sportng cub wthn the meanng of secton
1710 of the Code. Upon reconsderaton t s now hed that a cub
operated n the manner and for the purpose descrbed above consttutes
a soca, athetc, or sportng cub or organzaton wthn the meanng
of secton 1710 of the Code.
Secton 1712(a) of the Code provdes that the term dues n-
cudes any assessment, rrespectve of the purpose for whch made, and
any charge for soca prveges or factes, for any perod of more
than 6 days. It s hed that snce the annua payment for a subease
on a parce of ground wthn the organzaton s premses s a cond-
t.on necessary for contnuance of membershp wthn the cub for cass
and members, such payment consttutes an addtona payment of
dues wthn the meanng of that secton of the Code. ccordngy,
snce the tota of the annua dues and the amounts pad under the sub-
ease agreement by such members s n e cess of 10 per year, the
amounts pad as dues by a members of the cub, ncudng the
amounts pad for subease agreements, are sub|ect to the ta .
Secton 1712(b) of the Code provdes that the term ntaton
fees ncudes any payment, contrbuton, or oan, requred as a con-
dton precedent to membershp. Snce cass members accepted
for membershp after a specfed date are requred to pay an addtona
regstraton fee of 50, t s hed that sucn payment consttutes an
ntaton fee wthn the meanng of that secton of the Code and as
such s sub|ect to the ta .
Where day ground fees are pad for a perod of more than 6 con-
secutve days by cass C members, such fees consttute dues wthn the
meanng of secton 1712(b) of the Code and are sub|ect to the ta .
owever, where such day ground fees are pad for a perod of s
or ess consecutve days they do not consttute amounts pad as dues,
but are ta abe as amounts pad for admsson wthn the meanng of
secton 1700(a) (1) of the Code. The ta on admssons aso appes
to day ground fees pad by guests of the cub.
ecause of the pocy heretofore mantaned, the nstant rung,
under the authorty of secton 3791(b) of the Code, w not be apped
retroactvey; however, t w become effectve as of December 1,1953.
eouatons 3, Secton 101.2 : Intaton ev. u. 137
fees.
INT RN L R NU COD
transfer fee requred by a country cub wth respect to the sae
of stock by a member wthdrawng from the cub Is not a condton
precedent to membershp and the amount of such transfer fee Is not
sub|ect to the ta on ntaton fees mposed by secton 1710(a) (2)
of the Interna Revenue Code.
dvce s requested whether the ta on ntaton fees mposed by
secton 1710(a) (2) of the Interna Revenue Code s appcabe to
a transfer fee pad by a wthdrawng member of a country cub.
Secton 1710 of the Code mposes a ta on any amount pad as
ntaton fees to any soca, athetc, or sportng cub or organzaton,
f such fees amount to more than 10, or f the dues or membershp
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Regs. 3, 101 31.
3
fees, not ncudng nt aton fees, of an actve resdent annua member
are n e cess of 10 per year.
Under the Interna Revenue Code, the term ntaton fees n-
cudes any payment, contrbuton, or oan, requred as a condton
precedent to membershp, whether or not such payment, contrbuton
or oan s evdenced by a certfcate of nterest or ndebtedness, or
share of stock, and rrespectve of the person or organzaton to whom
pad, contrbuted, or oaned. (Sec. 101.2 of Reguatons 3.)
In vew of the foregong, t s hed that a transfer fee requred by
a country cub wth respect to the sae of stock by a member wth-
drawng from the cub s not a condton precedent to membershp
n the cub and the amount of such transfer fee s not sub|ect to the
ta on ntaton fees mposed by secton 1710(a) (2) of the Interna
Revenue Code.
I :ntu. TONS 3, Secton 101.2 : Intaton Rev. Ru. 2 1
fees.
INT RN L R NU COD
country cub whch quafes as a soca, athetc, or sportng cub
wthn the meanng of secton 1710 of the Interna Revenue Code has
four casses of membershps. The members may en|oy the factes
of the cub accordng to the partcuar cass of membershp hed. Ony
those members who nave purchased a share of stock or a certfcate of
nterest may vote n the management and contro of the cub and
share n ts assets. Ied, those members who are entted to vote n
the management and contro of the cub and share n ts assets com-
prse an addtona or separate cass of membershp, regardess of
whether specfed as such, and any amount pad for a share of stock
or a certfcate of nterest consttutes an amount pad as a condton
precedent to membershp of that cass and s sub|ect to the ta on
ntaton fees mposed by secton 1710(a) (2) of the Code. See S. T.
3 7, C. . 1-2(1922), 291.
SU C PT R C PRO ISIONS COMMON TO DMISSIONS ND DU S
S CTION 1715. P YM NT OF T
Reguatons 3, Secton 101.31: Duty to Rev. Ru. 202
coect, return, and pay ta .
nterna revenue code
certfcate of e empton from admssons ta was ssued to an
organzaton whch quafed therefor under secton 1701(a)(1)( )
of the Interna Revenue Code. owever, pror to the ssuance of the
certfcate, tckets to an affar conducted by the organzaton were
prnted whch showed the charge for admsson and an addtona
amount dentfed as admssons ta . Such tckets were sod for the
tota charges shown thereon, and the amounts charged as ta were
retaned by the organzaton. ed, the Government has no rght
to the amount coected by the organzaton as admssons ta , and has
no authorty to authorze the organzaton to retan the money whch
t coected as ta aganst proper cams of the persons who pad t.
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3 5
Regs. 71, 113.50.
Where an amount has been mpropery coected as admssons ta
and s turned over to the Government, such ta may be refunded ony
to the persons who actuay pad t, or to ther duy authorzed agents.
C PT R 11. DOCUM NTS, OT R INSTRUM NTS, ND
PL YING C RDS INCLUDING ST MP T S
SU C PT R . R T ND P YM NT OF T
S CTION 1 01. CORPOR T S CURITI S
Reuot.attons 71, Secton 113.50: Scope of ta . Rev. Ru. 203
INT N L NU COD
ppcabty of the ta mposed by sectons 1 00 and 1 01 of the
Interna Revenue Code on the ssuance of corporate securtes to the
ssuance of short-term notes.
dvce s requested whether the foowng descrbed short-term notes
are debentures wthn the meanng of sectons 1 00 and 1 01 of the
Interna Revenue Code.
M Corporaton, whch s engaged n the fnance and oan busness,
obtans a substanta porton of ts workng capta by the ssuance of
short-term notes. The notes are ssued at a dscount and contan a
smpe promse to pay a certan sum of money at maturty, whch
ranges from 30 days to 9 months from date of ssue. They do not
contan, and are not ssued pursuant to, any coatera agreement wth
the ender that paces restrctons upon, or mposes dutes upon the
M Corporaton, other than the obgaton to pay at maturty. The cor-
poraton uses two forms of notes whch are both n the usua form of
ordnary promssory notes, e cept that ther appearance s formazed
by prntng them on tnted paper wth engraved borders. On one form
the prncpa amount and the name of the payee are eft bank and are
fed n upon ssuance. The other form s made payabe to bearer and
the prncpa amount s prnted thereon n denomnatons rangng
from 1,000 to 1,000,000. Under the reguatons of the oard of
Governors of the Federa Reserve System, short term notes of fnance
companes, whch category ncudes the M Corporaton, are egbe
for redscount where the maturty at the tme of redscount s not more
than 90 days away.
Sectons 1 00 and 1 01 of the Code mpose a ta on a bonds, deben-
tures, or certfcates of ndebtedness ssued by any corporaton, and
a nstruments, however termed, ssued by any corporaton, wth n-
terest coupons or n regstered form, known generay as corporate
securtes. From the hstory of sectons 1 00 and 1 01, whch derve
from the Revenue ct of 1 9 , t s evdent that these sectons do not
appy to ordnary promssory notes.
oth debentures and promssory notes are evdences of ndebtedness,
and therefore have certan common characterstcs wth respect to
terms and provsons. ach contans a promse to pay a certan sum
of money at a future date. Usuay n each there s a statement of a
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Fogs. , 110.212.
3 6
f ed amount of nterest to be pad perodcay, athough promssory
notes are frequenty ssued at a dscount wth no nterest. On the
other hand, there are certan characterstcs whch are common to
debentures as a cass, whch are not common to promssory notes, and
whch serve to dstngush the one from the other. In the appcaton
of sectons 1 00 and 1 01 of the Code t s the poston of the Servce
that the two most mportant dstngushng characterstcs are: (1)
debentures are ssued for reatvey ong-terms, whereas promssory
notes are ssued for reatvey short-terms; and (2) debentures usuay
contan provsons desgned to afford the ender securty for hs oan,
and frequenty gve the ender some eement of contro over the bor-
rower s busness actvtes whe the debentures are outstandng,
whereas such provsons are unusua n promssory notes.
In Genera Motors cceptance Corporaton v. IIggns, 161 Fed.
(2d) 593, Ct. D. 170 , C. . 19 -2,157, certorar dened, 332 U. S. 10,
t was hed that certan nstruments termed notes ssued for a terra of
to 5 years were debentures wthn the meanng of sectons 1 00
and 1 01. Such notes were sub|ect to provsons whch restrcted the
fnanca actvtes of the borrower n such a way as to afford the ender
securty for hs oan. ( so see Commerca Credt Co. v. Iofferbert,
93 Fed. Supn. 562, affrmed, 1 Fed. (2d) 57 .) The nstant notes,
on the other hand, are short-term notes whch contan a smpe promse
to pay and the ssuer s sub|ect to no further dutes or restrctons.
It s hed that the short-term notes ssued by M Corporaton under
the crcumstances outned above do not consttute debentures wthn
the meanng of secton 1 01 of the Code. ccordngy, the ssuance
of such notes s not sub|ect to ta under secton 1 00 of the Code.
C PT R 15. TO CCO, SNUFF, CIG RS, ND
CIG R TT S
S CTIONS 2000-2199. TO CCO, SNUFF, CIG RS,
ND CIG R TT S
emuatons , Secton 1 0.212: Shpments T. D. 6052
restrcted.
TITL 26 INT RN L R NU C PT R I, SU C PT R C, P RT 1 0.
T S ON TO CCO, SNUFF, CIG RS, ND CIG R TT S, ND PURC S ND
S F. OF L F TO CCO
TITL 26 INT RN L R NU . C PT R I, SU C PT R . P RT 50.
WIT DR W L OF FILL D C S , PL YING C RDS, TO CCO, SNUFF.
CIO S, ND C R TT S, FROM F CTORI S, FR OF T , FOR US OF
T UNIT D ST T S
.Shpments of ta -free tobacco products, aso cgarette papers and
tubes, for use of the Unted States.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and
Others Concerned:
On uy 1, 1953, notce of proposed ruemakng, reatng to the
remova ta -free of manufactured tobacco, snuff, cgars, cgarettes,
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3 7
Regs. , 110.212.
and cgarette papers and tubes, from domestc factores for use of the
Unted States, was pubshed n the Federa Regster (1 F. R. 375 ).
No comments havng been receved n regard to the rues proposed,
the reguatons set forth beow are hereby adopted.
Paragraph 1. Reguatons 26 CFR, pt. 1 0 , but ony as pre-
scrbed and made appcabe to the Interna Revenue Code by Treas-
ury Decson 5 C. . 1939-1 (Part 1), 396 , approved February 11,
1939, are amended by renumberng secton 1 0.215 (art. 215), us ast
renumbered by Treasury Decson 5 6 (16 F. R. 1199 ) C. . 1951-2,
275 , as secton 1 0.225 (art. 225).
Par. 2. Reguatons 26 CFR, pt. 1 0 are further amended by
addng, mmedatey foowng secton 1 0.211, a new subpart P, Ta -
Free Shpment of Tobacco, Snuff, Cgars, Cgarettes, and Cgarette
Papers and Tubes For Use of Unted States, as foows:
SU P RT P T -FR S IPM NT OP TO CCO, SNUFF,
CIU RS, CIG R TT S, ND CIG R TT P P RS ND TU S,
FOR US OF UNIT D ST T S.
S C. 331, INT RN L R NU COD , MPTION FROM T
OF DOM STIC GOODS PURC S D FOR T UNIT D
ST T S.
The prvege e stng by provson of aw on December 1, 1 73 or
thereafter of purchasng suppes of goods mported from foregn
countres for use of the Unted States, duty free, sha be e tended,
under such reguatons as the Secretary may prescrbe, to a artces of
domestc producton whch are sub|ect to ta by the provsons of ths
subtte.
Sec. 1 0.212. Shpments Restrcted. Manufacturers of tobacco, snuff, cgars,
cgarettes, and cgarette papers and tubes, may shp such artces ta -free from
tber factores, n accordance wth ths subpart, to Federa agences and nst-
tutons for gratutous dstrbuton. Shpments of such artces for sae by
Federa agences or nsttutons are not wthn the meanng of the aw authorz-
ng the purchase of artces ta -free for use of the Unted States. Insttutons
owned or controed by the Governments of the severa States, Terrtores, or
the Dstrct of Coumba, are not entted to receve such artces ta -free.
Sec. 1 0.213. Federa Requston. Whenever manufactured tobacco, snuff,
cgars, cgarettes, and cgarette papers or tubes, are purchased by a Federa
agency or nsttuton for the use of the Unted States, and t s proposed to
Mp such artces from the pace of manufacture, ta -free, the agency or nsttu-
ton desrng the product sha prepare a requston on Form 7000, n quadrup-
cate. of the nformaton caed for by the headngs of the varous coumns
and nes on the form and the nstructons prnted thereon or ssued n respect
thereto, and as requred by ths subpart, sha be furnshed. ach of the four
copes of the form must agree n every respect, and sha be sgned and approved
by the head of the agency or nsttuton or by a person duy authorzed to sgn
and approve for such offcer. The agency or nsttuton sha retan one copy of
the form and transmt the remanng three copes to the manufacturer concerned
at the tme of pacng ts order for the merchandse. Immedatey after remova
of the shpment from the factory, the manufacturer sha forward two copes of
the requston, Form 7006, wth two copes of the notce of shpment, Form 7007,
as requred n ths subpart, to the assstant regona commssoner for the regon
n whch the factory s ocated. The remanng copy of the Form 7000 sha be
retaned by the manufacturer at the factory from whch the shpment s made,
wth a copy of the Form 7007, for hs records and for nspecton, upon demand,
by any nterna revenue offcer.
OND
Sec. 1 0.21 . Manufactt|beb of Tobacco Products. shpment of ta -free
tobacco, snuff, cgars, or cgarettes, made by a manufacturer of such artces
under ths subpart, sha be charged aganst the bond, Form 0 or Form 71,
furnshed by the manufacturer to cover the operaton of hs factory from whch
the shpment Is removed.
2 670 5 23
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Regs. , 1 0.212.
3
Sec. 1 0.215. Manufacturer of Cgarette Papers and Tcres. manufac-
turer of cgarette papers and tubes desrng to remove cgarette papers n pack-
ages, books, or sets, of more than 25 papers each, and any cgarette tubes, from
hs factory, ta -free, under ths subpart, sha furnsh to the assstant regona
commssoner for the regon n whch bs factory s ocated, a bond on Form
7099, wth acceptabe corporate surety, or at east two Indvdua suretes, or
coatera, as requred by ths part. ond, Form 7000, sha be prepared and
e ecuted, n trpcate. In accordance wth ths subpart, as suppemented by the
Instructons prnted on the form, or ssued In respect thereto. If gven wth
ndvdua suretes, the manufacturer sha furnsh from each such udvdoa
surety an affdavt on Form n trpcate, to show hs quafcaton to act
as such surety, a copy of whch affdavt sha be attached to each copy of the
reated bond when ted by the manufacturer. separate bond sha be fur-
nshed for each such factory from whch ta -free removas under ths subpart are
to be made.
(a) Pena turn. The bond must be n a pena sum suffcent to cover the est-
mated amount of ta whch may at any tme consttute a charge aganst the
bond: Provded. That the pena sum of the bond furnshed under ths secton
sha not e ceed 25,000 nor be ess than 500. The bond sha be a contnung
one, and the abty thereof sub|ect to ncrease as successve wthdrawas are
made thereunder, and to decrease as evdence of devery, as requred by ths
subpart, s receved by the assstant regona commssoner. When the mt
of abty under a bond gven n ess than the ma mum pena sum has Iwn
reached, no further shpments may be made under such bond, unt an add-
tona or strengthenng bond, wth the same surety as that on the orgna bond,
or a new or supersedng bond, has been fed to cover further shpments of such
artces from the factory.
(b) cton on the bond. The assstant regona commssoner sha, f the
bond meets wth hs approva, make endorsement to that effect on a three copes.
e sha retan one copy, forward one copy prompty to the Commssoner f
Interna Revenue, and transmt the remanng copy to the manufacturer as notce
of approva of the bond and authorty to make ta -free shpments of the artces
covered by the bond. The copy of the bond, together wth copes of any Forms
33 or any other documents returned to hm n connecton therewth, sha be
retaned by the manufacturer at the factory from whch such ta -free shpments
are to be made, for hs records and for nspecton, upon demand, by any nterna
revenue offcer.
NOTIC OF S IPM NT F OM F CTORY
Sko. 1 0.216. Notce of Shpment. For each shpment of ta -free tobacco
products or cgarette papers or tubes removed from hs factory under ths sub-
Tart, the manufacturer sha prepare a notce of shpment on Form 79tt7. n
trpcate. of the nformaton caed for by the headngs of the varous
coumns and nes on the form and the nstructons prnted thereon or ssued n
respect thereto, and as requred by ths subpart, sha be furnshed. The manu-
facturer sha assgn to each notce of shpment a sera number, whch sha
begn wth No. 1 wth respect to the frst shpment made under ths subpart and
begn agan wth No. 1 wth respect to the frst shpment made on anuary 1 of
each year thereafter, whch sera number sha be the same on a three copes
of the notce. Immedatey after remova of the shpment from the factory, the
manufacturer sha forward two copes of the notce of shpment. Form 75107,
wth two copes of the requston, Form 7990, as requred n ths subpart, to the
assstant regona commssoner for the regon n whch the factory s ocated.
The remanng copy of the Form 7097 sha be retaned by the manufacturer at
the factory from whch the shpment s made, wth a copy of the Form 7000.
for hs records and for nspecton, upon demand, by any nterna revenue offcer.
P C ING ND L LING
Skc. 1 0.217. Tobacco Products. Manufactured tobacco, snuff, cgars, and
cgarettes shpped from a factory under ths subpart, must be put up n pack-
ages of the snme szes prescrbed by aw for such artces removed ta pad for
domestc sae or consumpton. ach package must show ether the name of the
manufacturer or the dentty of hs factory by number and State, whch may
appear In the form of the cauton notce and/or factory brand requred to be
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(Regs. , 1 0.212.
aff ed to each package removed from the factory for ta abe purposes. There
sha be aff ed to each package a abe or stcker, ceary dstngushabe from
an nterna revenue stamp, on whch sha be prnted In egbe etters the words
Free of Ta Use of U. S. NOT to be Sod . Prntng of any addtona words,
Inscrpton, or egend on such abe may be permtted, when approved by the
assstant regona commssoner for the regon n whch the factory s ocated.
Sec. 1 0.21 . Cgarette Papers and Tubes. When cgarette papers and tubes
are shpped by a manufacturer under ths subpart, such artces may be put up
n packages, books, or sets of any szes desred. Packages, books, or sets con-
tanng more than 25 cgarette papers each, and a packages of cgarette paper
tubes, must bear the name and address of the manufacturer and a abe or stcker,
ceary dstngushabe from an nterna revenue stamp, on whch sha be prnted
In egbe etters the words Free of Ta Use of U. S. NOT to be Sod . Prnt-
ng of any addtona words, nscrpton, or egend on such abe may be per-
mtted, when approved by the assstant regona commssoner for the regon n
whch the factory s ocated.
NTRI S IN M NUF CTUR R S It COtUS
Sec. 1 0.219. Makufac bbeb of Tobacco Products. ntry of each shpment
of ta -free tobacco, snuff, cgars, or cgarettes, actuay removed from hs factory
under ths subpart sha be made by the manufacturer n the proper coumn n
the prescrbed revenue book, Form 7. , Part 1 or 2, or Form 7 , as the case may be.
Such shpment sha aso be ncuded n the revenue book n the recaptuaton
or account of manufactured tobacco and snuff, or cgars or cgarettes, for the
month n whch the shpment wts removed.
Sec. 1 0.220. Manufacturer of Cgarette Papers and Tubes. pproprate
entry of ea h shpment of cgarette paters and tubes actuay removed from hs
factory under ths subpart sha be made by the manufacturer n the revenue
hook requred to be kept by hm. Such etttrv sha carry a notaton For use of
U. S. . Wth respect to the manufacturer s return, Form 73 , cgarette papers
so shpped sha be reported n the approprate coumn, under cgarette papers
removed, wth the notaton For use of U. S. , whe cgarette tubes so shpped
sha be reported on the return n the coumn coverng tubes devered ta -free,
wth a smar notaton to appear through or across the coumns headed Factory
No. and Dstrct .
ID NC OF D LI RY R UIR D
Sec. 1 0.221. Certfcate of Recept. The offcer responsbe for recevng a
shpment of ta -free tobacco products, or cgarette papers and tubes, devered
to a Federa agency or nsttuton, for use of the Uuted States, sha, upon re-
cept of the shpment, nspect t n order that he may certfy as to the quantty
and cass of product actuay receved and date of recept. Such certfcate sha
be e ecuted on Form 709 , to be prepared n trpcate. of the nformaton
caed for by the headngs of the varous coumns and nes on the form and the
nstructons prnted thereon or Issued n respect thereto, and as requred by ths
subpart, sha be furnshed. The recevng offcer sha retan one copy of such
certfcate and transmt the other two copes prompty to the manufacturer who
made the shpment. The manufacturer sha keep one copy of the certfcate,
Form 709 , at the factory from whch the shpment was removed, for hs records
and for nspecton, upon demand, by any nterna revenue offcer. The other copy
of the Form 799 sha be forwarded by the manufacturer to the assstant re-
gona commssoner for the regon n whch the factory s ocated, n order that
the manufacturer may be reeved of abty to ta on the product actuay
receved by the agency or nsttuton. Where there s a oss of goods n transt,
or there Is any dfference between the quantty of product wthdrawn from the
factory as descrbed on the notce of shpment and that certfed by the recevng
offcer as havng been devered to the Federa agency or nsttuton, the manu-
facturer makng the shpment sha be abe for the ta on such shortage or
dfference.
Par. 3. Reguatons 3 26 CFR, pt. 50 , but ony as prescrbed
and made appcabe to the Interna evenue Code by Treasury De-
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Regs. 51, 320.G.
350
cson C. . 1939-1 (Part 1), 395 , approved February 11,1939,
are amended to remove therefrom a references to tobacco, snutf,
cgars, and cgarettes, as foows:
( ) The headnote of Reguatons No. 3 , Revsed s amended to
read as foows:
Part 50 Wthdrawa of Fed Cheese and Patng Cards, From Factores.
Free of Ta , for Use of the Unted States
( ) The frst sentence of the preambe (26 CFR 50.0), as ast
amended by Treasury Decson 5 1 (15 F. R. 19) C. . 1950-2,
132 , s further amended by strkng out , tobacco, snutf, cgars, and
cgarettes and by nsertng the word and between the words fed
cheese and payng cards .
(C) The frst sentence of artce 2 (26 CFR 50.2), as ast amended
by Treasury Decson 5 1 (15 F. R. 19), s further amended by
strkng out tobacco, snuff, cgars, and cgarettes, .
(D) rtce 5 (26 CFR 50.5), as ast amended by Treasury De-
cson 5 1 (15 F. R. 19), s further amended by strkng out sub-
secton (b) and by reetterng subsecton (c) as (b).
( ) The second sentence of the second paragraph of artce (a)
26 CFR 50. (a)), as ast amended by Treasury Decson 6 1
15 F. R. 19), s further amended by strkng out and tobacco
manufactures .
Ths Treasury Decson sha bo effectve on the 31st day after
pubcaton n the Federa Regster.
(Ths Treasury Decson s ssued under the authorty contaned
n sec. 3791 of the Interna Revenue Code (53 Stat. 67; 26 U. S. C.
3791).)
ustn F. Wnke,
ctng Commssoner of Interna Revenue.
pproved November 10, 1953.
M. . Fosom,
ctng Secretary of the Treasury.
(Pubshed In the Federa Regster, November 17, 1953)
C PT R 19. R T IL RS CIS T S
S CTION 2 00.-T ON W LRY, TC.
Reguatons 51, Secton 320.6: Charges for Rev. Ru. 20
coverngs, contaners, etc., generay.
( so Secton 2 03, Secton 320.5.)
INT RN L revenue code
chest desgned for use n hodng sterng fatware, when sod
n connecton wth the sae of the fatware, s consdered a contaner
for such artces wthn the meanng of secton 2 03(c) of the In-
terna Revenue Code and the 20 percent ta mposed by secton 2 00
of the Code attaches to the prce for whch the fatware s sod at
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351
Regs 51, 320.6.
reta Incudng the prce charged for the chest. Where a chest s
furnshed to a purchaser n connecton wth the sae of the fatware
and no separate charge s made for the chest, the ta appes to the
tota amount charged. owever, no ta attaches where a chest s
sod separatey, at a dfferent tme, and not n connecton wth the
sae of such fatware.
Where a retaer n connecton wth the sae of ta abe fatware
gves to the purchaser a nonta abe artce, the transacton, for
ta computaton purposes, consttutes a sae of the ta abe and
nonta abe artces at a combned or ump-sum prce.
dvce s requested concernng the appcaton of the ta on |ewery,
etc., mposed by secton 2 00 of the Interna Revenue Code to a charge
made for a chest sod as a contaner for sterng fatware. dvce s
aso requested as to the bass for computng the ta where a retaer
n connecton wth the sae cf such fatware gves to the purchaser an
artce not sub|ect to retaers e cse ta .
Under the provsons of secton 2 00 of the Code a ta of 20 percent
attaches to the prce for whch god, god pated, sver, or sterng
fatware are sod at reta. Secton 2 03(c) of the Code provdes that
n determnng the prce for whch a ta abe artce s sod there sha
be ncuded any charge for coverngs and contaners of whatever
nature.
It s hed that a chest desgned for use n hodng sterng fatware,
when sod n connecton wth the sae of the fatware, s consdered a
contaner for such ta abe artces wthn the meanng of secton
2 03(c) of the Code and the ta mposed by secton 2 00 of the Code
attaches to the prce for whch the sterng fatware s sod at reta n-
cudng the prce charged for the chest. Where a chest s furnshed
to a purchaser n connecton wth the sae of the fatware and no sepa-
rate charge s made for the chest, the ta appes to the tota amount
charged. owever, no ta attaches where a chest s sod separatey,
at a dfferent tme, and not n connecton wth the sae of such fatware.
It s further hed that where a retaer n connecton wth the sae
of ta abe fatware gves to the purchaser a nonta abe artce, the
transacton, for ta computaton purposes, consttutes a sae of the
ta abe and nonta abe artces at a combned or ump-sum prce. In
such a transacton the ta appes to the porton of the prce charged
for the combnaton whch s attrbutabe to the ta abe artces. Such
porton may be determned by appyng to the combned prce, the
rato whch the estabshed reta seng prce of the ta abe artces
bears to the sum of the estabshed seng prces of the ta abe and
nonta abe artces when sod separatey at reta. If the retaer
does not have estabshed separate seng prces for the ta abe and
nonta abe artces the porton of the combned seng prce attrbu-
tabe to the ta abe artces may be determned by appyng to the
reta seng prce of the combnaton, the rato whch the cost of
the ta abe artces bears to the sum of the costs of the ta abe and
nonta abe artces. For e ampe, f the cost of the sterng fatware
and the chest sod n connecton therewth represents of the sum
of the costs of the fatware, chest, and the nonta abe artce, the ta
shoud be computed on 01 tne amount charged the purchaser for
the combned artces.
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Regs. , 300.1 .
352
Reguatons 51, Secton 320.31: ewery. Rev. Ru. ITS
INT RN L R NU COD
arrettes or combs desgned to be worn n the har, whch are
ornamented wth pears, precous or semprecous stones, or mtatons
thereof ncudng rhnestones, are artces of |ewery wthn the mean-
ng of secton 2 00 of the Interna Revenue Code and are sub|ect to
the 20 percent ta mposed by that secton when sod at reta.
Reguatons 51, Secton 320.32: Pears, precous Rev. Ru. 1 9
and semprecous stones, and mtatons thereof.
INT RN L R NU COD
Petrfed wood as such s not a semprecous stone under secton 2 00
of the Interna Revenue Code. owever, petrfed wood known as
wood agate or wood opa from whch gems are ordnary cut are
semprecous stones whch are sub|ect to the ta mposed by that sec-
ton of the Code, when sod at reta, regardess of whether such sem-
precous stones are n the rough, cut, or poshed as gems. Lkewse,
artces made of wood agate or wood opa from whch gems are ord-
nary cut are sub|ect to the ta when sod at reta.
S CTION 2 03. R TURN ND P YM NT OF
R T IL RS CIS T S
Rcguatons 51, Secton 320.5: ass of
ta on saes generay.
INT RN L NU COD
ppcaton of the ta where a retaer gves to a purchaser a non-
ta abe artce n connecton wth the sae of a ta abe artce. (See
Rev. Ru. 20 , p. 350.)
C PT R 21. COCONUT ND OT R G T L OILS
S CTION 2 7 . PORT TION
Reguatons , Secton 306.1 : Refund on Rev. Ru. 191
artces e ported.
INT RN L R NU C0II
refund of ta aowed pursuant to secton 2 7 of the Interna
Revenue Code to an e porter of artces, consstng whoy or n chef
vaue of coconut and other vegetabe os, s not a refund of ta
erroneousy, egay, or otherwse wrongfuy coected, but s consd-
ered a rebate dependent on the performance of certan acts after the
abty for the ta was egay ncurred and pad by the processor of
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353
Regs. 6, 316.25.
such os. There s no authorty n the aw or reguatons for the
payment of nterest on a refund made under secton 2 7 of the Code,
to the e porter of such artces.
C PT R 25. FIR RMS
SU C PT R .-rSTOLS ND R OL RS
S CTION 2705. PORT TION
Reguatons 6, Secton 316.25: Saes for Rev. Ru. 2 7
e portaton.
INT RN L R NU COD
Cam for refund or credt may be fed by the manufacturer, or
cam for refund may e fed by the e porter or shpper, wth resect
to manufacturers e cse tu pad on artces sod by the manufac-
turer for e port and e ported n due course. statement furnshed
by a purchaser to a manufacturer settng forth the estmated number
or percentage of artces purchased durng a caendar month for
e port, based upon e port orders on hand or on prevous e port re-
qurements, s acceptabe as evdence that such artces are sod by
the manufacturer for e port. No e empton from ta , nor credt or
refund of ta pad, s aowabe wth respect to those artces e -
ported n e cess of the number or percentage purchased for e port as
shown by such statement for the month nvoved.
dvce s requested whether a cam for refund of manufacturers
e cse ta pad wth respect to artces sod by the manufacturer for
e port and e ported n due course may be fed by ether the manu-
facturer or the e porter. dvce s further requested whether a state-
ment furnshed by a purchaser to the manufacturer estmatng the per-
centage of the artces purchased for e port s acceptabe as evdence
that such artces were sod by the manufacturer for e port.
Under the provsons of secton 2705 of the Interna Revenue Code,
manufacturers e cse ta does not appy wth respect to artces sod
or eased for e port or for shpment to a possesson of the Unted
States and n due course so e ported or shpped. That secton aso
provdes that the amount of any nterna revenue ta erroneousy or
egay coected wth respect to such artces so e ported or shpped
may be refunded to the e porter or shpper of the artces, nstead of
to the manufacturer, f the manufacturer waves hs rght to any cam
for the amount to be refunded.
Secton 316.25 of Reguatons 6 provdes, n part, that n order for
a sae for e port to be e empt from ta t s necessary that two cond-
tons be met, namey, (1) that the artce be dentfed as havng been
sod by the manufacturer for e port and (2) that t be e ported n due
course. Secton 316.26 of the reguatons outnes the evdence re-
qured to estabsh that an artce s e ported n due course.
manufacturer may fe a cam for refund or credt of the amount
of ta pad wth respect to artces sod by hm for e port and e -
ported n due course. s an aternatve the e porter or shpper may
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Regs. 3, 1 2.6 .
35
fe the cam for refund of the ta pad wth respect to artces pur-
chased for e port and e ported n due course, provded he obtans a
sgned statement from the manufacturer wavng any cam for the
amount to be refunded and showng (1) that the manufacturer had
n hs possesson at the tme of the sae of the artces evdence that the
artces were to be e ported, (2) the amount of ta pad, and (3) the
dstrct drectors offce to whch the ta was pad as we as date of
payment.
It s hed that where a purchaser n pacng an order wth a manu-
facturer furnshes the manufacturer a statement that an estmated
number or percentage of a partcuar artce or cass of artces pur-
chased durng a caendar month s for e port, such a statement, when
based on e port orders on hand or on prevous e port requrements, s
acceptabe as evdence that the artces covered thereby are sod by the
manufacturer for e port. No e empton from ta , nor credt or
refund of ta pad, s aowabe wth respect to those artces e ported
n e cess of the number or percentage purchased for e port as shown
by such statement for the month nvoved.
C PT R 26. LI UOR
S CTIONS 2 00-3195. LI UOR
Reguatons 3, Secton 1 2.6 : Weghng tanks T. D. 60 9
for acoho.
( so Secton 1 3.92, Reguatons ; Secton
1 .121, Reguatons 5; Secton 1 5.110, Regua-
tons 10; Secton 190.116, Reguatons 15.)
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RTS 1 2, 1SS,
1 , 1 5, ND 1U0
mendment of reguatons governng the quanttes of sprts
to be weghed n scae tanks.
Treasurt Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
In order to authorze the use of tank scaes havng a capacty
of more than 2,000 pounds for gaugng, for the purpose of ta pay-
ment, sprts n quanttes ess than 20 per centum of the tota capac-
ty of the scaes, the foowng amendments to reguatons are hereby
adopted:
Paragraph 1. Secton 1 2.6 of Reguatons 3 26 CFR, pt, 1 2 ,
as amended by Treasury Decson 5 01 C. . 1950-2,15 , approved
ugust 11, 1950, s further amended by nsertng mmedatey after
the word Provded, n the ast sentence, the foowng: That the
weghng of esser quanttes for determnaton of ta may be author-
zed by the assstant regona commssoner where the beam of the
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355
Regs. 3, 1 2 6 .
scae s cabrated n y2 or 1 pound graduatons and t s found by
actua test that the scaes break accuratey at such graduatons:
Provded further .
Par. 2. Secton 1 3.92 of Reguatons 26 CFR, pt. 1 3 s
amended by nsertng mmedatey after the word Provded n the
fourth sentence, the foowng: That the weghng of esser quanttes
for determnaton of ta may be authorzed by the assstant regona
commssoner where the beam of the scae s cabrated n y2 or 1
pound graduatons and t s found by actua test that the scaes break
accuratey at such graduatons: Provded further .
Par. 3. Secton 1 .121 of eguatons 5 26 CFR, pt. 1 s
amended by nsertng mmedatey after the word Provded n the
fourth sentence, the foowng: That the weghng of esser quanttes
for determnaton of ta may be authorzed by the assstant regona
commssoner where the beam of the scae s cabrated n y2 or 1
pound graduatons and t s found by actua test that the scaes break
accuratey at such graduatons: Provded further .
Par. . Secton 1 5.110 of Reguatons 10 26 CFR, pt. 1 5 s
amended as foows:
( ) y nsertng mmedatey after the word Provded n the
ast sentence, the foowng: That the weghng of esser quanttes
for determnaton of ta may be authorzed by the assstant regona
commssoner where the beam of the scae s cabrated n y2 or 1
pound graduatons and t s found by actua test that the scaes break
accuratey at such graduatons: Provded further, .
( ) y amendng the ctaton to read as foows: (53 Stat. 307,
332; 26 U. S. C. 2 0 , 2 73.)
Par. 5. Secton 190.116 of Reguatons 15 26 CFR, pt. 190 s
amended as foows:
( ) y strkng the coon and the provso foowng the phrase
capacty over 50,000 pounds n the ast sentence and nsertng n eu
thereof a perod.
( ) y addng at the end of the secton a new sentence as foows:
cept n the case of scaes havng a capacty of 2,000 pounds or ess,
where sprts are to be gauged for ta payment, not ess than 20 per-
cent of the tota capacty of the gaugng tank scae may be entered
nto the tank for gaugng for determnaton of the ta : Provded,
That the weghng of esser quanttes for determnaton of ta may
be authorzed by the assstant regona commssoner where the beam
of the scae s cabrated n y2 or 1 pound graduatons and t s found
by actua test that the scaes break accuratey at such graduatons.
(C) y amendng the ctaton to read as foows: (53 Stat. 307,
31 ; 26 U. S. C. 2 0 , 2 29.)
ecause the changes made are of a berazng character, t s found
that t s unnecessary to ssue ths Treasury Decson wth notce and
pubc procedure thereon under secton (a) of the dmnstratve
Procedure ct, approved une 11, 19 6, or sub|ect to the effectve date
mtatons of secton (c) of sad act.
Ths Treasury Decson sha be effectve upon the date of pubca-
ton n the Federa Regster.
(Ths Treasury Decson s ssued under the authorty contaned n
sec. 161 of the Revsed Statutes and sectons 2 0 , 3105,312 , and 3176
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Regs. 3, 1 2.279a.
35G
of the Interna Revenue Code. (Sec. 161 R. S.; 5 U. S. C. 22; 53
Stat. 307, 35 , 36 , 375; 26 U. S. C. 2 0 , 3105, 312 , 3176).)
T. Coeman ndrews,
Commssoner of Interna Revenue.
pproved November 5, 1953.
M. . Fosom,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster November 11, 1003)
Reguatons 3, Secton 1 2.279a: Where no T. D. 60-13
bonded warehouse or denaturng pant on
premses.
( so Sectons 1 2.279b, 1 2.279c, 1 2.279d,
1 2.279e, 1 2. 23.)
TITL 20 INT RN L R NU . C PT R I, SU C PT R C. P RT 1 2.
INDUSTRI L LCO OL
mendment of requrements for aternate operaton of Industra
acoho pant as regstered dstery or frut dstery.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
In order to conform Reguatons 3 26 CFR, pt. 1 21 wth the pro-
vsons of Reguatons 26 CFR, pt. 1 3 and 5 26 CFR, pt 1
regardng the procedure for the aternate operaton of a regstered
dstery or frut dstery as an ndustra acoho pant, Reguatons
3 are hereby amended as foows:
Paragraph 1. Wherever the term supervsor or dstrct super-
vsor appears n the sectons of the reguatons revsed by ths Treas-
ury Decson, such term s hereby amended to read assstant regona
commssoner.
Tar. 2. Sectons 1 2.276, 1 2.277, 1 2.27 , and 1 2.279 are revoked.
Par. 3. There s nserted mmedatey foowng rtce the
foowng new subttes, sectons, and ctatons:
uafcatons for Inta ternatng Operatons
Sec. S2.279n. Where no onded Warehouse or Denaturng Pant on Prem-
ses. n ndustra acoho pant may be operated aternatey for the producton
of acoho under ths part, the producton of dsted sprts under Reguatons
20 CFR, pt. 1 3 , or the producton of brandy under Reguatons 5 2 CFR,
pt. 1 . Where t s desred to conduct aternatng operatons at an ndustra
acoho pant and there s no ndustra acoho bonded warehouse or denaturng
pant ocated on the ndustra acoho pant premses, the successor (ncomng)
propretor must frst quafy as propretor of the premses. t the tme of the
frst suspenson for the purpose of conductng aternate operatons, the out-
gong propretor must dscontnue operatons and compy wth the foowng
requrements:
(a) mended appcaton, Form S1. Fe wth the assstant regona com-
mssoner an amended appcaton on Form 1 31, n trpcate, statng thereon
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357
Regs. 3, 1 2.279a.
the purpose of the appcaton to be Temporary dscontnuance n order that
the ndustra acoho pant may be operated as a regstered dstery (or
frut dstery, as the case may be), and gve the date of dscontnuance.
(6) Consent of surety. Fe wth the assstant regona commssoner a
banket consent of surety, Form 1533, n trpcate, to contnue n effect bond
Form 1 32- (and Form 160 , f requred). Such banket consent of surey
may be fed to cover a such aternate operatons and may be e ecuted n the
foowng form:
To contnue n effect the sad bond (or bonds), whenever operaton of the
ndustra acoho pant s resumed from tme to tme, pursuant to appcaton
on Form 1096, fed by the prncpa foowng suspenson of operatons as a
regstered dstery or frut dstery.
(c) Materas and unfnshed acoho. If dstng materas are transferred
to the successor, or f unfnshed acoho s to be retaned n the Industra
acoho pant pendng the resumpton of operatons as an ndustra acoho
pant, compy wth the requrements of sectons 1 2. 39 to 1 2. 1. Whenever
aternate operatons are to be conducted after the frst suspenson, the pro-
cedure prescrbed by sectons 1 2.279c and 1 2.27 d w be foowed.
Sec. 1 2.279b. When onded Warehouse or 1 enatukno 1 ant on Prem-
ses. Where an Industra acoho bonded warehouse or denaturng pant s
ocated on (he ndustra acoho pant premses, the ndustra acoho pant
may be operated aternatey as an ndustra acoho pant, regstered dstery
or a frut dstery upon compance wth the requrements of secton 1 2.279a.
The permttee sha desgnate the pat on fe whch depcts the entre Industra
acoho pant premses, ncudng the bonded warehouse or denaturng pant,
as pat , and fe a new pat whch w be desgnated as pat 15, depctng
the bonded warehouse or denaturng pant and any other porton of the ndus-
tra acoho premses not to be operated by the ncomng aternate propretor.
The permttee sha aso descrbe n the amended appcaton, Form 1 31, the
bonded warehouse or denaturng pant and any porton of the ndustra acoho
pant premses not to be operated by the ncomng propretor. The descrpton
thereof must correspond wth the depcton of the premses on pat . When-
ever aternate operatons are to be conducted after the frst suspenson, the
procedure prescrbed by sectons 1 2.279c and 1 2.27t)d w be foowed.
Suspenson for Subsequent ternate Operatons
Sec. 1 2.279c. Requrements. Where a permttee desres to suspend opera-
tons of the ndustra acoho pant preparatory to resumpton of operatons as
a regstered dstery or frut dstery, he must compy wth the foowng
requrements:
(a) otce of aternate operatons. Fe Form 1G96, through the storekeeper-
gauger n charge, wth the assstant regona commssoner, gvng notce of
ntenton to suspend operatons. The form sha be e ecuted and ted In ac-
cordance wth the varous nes on the form and the nstructons prnted
thereon, or ssued n respect thereto. Form 1696 sha contan or be verfed by
a wrtten decaraton that t s e ecuted under the peuates of per|ury. Opera-
tons w be suspended upon approva of the notce by the assstant regona
commssoner n accordance wth secton 172.279e.
(ft) Materas and unfnshed acoho. If dstng materas are transferred
to the successor or f unfnshed acoho s to be retaned on the premses pend-
ng the resumpton of operatons as an ndustra acoho pant, compy wth the
requrements of sectons 1 2. 39 to 1 2. 1. (63 Stat. 667 ; 26 U. S. C. 3 09.)
Resumpton for Subsequent ternate Operatons
Sec. 1 2.279d. Requrements. When a permttee desres to resume opera-
ton of the ndustra acoho pant foowng suspenson of operatons as a
regstered dstery or frut dstery, he must compy wth the foowng
requrements:
(a) Notce of aternate operatons. Fe Form 1696, through the storekeeper-
gauger In charge, wth the assstant regona commssoner for authorty to re-
sume operatons. The notce sha be e ecuted n accordance wth the Instruc-
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Regs. 3, ( ppend ). 35
tons prnted on the form, or ssued n respect thereto, and otherwse competed
as provded n secton 1 2.279c.
(6) Materas. If dstng materas are receved by transfer from the pred-
ecessor, compy wth the requrements of sectons 1 2. 0 and 1 2. 1. (63
Stat. 007 ; 20 U. . C. 3 09.)
cton by ssstant Regona Commssoner
Sec. 1 2.279e. pprova and Dsposton op Fobm 1096. Upon recept of Form
1090, (he assstant regona commssoner w. If he fnds that the notce tuny be
property approved, e ecute the certfcate of approva on a copes and dspose of
the copes In accordance wth the nstructons prnted on the form, or ssued
n respect thereto.
Par. . Secton 1 2. 23 s amended by addng at the end of the
second sentence the foowng new sentence:
Form 12 w not be requred when operatons are suspended pursuant to the
requrements of rtce .
ecause the changes made are of a berazng character, t s found
that t s unnecessary to ssue ths Treasury Decson wth notce and
fubc procedure thereon under secton (a) of the dmnstratve
rocedure ct, approved une 11, 19 6.
Ths Treasury Decson sha be effectve upon the date of pubca-
ton n the Federa Regster.
(Ths Treasury Decson s ssued under the authorty contaned
n sees. 3105, 312 (a) (6) and 3176 of the Interna Revenue Code (53
Stat. 35 , 36 , 375; 26 U. S. C. 3105, 312 (a) (6), 3176).)
ustn F. Wnke,
ctng Commssoner of Interna Revenue.
pproved November 5, 1953.
M. 13. Fobom,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster November 11, 1953)
Reguatons 3, ( ppend ). T. D. 6051
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 1 2.
INDUSTRI L LCO OL
Specay denatured acoho formua No. 29
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
The purpose of these amendments s to provde more fe bty n
the seecton of denaturants whch may be authorzed for use n
Specay Denatured coho Formua No. 29, by emnatng the
restrctve requrement that any aternate denaturant must be a
chemca produced from ethy acoho. The proposed amendments
w permt the use as denaturants of chemcas other than those pro-
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359
Regs. 3, ( ppend ).
duced from ethy acoho. These amendments are consdered neces-
sary snce present authorzed denaturants have been found unsats-
factory for modern chemca manufacturng processes. ccordngy,
the ppend to Reguatons 3, Industra coho (26 CFR, pt.
1 2; 7 F. R. 1 5 ), as amended, s hereby amended as foows:
Paragraph 1. The composton of Specay Denatured coho
Formua No. 29 s amended to read as foows:
To every 100 gaons of ethy acoho add: One gaon of 100 percent acetade-
hyde or 5 gaons of an acohoc souton of acetadehyde contanng not ess
than 20 percent acetadehyde, or not ess than 1 part by weght f sod, or
voume f qud, of any chemca that meets wth the approva of the Com-
mssoner.
Ths formua Is restrcted to processes where the acoho oses ts dentty
as acoho by beng converted nto other chemcas. Where t s desred to use
any chemcas other than acetadehyde or an acohoc souton of acetadehyde
for Formua No. 29, the use of such chemcas sha be sub|ect to approva by
the Commssoner as to knd and amount requred.
Par. 2. The specfcatons for denaturant ethyamnes, sted m-
medatey foowng the specfcatons for ethy acetate n the Spec-
fcatons for Denaturants n Specay Denatured coho, are
revoked.
Par. 3. The specfcatons for denaturant ethy proponate, sted
mmedatey foowng the specfcatons for ethy ether n the Spec-
fcatons for Denaturants n Specay Denatured coho, are
revoked.
Par. . The st Denaturants uthorzed for Competey and
Specay Denatured coho, s amended by strkng therefrom
the foowng:
thy proponate S. D. 20
thyamnes S. D. 20
The provsons of these amendments are not to be construed as re-
strctng the use of aternate denaturants such as GC-7 , and
GC 79, whch have been prevousy authorzed.
ecause the amendments made by ths Treasury Decson are of a
berazng character, t s unnecessary to ssue ths Treasury Decson
wth notce and pubc procedure thereon under secton (a) of the
dmnstratve Procedure ct, approved une 11, 19 6, or sub|ect to
the effectve date mtatons of secton (c) of sad act.
Ths Treasury Decson sha be effectve upon ts pubcaton n the
Federa Regster.
(Ths Treasury Decson s ssued under the authorty contaned n
sees. 3070, 3105, 3170, and 3176 of the Interna Revenue Code (53
Stat. 355, 35 , 373 as amended, 375; 26 U. S. C. 3070, 3105, 3170,
3176).)
T. Coeman ndrews,
Commssoner of Inferna Revenue.
pproved November 6, 1953.
M. . Fosom,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster November 13, 1053)
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Regs. 7, 17 .223a.
360
Reguatons 7, Secton 17 .223a: Tankshps, T. D. 60 5
barges, and deep tanks of vesses.
( so Sectons 17 .216,17 .251a, 17 .251b.)
TITL 2 INT RN L R NG . C rT R I, SU C PT R C, P RT 17 .
PRODUCTION, FORTIFIC TION, T P TM NT, TC., OF WIN S
Remova of wne In tankshps, barges, and deep tanks of vesses
Treasury Department.
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
In order to permt the shpment of wne from bonded premses, n
buk, by means of tankshps, barges, or deep tanks of vesses, Regua-
tons 7 2G CFR, pt. 17 are hereby amended as foows:
Paragraph 1. The second sentence of secton 17 .216 s amended to
read as foows:
Wnes may aso be removed n uncased bottes, by ppene or by hose, and n
tankshps, barges, or deep tanks of vesses, as herenafter provded.
Par. 2. There s nserted mmedatey foowng secton 17 .223 the
foowng new secton:
Sec. 17 .223a. Tankshps, arges, and Deep Tanks of esses. Tankshps,
barges, and deep tanks of vesses used for the transportaton of wne, whether In
bond, ta -free, or ta pad, must be equpped wth route boards, smar In con-
structon to those prescrbed n secton 17 .223 for tank trucks and tank cars.
Such route boards must be aff ed to each compartment (f any) of such tankshp,
barge, or deep tank or tanks of a vesse. The compartments of tankshps, barges,
or deep tanks of vesses sha be marked and stamped n the manner provded n
sectons 17 .219 and 17 .2 2, nsofar as appcabe and, n addton, bear the marks
prescrbed n secton 17 .251 where the wne s transferred n bond. The requred
marks and stamps must be destroyed or otherwse obterated Immedatey the
compartment s empty. Wne to be transferred n bond may be shpped n buk
by means of tankshps, bnrges, or deep tanks of vesses ony pursuant to speca
permsson frst obtaned from the assstant regona commssoner, as set forth
r secton 17 .251a, and sub|ect to such mtatons and condtons as may be
mposed by hm. Such n-bond shpments may be made ony where the premses
of bot the consgnee and consgnor are equpped wth sutabe factes and
where the wne s run drecty from storage tanks on the consgnor s premses nto
the tankshp, barge, or deep tank or tanks of a vesse and drecty from the tank-
shp, barge, or deep tank or tanks of a vesse nto storage tanks on the consgnee s
premses. The tanks of tankshps, barges, and vesses, used to transfer wne n
bond must be equpped for seang, and be seaed, as requred n secton 17 .251b.
The provsons of secton 17 .223 concernng the consgnng of wne by compart-
ments of tank trucks or tank cars to more than cne consgnee w govern the
consgnng n bond of wne n tankshps, barges, and deep tanks of vesses. (53
Stat. 35 ; 20 U. S. C. 30 0.)
Par. 3. There are nserted mmedatey foowng secton 17 .251 the
foowng new sectons:
Sec. 17S.251a. ppcaton fob uthorty To Use Tankshps, arges, and Defp
Tanks of esses. propretor desrng permsson to transfer wnes In tank-
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301
Regs. 7, 17 .223a.
shps, barges, and deep tanks of vesses sha make appcaton therefor, In dup-
cate, to the assstant regona commssoner. The appcaton may cover a specfc
ot of wne or be for contnung authorty. Where shpment s to be made to more
than one consgnees premses, separate appcaton must be submtted for each
such premses. The appcaton must state:
(a) The name and address of the consgnee,
(6) the name, sera number, regstry number, or other dentfyng sym-
bo or mark of each tankshp, barge, or vesse to be used.
(c) the name and address of the carrer,
(d) the course or route to be foowed from consgnor to consgnee prem-
ses, and
(e) whether the premses of both the consgnor and consgnee are
equpped wth sutabe dock factes and the wne s to be run drecty from
storage tanks on the consgnor s premses nto the tankshp, barge, or deep
tank or tanks of a vesse, and drecty from the tankshp, barge, or deep tank
or tanks of a vesse nto storage tanks on the consgnee s premses. If the
appcaton s n order, the assstant regona commssoner w conduct
such nqures and nvestgatons as may be necessary to verfy the appca-
ton, and the sutabty of the tan;shp, barge, or deep tank or tanks of the
vesse, and the dock and storage factes at the shppng and recevng
premses. In the case of nterregon shpments, the sutabty of the dock and
storage factes of the consgnee w be verfed by nqury addressed to
the assstant regona commssoner for the consgnee s regon. Upon ap-
prova by the assstant regona commssoner the orgna w be returned
to the appcant and the copy retaned fur the assstant regona comms-
soner s fes.
(53 Stat. 353; 26 U. S. C. 3037.)
Sec. 17 .251b. Seang of Tanks. Where wne s transferred n bond In tank-
shps, barges, and deep tanks of vesses, the manhoe covers, outet vaves, and
a other openngs of the tanks contanng the wne sha be eoupped wth fac-
tes for seang so that the contents cannot be removed wthout showng evdence
of tamperng. Seray numbered seas, dssmar In markng from cap seas
used by the Interna Revenue Servce sha be furnshed and affsed by the carrer
or propretor. The sera numbers of the seas used on each shpment sha be
reported by the consgnor on the Form 703 prepared n accordance wth secton
17 .252. (53 Stat. 353; 26 U. S. C. 3037.)
ecause the amendments made by ths Treasury Decson are of a
berazng character, t s unnecessary to ssue ths Treasury Decson
wth notce and pubc procedure thereon under secton (a) of the
dmnstratve Procedure ct, approved une 11, 19 6, or sub|ect
to the effectve date mtatons of secton (c) of sad act.
Ths Treasury Decson sha be effectve on the date of ts pubca-
ton n the Federa Regster.
(Ths Treasury Decson s ssued under the authorty contaned
n sees. 3037, 30 0, 3176, and 3901 of the Interna Revenue Code (53
Stat. 353,35 ,375, 77; 26 U. S. C. 3037,30 0,3176,3901).)
ustn F. Wnke,
ctng Commssoner of Interna Revenue.
pproved October 19, 1953.
M. . Fosom,
ctng Secretary of the Treasury.
(Pubshed In the Federa Regster, October 23, 1953)
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Regs. 7, 17 .3C7.
3G2
Reguatons 7, Secton 17 .367: Inventores. T. D. 6032
( so Reguatons 3, 5,11,15, and 16.)
TITL 26 INT RN L R NU . C PT R I. SU C PT R C, P RTS 17 , 1 2,
1 , 1 7, 1 9, ND 190
Dscontnuance of Commssoner s copy of monthy reports con-
cernng quors.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
Regona Commssoners of Interna Revenue, ssstant Regona
Commssoners of Interna Revenue, coho and Tobacco Ta , and
Others Concerned:
1. The purpose of these amendments s to dscontnue the Comms-
soner s copy of the foowng monthy reports concernng quors:
Premses
CFR
part
I
eg.
Form
No.
Tte
No.
onded wneres and store-
17
7
201
Wnemaker s Monthy Report of Materas for
rooms.
Fortfcaton and meoraton (or Sweeten
tag) of Wnes
276
701
702
Fortfcaton of Wne
Wnemaker s Producton Record
Wnemaker s Report of Producton, Recept,
Treatment, and Dsposton of St Wnes
702-
Wnemaker s Report of Producton. Recept,
and Dsposton of Champagne and Other
Sparkng Wnes, and rtfcay Carbon-
ated Wnes
702-
702-C
Wnemaker s ermouth Report (modfed or
apertf wnes)
W nemaker s Inventory of St Wnes
Industra acoho pants
1 2
3
1 2
Propretor s Report of Operatons at Indus-
tra coho Pants
Industra acoho bonded
1 2
3
1 3-
Report of Uncoopered coho at onded
warehouses.
Warehouse
1 3-
Report of coho n Packages at onded
Warehouse
Industra acoho denatur-
1 2
3
12
Report of Denaturants
ng pants.
1 C -
thy coho Receved and Dsposed of t
1 6 -
Denaturng Pant
Denaturants Used at Denaturng Pant
Summary of Denaturants Used at Denaturng
C -C
Pant
1 6 -D
Denatured coho Produced and Dsposed of
1 6 -
1 6 -F
at Denaturng Pant
Summary of Denatured coho
Recovered coho Receved and Dsposed of
Deaers n denatured acoho.
1 2
3
1 7
at Denaturng Pant
onded Deaer s Report of Specay Dena-
tured coho Receved and Dsposed of
Manufacturers usng dena-
1 2
3
1 2
User s Report of Denatured coho
tured acoho.
Frut dsteres
1 -1
e
1 03
Monthy Statement of randy Dstery Pro-
ducng Wne Contanng Less Than One-
af of One Percent of coho by oume
Dstery denaturng bonded
1 7
16
120
Report of Denaturants
warehouses.
675
Report for Denaturng onded Warehouse
1 9
11
62-D
Monthy Record and Report of Ta -Pad
ottng ouse Operatons
190
IS
702-
Wnemaker s Report of Producton, Recept
and Dsposton of Champagne and Other
Sparkng Wnes, and rt ray Carbon-
ated Wnes
The amendments w aso dscontnue the preparaton and submsson
of the Commssoner s copy of the power of attorney (Form 153 )
where the propretor s reports are sgned by an agent.
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363
Regs. 7, 17 .367.
2. Sectons 17 .367, 17 .379, 17 .3 1, 17 .3 2, 17 .3 , 17 .3 7,
17 .390, 17 .393, 17 . 01, 17 . 79, 17 .502, and 17 .507 of Reguatons
7 (26 CFR, pt. 17 ; 10 F. . 12307), Producton Fortfcaton, Ta -
payment, tc., of Wnes, as amen ded, are amended as foows:
Losses
Sec. 17 .367. Inventores. ach propretor of a bonded wnery or bonded
storeroom sha take a physca nventory of a wnes on hand on une 30 and
December 31 of euch year, and enter on hs wnery or storeroom accounts, Forms
702, 702- , and 702- , for those months any osses dscosed by such nven-
tores. detaed report of the nventory sha be made on Form 702-C, n
dupcate, gvng a the nformaton cned for by the form. One copy of Form
702-C sha be attached to each copy of Form 702, 702- , or 702- , to whch t
pertans, for the month n whch the nventory was taken. ddtona nven-
tores may be taken at such other tmes as the propretor may desre and any
osses dscosed thereby sha be entered on the wnery or storeroom accounts.
Other osses ascertaned to have been actuay sustaned may be entered on
Forms 702, 702- , and 702- , but estmated osses may not be entered on the
forms. When an nventory s taken, such fact shoud be noted on Forms 702,
702- , and 702- .

(53 Stat. 353, 35 , 373, 375, 77; 26 U. S. C. 3030, 30 0, 3171, 3176, 3901.)
Monthy Recobds
Sec. 17 .379. Foum 702. The propretor of every bonded wnery or bonded
storeroom sha keep a monthy record on Form 702, n dupcate, of a st
wne produced, receved, and dsposed of at hs wnery or storeroom. (53 Stat.
373, 375, 77 ; 26 U. S. C. 3171, 3176, 3901.)
Sec. 17 .3S1. Form 702- . The propretor of every bonded wnery manu-
facturng champagne, sparkng wne, or artfcay carbonated wne, and the
propretor of every bonded wnery or storeroom recevng, storng, or dsposng
of champagne, sparkng wne, or artfcay carbonated wne, sha aso keep
a monthy record on Form 702- , n dupcnte, of a champagne, sparkng wne,
and artfcay carbonated wne produced, receved, and dsposed of at hs wnery
or storeroom. (53 Stat. 373, 375, 77; 26 U. S. C. 3171, 3176, 3901.)
Sec. 17 .3 2. Form 702- . The propretor of every bo|ded wnery manu-
facturng vermouth, or other apertf wne, and the propretor of every bonded
wnery or storeroom recevng, storng, or dsposng of vermouth, or other
apertf wne, sha aso keep a monthy record on Form 702- , n dupcate,
of a vermouth, or other apertf wne, produced, receved, or dsposed of at ha
wnery or storeroom. (53 Stat. 373, 375, 77; 26 T . S. C. 3171, 3176, 3901.)
Sec. 17 .3 . Inventory Record, Form 702-C. The propretor of every bonded
wnery or storeroom sha make a detaed record on Form 702-C, In dupcate,
of each nventory taken by hm of a wnes on storage at hs wnery or store-
room on une 30 and December 31 of each year, and at any other tme an nven-
tory Is taken. One copy of Form 702-C sha be attached to each copy of Form
702, 702- , or 702- , to whch t pertans, for the same month. (53 Stat. 35 ,
373, 375, 77; 26 U. S. C. 30 0, 3171, 3176, 3901.)
Sec. 17 .3 7. Matera Record, Form 701. The propretor of every bonded
wnery sha keep a monthy record on Form 701, n dupcate, of a materas
receved and used for the manufacture of wne. The tota of each knd of such
materas receved each dav must be entered on the form on the day on whch
the materas are receved. Form 701 shoud not be kept when there are no
materas on hand or wne n the process of manufacture.

(53 Stat. 373, 375, 77 ; 20 U. S. C. 3171, 3176, 3901.)
Sec. 17 .390. Compete Records Requred. the Informaton caed for In
Forms 701, 702, 702- , 702- , and 702-C, as ndcated by the headngs of the
coumns and nes of the forms and the nstructons prnted thereon or Issued
n respect thereto, and as requred by these reguatons, must be reported.
operatons and transactons must be entered on the forms before the cose of
the busness day ne t succeedng the day on whch the transactons occur.
Where the makng of the entres s deferred to the ne t busness day, as heren
2 670 6 2
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Regs. 7, 17 .367.
30
authorzed, approprate memoranda sn be mantaned for the purpose of
makng the entres correcty. The entres must be made by the propretor, or by
hs agent from persona knowedge or from data furnshed by the propretor.
The entres must be made from day to day durng the month (a) on both copes
of each form, or (b) on one copy of each form, from whch one addtona copy
must be prepared at the cose of the month, or (c) on a rough copy of each
form, from whch two copes must be prepared at the cose of the month.
When a rough copy s kept, the entres sha be made thereon wth ndebe
penc, nk, or typewrter, and the rough copy sha be fed wth the cony
(prepared therefrom) retaned at the wnery or storeroom. When the entres
are made from memoranda furnshed by the propretor, such memoranda sha
be fed at the wnery or storeroom. Care must be used to nsure the keepng
of accurate and compete records. ach report shoud be carefuy checked
before beng forwarded to the ssstant Regona Commssoner.1 Reports pre-
pared by persons who have no knowedge of the wnery or storeroom operatons
nnd who are not furnshed wth the necessary data by the propretor w not be
accepted. Where forms are rendered n bank they shoud bear the notaton
No transactons. Upon dscontnuance of a bonded wnery or bonded store-
room, the ast reports shoud be marked Fna. (53 Stat. 373, 375, 77; 26
U. S. C. 3171,3176, 3901.)
Sf.c. 17 .31)3. Dsposton of Forms. One copy each of Forms 701, 702, 702-
, 702- , and 702-C w be retaned at the wnery or storeroom by the propretor
as a permanent record, sub|ect to nspecton by Government offcers at any
reasonabe hour. On or before the 10th day of the month succeedng that for
whch rendered, the propretor w forward the orgna of each form to the
ssstant Regona Commssoner for audt and retenton. (53 Stat. 373, 375,
77; 26 U. S. C. 3171, 3170, 3901.)
ssstant Regona Commssoneb s ccounts
Sec. 17 . 01. ccounts n Dupcate. ssstant Regona Commssoner s
monthy accounts w be prepared n dupcate and by States wthn the regon.
One copy of each account w be retaned by the ssstant Regona Commssoner
and one copy of each forwarded on or before the ast day of the month, succeed-
ng that for whch rendered, to the Commssoner. (53 Stat. 375, 77; 26 T . S. C.
3170, 3001.)
FO TIFIC TION OF WN
Sec. 17 . 79. Monthy Report, Form 276. ach day wnes are fortfed the
offcer w enter on Form 276 the nformaton caed for on that form, as re-
qured by ts part and as ndcated by the headngs of the varous coumns and
nes and the nstructons prnted on the form. Losses of brandy w be entered
on Form 276 In accordance wth secton 17 . 77. t the cose of the month, or
upon competon of fortfcaton for the month, the offcer w compete Form
276, retan one copy at the wnery as a permanent record, and forward the
orgna to the ssstant Regona Commssoner for audt and retenton. (53
Stat. 351, 375, 77; 26 U. S. C. 303 , 3176, 3901.)
Wnemakeb s bandy and Sweetenng gents Report
Sec. 17 .502. Fng of Report. One copy of Form 261 sha be retaned at
the wnery by the wnemaker as a permanent record, sub|ect to Inspecton by
Government offcers nt any reasonabe hour. On or before the 10th day of the
succeedng month, the wnemaker w forward the orgna of the form to the
ssstant Regona Commssoner for audt and retenton. (53 Stat 3 as
amended, 350 as amended, 351, 373, 375, 77 ; 26 D. S. a 3031, 3032, 3033, 3171,
3170, 3901.)
ssstant Regona Commssoneb s ccount
Seo. 17 .507. Fng of ccounts. The accounts w be prepared, In dupcate,
by States wthn the regon. One copy w be retaned by the ssstant Regona
Commssoner, and the orgna w be forwarded to the Commssoner not ater
than the ast day of the month succeedng that for whch the account Is rendered.
(53 Stat. 375, 77; 26 U. S. C. 3176, 3901.)
1 Denotes the ssstant Regona Commssoner of Interna Revenue, coho tnd
Tobacco Ta .
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365
Regs. 7, 17 .367.
3. Reguatons 3 (26 CFR, part 1 2; 7 F. R. 1 6 ), Industra co-
ho, as amended, are amended as foows:
(a) Sectons 1 2.355, 1 2. 56, 1 2. 59, 1 2.6 2, 1 2.6 5, 1 2.6 6,
1 2.6 7, 1 2.66 , 1 2.7 1, 1 2.7 7, 1 2. 19, 1 2. 22, 1 2. 67, 1 2. 6 ,
1 2. 73.1 2. 7 , and 1 2. 76 are amended; and
b) Sectons 1 2.6 9, 1 2.7 9, and 1 2. 23 are revoked.
Operaton of Industra coho Pants

DISTILL TION

Sec. 1S2.355. Redstaton of coho. (a) uthorzaton and Proce-
dure. The ssstant Regona Commssoner may, n hs dscreton, provded he
deems t proper so to do and sub|ect to such condtons and restrctons as he may
mpose, authorze the transfer of acoho from an ndustra acoho pant or a
bonded warehouse to an ndustra acoho pant for redstaton. In makng
the request for such speca authorzaton the propretor of the ndustra acoho
pant desrng to redst acoho w submt to the ssstant Regona Comms-
soner of hs regon a statement n dupcate showng the source and quantty
of the acoho and the necessty for redstaton. The ssstant Regona Com-
mssoner w note hs approva or dsapprova on a copes of the appcaton.
e w return the orgna to the propretor and retan one copy for fe. Where
the acoho for redstaton s to be receved from an ndustra acoho bonded
warehouse on the ndustra acoho pant premses, the procedure prescrbed by
the reguatons n ths part governng the transfer of acoho from an ndustra
acoho pant to a bonded warehouse w be foowed Insofar as appcabe. See
partcuary secton 1 2. 0 b. Where the acoho for redstaton s to be re-
ceved from an ndustra acoho bonded warehouse not on the same premses
or from another ndustra acoho pant, the procedure prescrbed by the regua-
tons n ths part w be foowed nsofar as appcabe. See partcuary sectons
1 2. 0 c and 1 2. 0Sd. The transfer appcaton and permt Form 1 36 w be
appropratey moded.

(53 Stat. 357, 35 ,30 ,375; 26 T . S. C. 3103, 3105, 312 , 3170.)
propretor s records and reports

Sec. 1 2. 56. Form 1 2. The propretor of every ndustra acoho pant
sha keep a day record of ndustra acoho pant operatons on Form 1 2,
Propretor s Report of Operatons at Industra coho Pant. ntres sha
be made as ndcated by the headngs of the varous coumns and nes on the
form and the nstructons prnted thereon or ssued n respect thereto, and as
requred by the reguatons n ths part. ntres sha be made on the form
before the cose of the busness day ne t succeedng the day on whch the trans-
actons occur, e cept that summary entres w be made at the cose of the
month. Where the makng of entres s deferred to the ne t busness day, as
authorzed heren, approprate memoranda sha be mantaned for the purpose
of makng the entres correcty. Where an ndustra acoho pant, n con-
necton wth the producton of ethy acoho by any method, produces other
chemcas as byproducts, or where an Industra acoho pant, n connecton
wth the producton of substances other than ethy acoho, such as buty acoho,
produces ethy acoho as a byproduct, a separate record on Form 1 2 w be
mantaned for each process. The quantty of materas used n the producton
of ethy acoho w be determned separatey from the quantty used n the
producton of other substances. Such determnaton may be made at the cose
of the month for repottng on Form 1 2. Form 1 2 must be verfed under
oath (or affrmaton) by the propretor or hs authorzed agent at the pant:
Provded, That f the form offcay prescrbed for such report contans theren
a provson for verfcaton by a wrtten decaraton that such report s made
under penates of per|ury, such report sha be verfed by the e ecuton of such
decaraton, and such decaraton so e ecuted sha be n eu of the oath re-
qured heren for verfcaton. The propretor w dever Form 1 2, n dup-
cate, to the storekeeper-gauger on or before the 5th day of the month succeedng
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Regs. 7, 17 .367.
36G
that for whch the report Is rendered. The storekeeper-gauger w e amne the
report, e ecute the certfcate of the government offcer on both copes of the
form, return one copy to the propretor, and forward the orgna to the s-
sstant Regona Commssoner for audt and retenton. (53 Stat 357, 35 , 36 ,
373, 375, 03 Stat. 667 ; 20 U. S. C. 3103, 3105, 312 , 3171, 3176, 3 09.)
Sec. 1 2. 5U. Sgnng of Reports. Forms 1 2 and 52- must be sgned n
the same manner as the appcaton, Form 1 31, e cept that n the case of a
corporaton, the aff ng of the corporate sea w not be requred. Where the
reports are sgned by an agent, proper power of attorney authorzng the agent
to e ecnte the reports for the propretor must be fed on Form 153 , In dupcate,
wth the ssstant Regona Commssoner who w, after enterng the date of
recept and hs sgnature ou both copes, retan the orgna and return the copy
to the prncpa. (53 Stot. 35 , 36 , 375, 63 Stat. 667 ; 26 U. S. C. 3105, 312 ,
3170, 3 00.)
Opeuaton or Industra coho onded Warehouses

records and reports or propretor
Sec. 1 2.6 2. Genera. The propretor of every ndustra acoho bonded
warehouse sha keep monthy records and render day reports as herenafter
provded. ntres sha be made as ndcated by the headngs of the varous
coumns and nes of the form and the nstructons prnted thereon or ssued n
respect thereto and as requred by the reguatons n ths part The provsons
of secton 1 2. 55 concernng the tme of makng entres; of secton 1 2. 55a
concernng the faure to keep records or aow nspecton and of secton 1 2. 61
concernng the fng of reports by propretors of ndustra acoho pants are
hereby made appcabe to records and reports rendered by propretors of n-
dustra acoho bonded wo rehouses. The reports must be sgned n the same
manner as the appcaton, Form 1 31, e cept that n the case of a corporaton
the aff ng of the corporate sea w not be requred. Where the reports are
sgned by an agent, proper power of attorney authorzng the agent to e ecute
the reports for the propretor must be fed on Form 153 , In dupcate, wth the
ssstant Regona Commssoner who w, after enterng the date of recept
and hs sgnature on both copes, retan the orgna and return the copv to the
prncpa. (53 Stat. 357, 35 , 30 , 371, 375 ; 26 U. S. C. 3101, 3105, 312 , 3171,
3176.)
Sec. 1 2.0 5. Form 1 3- . The propretor of every bonded warehouse sha
keep a monthy record, Form 1 3- , Report of Uncoopered coho, and ren-
de- monthy reports thereon, n dupcate, of a uncoopered acoho receved and
dsposed of. efore the cose of the busness day ne t succeedng the day on
whch the transactons occur entres sha be made n the respectve coumns of
the quantty of acoho deposted n the warehouse, or receved n bond at the
bonded warehouse, or packages fed, and the quanttes wthdrawn for shpment
uncoopered. Where the makng of the entres s deferred to the ne t busness
day, as autbo-zed heren, approprate memoranda sha be mantaned for the
purpose of makng the entres correcty.

(53 Stat. 357. 35 , 359, 36 , 373, 375; 26 U S. C. 3101, 3105, 3107, 312 , 3171, 3176.)
Sf.o. 1 2.610. Form 1 3- . The propretor sha keep a monthy record on
Form 1 3- . Report of coho n PncUages, n dupcate. There sha be
entered day the quantty of acoho transferred at the warehouse to packages
or receved n packages from Industra acoho pants and from other bonded
warehouses pud the quanttes wthdrawn for shpment n packages from the
warehouse. ntres of wthdrawas of acoho for ta payment and depost n
the tn pad storeroom (f any) shoud show the dsposton of such acoho to the
propretor of the warehouse for such purpose. The requred entres sha be
made n the form before the cose of the busness day ne t succeedng the day
on whch the trnsactons occur. Where the makng of the entres s deferred
to the ne t busness day. as authorzed heren, approprate memoranda sha be
mantaned for the purpose of makng the entres correcty. (53 Stat 357, 35 ,
3 , 375; 20 T . S. C. 3101, 3105. 312 . 3170.)
Sec. 1 2.0 7. Dsposton of Forms 1 3- and 1 3- . On or before the 5th
dny of the mouth succeedng tbat for whch Form3 1 3- and 1 3- are ren-
dered, the propretor sha dever two copes of each form to the storekeeper-
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3G7
Regs. 7, 17 .367.
ganger In charge. ach form sha be duy subscrbed and sworn to: Provded,
That f the form offcay prescrbed for such report contans theren a provson
for verfcaton by a wrtten decaraton that such report s made under penates
of per|ury, such report sha be verfed by the e ecuton of such decaraton,
and such decaraton so e ecuted sha be n eu of the oath requred heren for
verfcaton. The storekeeper-gauger sha e amne the forms carefuy, and,
If they are ccmpete n a respects, and the quanttes shown on hand at the
end of the month are correct, he w nta a copes of the forms, forward the
orgna of each form to the ssstant Regona Commssoner for audt and
retenton and return the copy of each form to the propretor who sha fe the
same n bound form as a permanent record avaabe for nspecton by Govern-
ment offcers. (53 Stat. 35 , 15 , 375, 63 Stat. 667 ; 26 U. S. C. 3105, 312 ,
3170, 09.)
Operatons by Users of Ta -Free coho

R CORDS ND R PORTS OF P RMITT
Sec. 1 2.00 . Genera. very person hodng basc permt, Form 1 7, sh
keep records and render reports as herenafter provded. ntres sha be made
as ndcated by the headngs of the varous coumns and nes of the form and
tbe nstructons prnted thereon or ssued n respect thereto and as requred y
ths part. The provsons of secton 1 2. 55 concernng the tme of makng
entres, of secton 1 2. 55a concernng the faure to keep records or aow
nspecton and of secton 1S2. 01 concernng the tng of forms by propretors
of ndustra acoho pants are hereby made appcabe to reports by persons
hodng basc permt, Form 1 7. The reports must be sgned n the same manner
as the appcaton, Form 1 7, e cept that n the case of a corporaton the aff ng
of the corporate sea w not be requred. Where the reports are sgned by an
agent, proper power of attorney authorzng the agent to e ecute the reports
for the propretor must be fed on Form 153 n dupcate, wth the ssstant
Regona Commssoner who w, after enterng the date of recept and hs sgna-
ture on both copes, retan the orgna and return the copy to the prncpa.
(53 Stat. 357, 35 , 359, 36 , 373, 375; 26 U. S. C. 3101, 3105, 310S, 312 , 3171, 3176.)
Operaton of Industra coho Denaturng Pants

R CORDS ND R PORTS OF PROPRI TOR
Sec. 1 2.7 1. Genera. The propretor of every denaturng pant sha render
day reports on Forms 1 66, 1 67, 1 53- , and 1 73 and sha keep monthy
records on Forms 129 and 1 6 - , , C, D, , and F. of the Informaton
caed for n each form, as ndcated by the headngs of the varous coumns
and nes of the form and the nstructons prnted thereon or Issued n respect
thereto and as requred by the reguatons n ths part w be gven. The requre-
ments of secton 1 2. 55 concernng the tme of makng entres, of secton
1 2. 55a concernng the faure to keep records or aow nspecton, and of secton
1 2. 61 concernng the fng of forms by propretors of ndustra acoho pants,
are hereby made appcabe to reports rendered by propretors of denaturng
pants. The reports must be sgned n the same manner as the appcaton,
Form 1 31, e cept that n the case of a corporaton the aff ng of the corporate
sea w not be requred. Forms 129, 1 6 - , 1 6 - , and 1 6 -F must be ver-
fed under oath (or affrmaton) by the propretor or hs authorzed agent at the
pant: Provded, That f the form offcay prescrbed for such report contans
theren a provson for verfcaton by a wrtten decaraton that such report s
made under penates of per|ury, such report sha be verfed by the e ecuton
of such decaraton, and such decaraton so e ecuted sha be n eu of the oath
requred heren for verfcaton. Where the reports are sgned by an agent,
proper power of attorney authorzng the agent to e ecute the reports for the
propretor must be fed on Form 153 , n dupcate, wth the ssstant Regona
Commssoner who w, after enterng the date of recept and hs sgnature on
both copes, retan the orgna and return the copy to the prncpa. (53 Stat.
355, 35 , 36 , 375 ; 03 Stat. 067; 26 U. S. C. 3070, 105, 312 , 3170, 3 09.)
Sec. 1 2.7 7. Forms 129 and 1 6 - , , C, D, . and F. The propretor sha
keep a monthy record on Forms 129 and 1 6 - , , C, D, , and F, n dupcate,
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Regs. 7, 17 .367.
3GS
of n acoho and denaturants used for denaturaton, and removed (ether before
or after denaturaton) durng the month, and on hand the frst and ast of the
month. ntres sha be made on the forms before the cose of the busness
day ne t succeedng the day on whch the transactons occur, e cept that sum-
mary entres w 1 made at the cose of the month. Where the makng of the
entres Is deferred to the ne t busness day, as authorzed heren, approprate
memoranda sha be mantaned for the purpose of makng the entres correcty.

(e) Dsposton of Forms. The propretor w dever both copes of Forms
120 and 1 6 - , , C, D, , and F to the stoekeeper-gauger ou or before the 10th
day of the month succeedng that for whch the forms are rendered. The store-
keeper-gnuger w e amne the forms, and f they arc compete n every respect,
and f the quanttes of denaturants receved and shpped out, the shpment of
competey denatured acoho, the quanttes of recovered acoho restored and
the osses n restoraton, and the quanttes cn hand ast of month are a cor-
recty reported, he w nta a copes of the forms, return the copy of each
form to the propretor and forward the orgna of each form to the ssstant
Regona Commssoner for audt and retenton. The ssstant Regona Com-
mssoner, n hs dscreton, may e tend (to the 101 h day of the mouth) the tme
for deverng 1 e monthy report. Form 1 -12, for the ndustra acoho pant
on the denaturng pant premses and Forms 1 3- and 1 3- for the bonded
warehouse on the denaturng pant premses. In order that a of e monthy
reports for the same premses may be submtted together.

(53 Stat. 355, 35 , 3(53, 30 , 375; 20 U. S. C. 3070, 3105, 3121, 312 , 317C.)
Operatons by Deaers n Specaty Denatured coho
recoros and reports of m1np-ed deaers
Sec. 1 2. 19. Genera. very person hodng basc permt, Form 1 7C, sha
keep records and render reports as herenafter provded. ntres sha be made
as Indcated by the headngs of the varous coumns and nes of the forms and
the nstructons prnted thereon or ssued n respect thereto and as requred by
ths part. The provsons of secton 2. .r ,r a concernng the faure to keep
records or aow Inspecton and of secton 1 2. 61 concernng the tng of forms
by propretors of ndustra acoho pants are hereby made appcabe to reports
rendered by bonded deaers hodng basc permt, Form 1 76. The reports must
be sgned n the same manner as the appcaton, Form 1 7 , e cept that n the
case of a corporaton the aff ng of the corporate sea w not be requred.
Where the reports are sgned by an agent proper power of attorney authorzng
the agent to e ecute the reports for the propretor must be fed on Form 153 ,
n dupcate, wth the ssstant Regona Commssoner who w, after enterng
the date of recept and hs sgnature on both copes, retan the orgna and
return the copy to the prncpa. (53 Stat. 355, 357, 35 , 36 , 373, 375 ; 26
U. S. C. 3070, 3101, 3105, 312 , 3171, 3176.)
Sec. 1 2. 22. Record, Form 1 7 . very bonded deaer hodng permt to dea
n socay denatured acoho must keep Form 1 7 , coverng hs transactons
for each month and prepare monthy reports theren, n dupcate. Form 1 73
must be verfed under oa h (or affrmaton) by the bonded deaer or hs au-
thorzed agent: Provded, That f the form offcay prescr ed for such report
contans theren a provson for verfcaton by a wrtten decaraton that such
report s made under penates of per|ury, such report sha be verfed by the
e ecuton of such decaraton, and such decaraton so e ecuted sha be n eu
of the oath requred heren for verfcaton. One copy of the form sha be
retaned by the bonded deaer and the orgna must be forwarded by the bonded
deaer on or before the 5th day of the succeedng month to the ssstant Regona
Commssoner for audt and retenton. There w be entered day the detas of
a specay denatured acoho receved, and when receved from a denaturng
pant the number of such pant sha be entered n the coumn provded therefor.
The amount of specay denatured acoho ost from each ot n transt to the
bonded deaer s storeroom w be entered In the proper coumn on the same
ne wth the quantty reported receved In such ot. The quanttes reported
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Regs. 7, 17 .307.
ost n transt w not be ncuded n the osses n the storeroom reported n the
summary. Detas w be entered day of a specay denatured acoho ds-
posed of to manufacturers or other bonded deaers or any other dsposton of
such specay denatured acoho. The number of the basc permt of the manu-
facturer or bonded deaer to whom specay denatured acoho Is shpped sha
aso be appropratey entered. Where severa packages are shpped or devered
on the same day to the same person, the aggregate quantty so shpped or
devered may be stated on one ne. The requred entres sha be made n the
form before the cose of the busness day ne t succeedng the day on whch the
transactons occur. Where the makng of the entres s deferred to the ne t
busness day, as authorzed heren, approprate memoranda sha be mantaned
for the purpose of makng the entres correcty.

(53 Stat. 35 , 3G , 375, 63 Stat. 607 ; 20 U. S. C. 3105, 312 , 3176, 3S00.)
Operatons by Users op Specay Denatuhed coho

D STRUCTION ND DISPOSITION OF SP CI LLY D N TUR D LCO OL
Sec. 1S2. 07. Destructon. Specay denatured acoho n the possesson of
n permttee may, upon approva of the ssstant Regonn Commssoner, be
destroyed by the permttee. The permttee sha fe appcaton so to do wth
the ssstant Regona Commssoner, n dupcate, statng fuy the reason there-
for. The specay denatured acoho sha be destroyed In the presence of a
Government offcer, uness the quantty nvoved s sma and nsuffcent n the
opnon of the ssstant Regona Commssoner to warrant such supervson.
T n approva of the appcaton, the ssstant Regona Commssoner sha
Instruct the permttee whether or not such destructon sha he wtnessed by a
Government offcer. If a Government offcer s assgned to wtness the destruc-
ton of the specay denatured acoho, the offcer sha certfy to the destructon
on each copy of the approved appcaton specfyng the date and manner of
destructon. If the permttee s authorzed to destroy the specay denatured
acoho wthout Government supervson, he sha kewse certfy to the destruc-
ton of the specay denatured acoho on each copy of the approved appcaton.
One copy of the approved appcaton w be fed by the permttee and one copy
returned to the ssstant Regona Commssoner. (53 Stat. 35 , 30 , 375 ; 20
U. S. C. 3105, 312 , 3170.)
Sec. 1 2. 0 . Return to Industra coho Pant, Denaturng Pant or
onded Deaer. Where specay denatured acoho, awfuy n the possesson
of a manufacturer, s found to be unsutabe for use, or where any such manu-
facturer dscontnues the use thereof, or where for any other egtmate reason
such manufacturer desres so to do, such denatured acoho may be returned to
any ndustra acoho pant, denaturng pant, or bonded deaer for awfu ds-
poston: Provded, That (a) consent of surety s fed on the bond (f any) of
the manufacturer, e tendng terms thereof to cover the transportaton of the
specay denatured acoho to the ndustra acoho pant, denatnrer, or bonded
deaer, (6) the ndustra acoho pant, denaturer, or bonded deaer consents to
the return, and (c) permsson for such transfer s, n each nstance, frst ob-
taned from the ssstant Regona Commssoner of the regon from whch the
specay denatured acoho U to be returned. The appcaton sha be fed n
dupcate wth the ssstant Regona Commssoner. If the appcaton s ap-
proved, the ssstant Regona Commssoner w forward one copy of the ap-
proved appcaton to the permttee, and retan the remanng copy for hs fes.
If the ndustra acoho pant, denaturer, or bonded deaer s stuated n another
regon, the ssstant Regona Commssoner authorzng the return w for-
ward a etter of authorzaton to the ssstant Regona Commssoner of such
other regon. (53 Stat. 35 , 30 , 375; 26 U. S. C. 3105, 312 , 3170.)
R CORDS ND R PORTS OP M NUF CTUR RS
Sec 1 2. 73. Genera. very person hodng basc permt, Form 1 1, sha
keep records and render r;ports as herenafter provded. ntres sha be made
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Regs. 7, 17 .367.
370
ns Indcated by the headngs of the varous coumns and nes of the form and the
nstructons prnted thereon or ssued n respect thereto and as requred by
the reguatons n ths part. The provsons of secton 1 2. 55a concernng the
faure to keep records or aow nspecton and of secton 1 2. 61 concernng the
fng of forms by propretors of ndustra acoho pants are hereby made ap-
pcabe to reports rendered by manufacturers hodng basc permt, Form 1 1,
to use specay denatured acoho. The reports must be sgned In the same
manner as the appcaton, Form 1 79, e cept that n the case of a corporaton
the aff ng of the corporate sea w not be requred. Where the rewrts are
sgned by an agent, proper power of attorney authorzng the agent to e ecute
the reports for the propretor must be fed on Form 153 , In dupcate, wth the
ssstant Regona Commssoner who w, after enterng the date of recept
and hs sgnature on both copes, retan the orgna and return the copy to the
prncpa. (53 Stat. 355, 35 . 36 , 375 ; 26 U. S. C. 3070. 3105, 312 , 3176.)
Sec. 1 2. 7 . Form 1 2. very manufacturer hodng permt to use specay
denatured acoho or to recover competey denatured acoho or artces for reuse
must make a report on Form 1 2, coverng hs transactons for each month and
prepare monthy reports thereon, n dupcate. The report must show a of
the nformaton as ndcated by the varous coumns and nes, ncudng a
denatured acoho on hand, receved, used, and recovered durng the month, and
ns ndcated by the nstuctons on the form or ssued n respect thereto and
as requred by the reguatons n ths part Form 1 2 must be verfed under
oath (or affrmaton) by the manufacturer or hs authorzed agent: Provded,
That f the form offcay prescrbed fc-r such report contans theren a pro-
vson for verfcaton by a wrtten decaraton that such report s made under
penates of per|ury, such report sha be verfed by the e ecuton of such deca-
raton, and such decaraton so e ecuted sha be n eu of the oath requred
heren for verfcaton. One copy of the form sha be retaned by the manufac-
turer and the orgna must be forwarded by the manufacturer on or before the
10th day of the succeedng month to the ssstant Regona Commssoner for
audt and retenton In accordance wth secton 1S2. 76. Faure to keep or fe
ths report as heren requred w consttute grounds for the ssuance of ctaton
for the revocaton of the manufacturer s basc permt

(53 Stat. 355, 35 , 36 , 375, 63 Stat. 667 ; 26 U. S. C. 3070, 3105, 312 , 3170, 3 09.)
Sec. 1 2. 76. unT of Reports. Upon recept of Form 1 2 from the manu-
facturer, the ssstant Regonu Commssoner w carefuy e amne the same,
and sha see that a specay denatured acoho shown shpped to the manu-
facturer on shppers memorandum sps, Form 1 73, has been accounted for by
the manufacturer. Upon competon of the e amnaton and audt, the ssst-
ant Regona Commssoner w fe the Form 1 2 n hs offce. (53 Stat. 35 ,
36 , 375 ; 26 U. S. C. 3105, 312 , 3176.)
. Secton 1 1. 2 of Reguatons 5 (26 CFR, part 1 ; 15 F. R.
5552), Producton of randy, s amended as foows:
Subpart N Manufacture of Deacoozed Wnes

Sec. 1S .S 2. Record and Report, Form 1 93 very frut dster manufac-
urng deacohozed wne sha keep a record on Form 1 93 for each month that
deacoozed wne s produced, or deacoozed wne or wne contanng one-
haf of 1 percent or more of acoho by voume procured for the manufacture of
cencohozcd wne, remans ov. the premses. ntres sha be made on the form
as ndcated by the headngs of the varous coumns and nes thereof. The form
w he retaned at the dstery as a permanent record, sub|ect to nspecton
by Government offcers. The dster sha prepare and forward an orgna of
Form 1 93 to the ssstant Regona Commssoner not Inter than the 10th day
of the month succeedng that for whch the report s rendered. Form 1 93 must
be sworn to before an offcer authorzed to admnster oaths: Provded, That f
the form offcay prescrbed for such report contans theren a provson for
verfcaton by a wrtten decaraton that the report s made under penates of
per|ury, such report sha be verfed by the e ecuton of such decaraton, aud
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371
Regs. 7, 17 .367.
such decaraton so e ecuted sha be In eu of the oath requred heren for ver-
fcaton. The ssstant Regona Commssoner w, after audt, retan the
report n hs offce. (53 Stat. 3 7 as amended, 3 as amended, 375; 63 Stat. 667;
26 U. S. C. 3030, 3031, 3176, 3 00.)
5. Sectons 1 7.316 and 1 7.326 of Reguatons 16 (26 CFR, part
1 7; 15 F. R. 5009), Denaturaton of Rum, are amended as foows:
Subpart Propretor s Record and Report

Sec. 1 7516. Monthy Report. The propretor sha render a monthy report
on Record 129, to the ssstant Regona Commssoner on or before the 5th
day of the succeedng month. Record 129 must be sworn to before an offcer
authorzed to admnster oaths: Provded, That f the form offcay prescrbed
for such report contans theren a provson for verfcaton by a wrtten decara-
ton that such report s made under penates of per|ury, such report sha be
verfed by the e ecuton of such decaraton, and such decaraton so e ecuted
sha be n eu of the oath requred heren for verfcaton. The ssstant Re-
gona Commssoner w, after audt, retan the report n hs offce. (53 Stat.
373, 375, 63 Stat. 667 ; 26 U. S. C. 3171, 3176, 3 09.)
Subpart Y Storekeeper-Gauoer s Record and Report

Sec. 1 7.326. Monthy Report. The storekeeper-gaugcr sha render a monthy
report on Form 575, to the ssstant Regona Commssoner on or before the
5th day of the succeedng month. The ssstant Regona Commssoner w,
after audt, retan the report n hs offce. (53 Stat. 375; 20 U. S. C. 3176.)
6. Sectons 1 9.295 and 1 9.301 of Reguatons 11 (26 CFR, part
1 9; 15 F.R. 5 1), ottng of Ta pad Dsted Sprts, are
amended as foows:
Subpart Y Propretor s Records and Reports
Sec. 1 9.295. Form 52-D. very propretor of a ta pad bottng house sha
keep a record and render a monthy report, on Form 52-D, of aU sprts receved,
dumped for bottng, botted, and dsposed of at hs bottng house. (53 Stat.
327 as amended, 375, 95; 26 U. S. C. 2 57, 3176, 0 1.)
Sec. 1 9.301. Reports. cept as otherwse provded n ths secton, the pro-
pretor sha fe, day, fu and compete transcrpts, of Form 52-D (part 3)
on Form 52-D (part 3) and fu and compete transcrpts of Record 52 on
Forms 52- and 52- (one copy of each) wth the ssstant Regona Comms-
soner, by deverng or mang them to such offcer on the date the transactons
entered theren occurred: Provded, That In any case n whch the ssstant
Regona Commssoner sha drect, the transcrpts sha be so fed wth the
supervsor n charge nstead of wth the ssstant Regona Commssoner. The
transcrpts sha bear the foowng certfcaton sgned by the person or offcer
authorzed to e ecute Form 33 or 52-D:
I hereby certfy that these transcrpts, consstng of pages dscose
a the transactons whch occurred durng the perod covered thereby, and
that each entry s correct.
If In any case the ssstant Regona Commssoner sha so authorze, the
transcrpts, n eu of beng fed day, may be fed wth hm on or before the
10th day of the month succeedng the month n whch the transactons occurred.
In such event, transactons w be entered on Form 52-D and Record 52 n accord-
ance wth the provsons of secton 1 9.299. fu and compete transcrpt of
Form 52-D (e cept part 3 where such part s fed day) sha be prepared and
forwarded to the ssstant Regona Commssoner on or before the 10th day
of the month succeedng the month n whch the transactons occurred. Form
52-D must be sworn to before an offcer authorzed to admnster oaths: Pro-
vded, That f the form offcay prescrbed for such report contans theren a
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Regs. 7, 17 .367.
372
provson or verfcaton by a wrtten decaraton that such report s made under
penates of per|ury, such report sha be verfed by the e ecuton of such dec-
araton, and such decaraton so e ecuted sha be n eu of the oath requred
heren for verfcaton. When Record 52 Is kept, a monthy summary report
on Form 33 sha be prepared n dupcate, one copy of whch w be retaned
on fe and the orgna forwarded to the ssstant Regona Commssoner on or
before the 10th day of the month succeedng the month n whch the transactons
occurred. Form 33 must be sworn to before an offcer authorzed to admnster
oaths: Provded, That f the form offcay prescrbed for such report contans
theren a provson for verfcaton by a wrtten decaraton that such report s
made under penates of per|ury, such report sha be verfed by the e ecuton
of such decaraton, and such decaraton so e ecuted sha be n eu of the oa;b
requred heren for verfcaton. Records kept on Form 52-D and Record 52 sha
be preserved for a perod of four years, and durng such perod sha be ava-
abe durng busness hours for Inspecton and the takng of abstracts by the
Commssoner or any nterna revenue offcer. (53 Stat. 327 as amended, 373
as amended, 375, 05, 63 Stat. 667; 26 U. S. C. 2 57, 3170, 3176, 0 1, 3 09.)
7. Secton 190.510 of Reguatons 15 (26 CF , pt. 190; 15 F. R.
790), Rectfcaton of Sprts and Wnes, s amended as foows:
Subpabt Y Rectfcaton

M NUF CTUR OF SP R LING WIN S

Sec. 100.510. Records and Reports. Where the sparkng wne s to be manu-
factured by secondary fermentaton wthn the botte, the rectfer w, upon
bottng the st wne, prepare a speca report on Form 702- , n dupcate,
propery modfed as to the headng, and showng n Statement II the date,
quantty, and acohoc content of the st wnes used and the number of bottes
of each sze fed. Form 702- must be sworn to before an offcer authorzed
to admnster oaths: Provded. That If the form offcay prescrbed for such
report contans theren a provson for verfcaton by a wrtten decaraton that
such rewrt s made under the penates of per|ury, such report sha be verfed
by the e ecuton of such decaraton, and such decaraton so e ecuted sha he
In eu of the oath requred heren for verfcaton. The rectfer w retan the
copy of Form 702- and forward the orgna copy to the ssstant Regona
Commssoner for audt and retenton. Thereafter, as ong as sparkng wnes
are n the process of manufacture the rectfer w prepare a report thereof
each month on Form 702- , n dupcate, the copy of whch w be retaued
at the rectfyng pant and the orgna forwarded to the ssstant Regona
Commssoner encosed wth the rectfer s monthy report, Form 5. The rectfer
w aso make approprate entres on Form 5 of the manufacture and dsposton
of a sparkng wnes produced. (53 Stat. 327, 373 as amended, 375 ; 63 Stat.
607 ; 26 U. S. C. 2 55, 3170, 3176, 3 09.)
. It s found that compance wth the notce and pubc rue-
makng procedure and effectve date requrements of the dmnstra-
tve Procedure ct (5 U. S. C. 1001, et seq.) s unnecessary n connec-
ton wth the ssuance of these amendments for the reason that the
changes are of a berazng and admnstratve character.
9. These reguatons sha be effectve on uy 1,1953.
T. Coeman ndbews,
Commssoner of Interna Revenue.
pproved uy 23, 1953.
M. . Fosom,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster uy 27, 1953, : 50 a. m.)
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373
Regs. 10, 1 5.270.
Reguatons 10 Secton 1 5.270: asc qua- T. D. 6050
fcatons requred.
( so Sectons 1 5.271,1 5.272, 1 5.273.)
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 1 5.
W R OUSING OF DISTILL D SPIRITS
pprova of aternate operatons of a bottng-n-bond depart-
ment s a ta pad bottng house.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
In order that the storekeeper-ganger n charge at an nterna revenue
bonded warehouse, n eu of the assstant regona commssoner, may
approve the aternate operaton of the bottng-n-bond department of
such warehouse as a ta pad bottng house, Reguatons 10 2(5 CFR,
pt. 1 5| are amended as foows:
Paragraph 1. Secton 1 5.270 s amended as foows:
( ) y nsertng mmedatey after the words ta pad bottng
house n the provso of the frst sentence, the foowng: s for a
perod of 2 hours, or mutpes thereof, concurrent wth the caendar
day, or days, as the case may be, and .
( ) y strkng the words dstrct supervsor n the two paces
they appear n the ast sentence and nsertng n eu thereof m the
frst nstance assstant regona commssoner and n the second n-
stance storekeeper-ganger n charge of the warehouse .
Par. 2. Secton 1 5.271 s amended by strkng the words dstrct
supervsor and nsertng n eu thereof storekeeper-gauger n charge
of the warehouse .
Par. 3. Secton 1 5.272 s amended as foows:
( ) y strkng the words dstrct supervsor n the frst sen-
tence of paragraph (a) and nsertng n eu thereof storekeeper-
gauger n charge of the warehouse .
( ) y amendng the second sentence of paragraph (a) whch be-
gns The form sha to read as foows: The form sha be e ecuted
n accordance wth the nstructons prnted thereon or ssued n respect
thereto, and as requred by ths part.
(C) y nsertng after the second sentence of paragraph (a) the
foowng new sentence: Upon approva of Form 01, the storekeeper-
gauger n charge w forward the orgna copy to the assstant reg-
ona commssoner, dever one copy to the propretor and retan the
remanng copy for hs fes.
Par. . Secton 1 5.273 s amended as foows:
( ) y strkng the words dstrct supervsor n the frst sen-
tence of paragraph (a) and nsertng n eu thereof storekeeper-
gauger n charge of the warehouse .
( ) y amendng the second sentence of paragraph (a) whch
begns The form sha to read as foows: The form sha be e e-
cuted n accordance wth the nstructons prnted thereon or ssued n
respect thereto, and as requred by ths part.
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Regs. 10, 1 5.9 3.)
37
(C) y nsertng after the second sentence of paragraph (a) the
foowng new sentence: Upon approva of Form 0 , the store-
keeper-gauger n charge w forward the orgna copy to the as-
sstant regona commssoner, dever one copy to the propretor and
retan the remanng copy for hs fes.
ecause the changes made are of an admnstratve character, 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 mtatons of secton (c) of sad act.
Ths Treasury Decson sha be effectve upon the date of pub-
caton n the Federa Regster.
(Ths Treasury Decson s ssued under the authorty contaned n
sec. 3176 of the Interna Revenue Code (53 Stat. 375; 26 U. S. C.
3176).)
ustn F. Wnke,
ctng Commssoner of Interna Revenue.
pproved November 6,1953.
M. . Fosom,
ctng Secretary of the Treasury.
(Pubshed In the Federa egster November 13, 1953)
Reguatons 10, Secton 1 5.9 3: Marks and T. D. 6013
brands on cases for domestc sprts.
TITL 26 INT RN L NU . C PT R I, SU C PT R C, P T 1 3.
W R OUSING OF DISTILL D SPIRITS
mendng secton 1S5.9 3 of Reguatons 10 to permt Identfca-
ton of botte abes and State stamps to be shown cn Government
sde of cases of botted-n-bond sprts.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Dstrct Commssoners, ssstant Dstrct Commssoners, coho
and Tobacco Ta , and Others Concerned.
1. Secton 1S5.9 3 of Reguatons 10, Warehousng of Dsted
Sprts (26 CFR, pt. 1 5; 15 F. R. 5233), s hereby amended as
foows:
Subpart PP Masks and rands and Constructon of Cases

Sec. 1 o.913. Marks and rrands on cases fob domestc sprts. ach case
of dsted sprts botted n bond for domestc consumpton sha have pany
burned, embossed, prnted, or stenced on the Government sde thereof, n
etters and fgures not ess than one-haf of an Inch n heght, n addton to
the sera number, the regstry number and State In whch the warehouse at
whch the sprts are botted s ocated, and the quantty and proof of the
sprts. There sha aso be pany burned, embossed, prnted, or stenced on
the Government sde of each case, n etters not ess than one haf of an nch
n heght, the knd of sprts, such as Rye Whsky, um, Gn, etc., the rea
name of the actua bona fde dster or of the ndvdua, frm, partnershp,
corporaton, or assocaton n whose name the sprts were produced and ware-
housed, the regstry number and ocaton (cty or town and State) of the
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375
IRegs. 13, 175.3 .
dstery at whch the sprts were produced, and the season and year of pro-
ducton and bottng. The word Inspected, foowed by the date of Inspecton,
sha aso be marked on each case In etters and fgures not ess than one-fourth
of an nch n heght. Where the sprts are taspad and removed drecty from
the bottng-n-bond department, the word Ta pnd, n etters not ess than
one-haf nch n heght, and the date the stamps were canceed and surrendered,
and the name of the storekeepergauger supervsng the remova of the sprts
from the bottng-n-bond department, and hs te, n etters and fgures not
ess than one-fourth nch n heght, sha be marked on the Government sde of
the case. marks on cases, whch are embossed, prnted, or stenced, must
be made wth a permanent nk In a coor dstncty n contrast to the coor used
as a background. No marks, brands, abes, cauton notces, or other devces
whatever, other thfn those requred by aw and ths part w be permtted on
the Government sde of the case: Provded, That the ssstant Dstrct Com-
mssoner,1 npou wrtten appcaton from the propretor, may authorze for
commerca dentfcaton purposes, the aff ng of botte abes or other concse
data descrptve of the contents of the case, ncudng ndcatons of payment of
State ta es thereon or symbos, n eu thereof, so descrbng the contents:
Provded further, Such addtona nformaton s set apart from and docs not n
any way detract from, conct wth, or obscure any of the markngs requred
to be paced thereon by ths part. (53 Stat. 3 2 as amended, 3 3, 375; 26 U. S. C.
2003, 2U0 , 3170.)
2. The purpose of the amendment s to permt the warehouseman
to aff botte abes or concse data descrptve of the contents of the
case, ncudng ndcatons of payment of State ta es, or symbos
n eu thereof, on the Government sde of cases, provded such
addtona nformaton does not confct wth, or detract from, the
prescrbed marks on such sde of the case.
3. It s found that compance wth the notce, pubc ruemakng
procedure, and effectve date requrements of the dmnstratve Pro-
cedure ct (5 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 sha be effectve upon the date of pub-
caton n the Federa Regster.
(Ths Treasury Decson s ssued under the authorty contaned n
53 Stat. 3 2 as amended, 3 3, 375; 26 U. S. C. 21)03, 290 , 3176).
O. Gordon Dek,
ctng Commssoner of Interna Revenue.
pproved une 11, 1953.
M. . Fosom,
ctng Secretary of the Treasury.
(Pubshed n the Federa egster une 16, 11)53)
Reguatons 13, Secton 175.3 : Indca for T. D. 6053
domestc quor bottes.
( so Sectons 175.33, 175. 3, 175.55, 175.56,
175.56a, 175.57, 175.57a, 175.59a, 175. 9,
175.90, 175.9 , 175.9 a, 175.95, 175.115.)
1 Pnrsonnt to RoorcanzaMon Pan No. 1 of 1952 (17 P. R. 22 ) the offce of dstrct
supervsor has been a ed and the offce of ssstant Dstrct Commssoner, coho and
Tobacco Ta , created n uace thereof.
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Regs. 13, 175 3 .
37G
TITL 26 INT RN L R NU . C PT R I, SU C PT R C. P RT 175.
TR FFIC IN CONT IN RS OP DISTILL D SPIRITS
mendment of requrements for markng quor bottes and eartb-
en ware contaners, abeng dsted sprts, and dsposng of
marked contaners.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and
Others Concerned:
On ugust C, 1953, notce of proposed ruemakng, regardng
amendments to eguatons 13 26 CFR, pt. 175 , reatng to the re-
qurements for markng quor bottes and earthenware contaners,
abeng sprts and dsposng of marked contaners was pubshed n
the Federa Regster (1 F. R. 62G). fter consderaton of a such
reevant matter as was presented by nterested persons reatng to the
rues proposed, the amendments to Reguatons 13 set forth beow are
hereby adopted:
Paragraph 1. Secton 175.33 s amended by strkng the word Com-
mssoner and nsertng n eu thereof assstant regona comms-
soner, or the Commssoner n the case of States, .
Par. 2. Secton 175.31 s amended as foows:
( ) y strkng the word Commssoner n tem (c) and nsert-
ng n eu thereof assstant regona commssoner, or by the Com-
mssoner n the case of symbos and numbers assgned to States, .
(13) y strkng the provso and substtutng n eu thereof the
foowng provso:
Provded, That (a) quor bottes whch are ascertaned by the Commssoner to
be of dstnctve shape or desgn for the packagng of queurs, cordas, hters,
cocktas, gn fzzes, and such other specates as may be specfed from tme to
tme by the Commssoner, and (6) quor bottes for the packagng of other
dsted sprts authorzed by the Commssoner under secton 175.50a, may be
manufactured and shpped, consgned, or devered not marked as requred by
ths secton.
Par. 3. Secton 175.13 s amended to read as foows:
On abes of domestc dsted sprts, there sha be stated the phrase
Motted by , Immedatey foowed by the name of the botter or the trade name
under whch the sprts are botted, and the pace where such sprts are botted.
If the botter s the actua bona fde operator of more than oue bottng pant
engaged n bottng the same brand of dsted sprts, there may be stated m-
medatey foowng the name (or trade name) of such botter the addresses of the
pants nt wheh such product s botted: Provded, That on abes of whsky and
straght whsky there sha be stated the State of dstaton of such whsky,
f such whsky s not dsted n the State gven n the address of the brand abe:
Provded further,
(a) That, where dsted sprts are botted by or for the dster thereof,
there may be stated, n eu of the phrase otted by , foowed by the
botter s name (or trade name) and address, the phrase Dsted by ,
foowed by the name (or trade name) under whc the partcuar sprts
were dsted, and the address (or addresses) of the dster;
(6) That, where dsted sprts are botted by or for the rectfer
thereof, there may be stated, In eu of the phrase otted by , foowed by
the botter s name (or trade name) and address, the phrase ended by ,
Made by , Prepared by , Manufactured by , or Produced by (whch-
ever mr.y be approprate to the act of rectfcaton Invoved), foowed by
the name (or trade name) under whch the dsted sprts were rectfed,
and the address (or addresses) of the rectfer;
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377
Regs. 13, 175.31.
(o) Thnt, on abes of dsted sprts botted for a retaer or other
person who s not tbe actua dster or rectfer of such dsted sprts
there may aso be stated the name and address of such retaer or other
person, mmedatey preceded by the words otted for or Dstrbuted by ,
or other smar statement.
Par. . The headnote to subpart s amended to read as foows:
Subpart . Use of Contaners For Packagng Dsted Sprts
Par. 5. Secton 175.55 s amended to read as foows:
The use for packagng dsted sprts for sae at reta of contaners of one-
haf pnt capacty or greater, not marked as prescrbed by ths part, s prohbted
e cept as provded n sectons 175.o6-175.5 .
Par. 6. Secton 175.56 and headnote are amended to read as foows:
Sfc. 175.50. Dstnctve Lquor ott.es for Lqueurs and Cordas. Upon
appcaton (Form US) by any botter, the assstant regona commssoner of
the regon n whch the pant of such botter s stuated may, by the ssuance
of an approprate permt, authorze the procurement and use by such botter of
quor bottes whch are ascertaned by the Commssoner to be of dstnctve
shape or desgn for the packagng of queurs, cordas, btters, cocktas, gn
fzzes, and such other specates as may be specfed from tme to tme by the
Commssoner, uot marked as requred by secton 175.3 .
Par. 7. There s nserted mmedatey foowng secton 175.5G the
foowng new secton:
Sec. 175.5Ga. Unmarked Lquor ottes for Other Dsted Sprts. Upon
appcaton (Form 1) ) by any botter, the assstant regona commssoner of the
regon n whch the pant s stuated may, by the ssuance of an approprate
permt, authorze the procurement and use by such botter, for the packagng
of dsted sprts such as whsky, brandy, rum, gn, vodka, etc., of quor bottes,
not marked as requred by secton 175.3 , whch the Commssoner fnds w
not afford a |eopardy to the revenue because of ther unque or dstnctve shape
or desgn and cost of manufacture.
Par. . Secton 175.57 s amended to read as foows:
Upon appcaton (Form 9 ) by any botter, the assstant regona comms-
soner of the regon n whch the pant of such botter s stuated may, by the
ssuance of an approprate permt, authorze the procurement and use, for
packagng dsted sprts, of earthenware contaners marked egby, by uuder-
gaze coorng, (a) ether on the bottom or on the body wth a symbo and num-
ber assgned by the assstant regona commssoner, or by the Commssoner
n the case of symbos and numbers assgned to States, to represent the name of
the botter procurng the same; and (b) on the shouder wth the words, Federa
Law Forbds Sae or Reuse of Ths otte: Provded, That upon appcaton
(Form ) by any botter, the assstant regona commssoner of the regon
n whch the pant s stuated may, by the ssuance of an approprate permt,
authorze the procurement and use by such botter for the packagng of dsted
sprts such as whsky, brandy, rum, gn, vodka, etc., of earthenware contaners,
not marked as requred by ths secton, whch the Commssoner fnds w uot
afford a |eopardy to the reveuue because of ther unque or dstnctve shape or
desgn and cost of manufacture.
Pah. 9. There s nserted mmedatey foowng secton 175.57 the
foowng new secton:
Skc. 175.57a. pprova of Dstnctve Unmarked Contaners. ppcaton n
etter form for the approva of any dstnctve contaner, accompaned by a
specmen, photograph or drawng of the contaner, and n tbe case of any such
contaner for the packagng of dsted sprts such as whsky, brandy, run,
gn, vodka, etc., a statement of the cost of manufacture sha be submtted to
the Commssoner and approva procured, pror to submsson of an appcaton
(Form 9 ) to the assstant regona commssoner. Such appcaton (Form
9 ) sha specfy the number of tbe contaner assgned by the Commssoner.
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Regs. 13, 175.3 .
37
Par. 10. There s nserted mmedatey foowng secton 175.59 the
foowng new secton:
Sec. 175.59a. Use of arthenware Contaners earng the Same Indca,
by Parent Company and Whoy-Owned Subsdares. ny botter authorzed
to botte dsted sprts at more than one ocaton may seect, for markng on
earthenware contaners, any one permt symbo and number assgned to hu, or
to any of hs whoy-owned subsdares, for use by hm and at any or a of the
premses of hs whoy-owned subsdares at whch dsted sprts are botted.
The btter sha notfy the Commssoner of such seecton. ppcaton (Form
9 ) fed by the botter pursuant to secton 175.57 for the procurement and use of
earthenware contaners sha gve the ocaton or ocatons to whch such con-
taners are to be shpped. Stocks of earthenware contaners bearng such
seected ndca hed by the parent company or any of ts whoy-owned sub-
sdares may be transferred between such premses wthout obtanng a permt
authorzng such transfer; however, earthenware contaners bearng any symbo
and number other than the seected ndca, may not be so transferred wthout
frst obtanng a permt from the assstant regona commssoner.
Par. 11. There s nserted mmedatey precedng secton 175. 9 the
foowng new undesgnated center head: Importaton of Fed
Contaners.
Par. 12. Secton 175. 9 and headnote are amended to read as fo-
ows :
Sec 175. 9. Importaton op Dsted Sprts n Unmarked Contaners.
No dsted sprts for sae at reta may be Imported nto the Unted States n
contaners of one-haf pnt capacty or greater, not marked as prescrbed by ths
part: Provded, That upon appcaton (Form 9 ) by the mporter, the assstant
regona commssoner of the regon n whch the port of entry Is stuated may, by
the ssuance of an approprate permt, authorze the mportaton of quor bottes
or earthenware contaners contanng dsted sprts such as whsky, brandy,
run, gn, vodka, etc., not marked as prescrbed by ths part, whch the Comms-
soner fnds w not afford a |eopardy to the revenue because of ther unque or
dstnctve shape or desgn and cost of manufacture. The provsons of ths
secton sha net appy to the mportaton of dsted sprts n buk contaners
of a capacty of 5 wne gaons or greater.
Par. 13. The undesgnated center head mmedatey precedng sec-
ton 175.90 whch reads Indca for Imported Fed Contaners s
revoked.
Par. 1 . Secton 175.90 s amended by strkng the words sectons
175.91-175.9 and nsertng n eu thereof sectons 175. 9, 175.91-
175.91, and 175.95.
Par. 15. Secton 175.9 s amended to read as foows:
Upon appcaton (Form 9 ) the assstant regona commssoner of the re|non
n whch the port of entry Is stuated may ssue a permt authorzng the mpor-
taton of dsted sprts n earthenware contaners marked egby n undergaze
coorng (a) ether on the bottom or on the body wth the name, and the name
of the cty or country of address, of the manufacturer of the sprts, or of the
e porter abroad, or the name, and the name of the cty of address, of the
mporter n the Unted States, and (6) on the shouder wth the words Federa
Law Forbds Sae or euse of Ths otte, e cept as provded n sectons 175.SD
and 175.115.
Par. 1G. There s nserted mmedatey foowng secton 175.91 the
foowng new secton:
Sec 175.9 a. pprova of Dstnctve Unmarked Contaners. pprova of
dstnctve unmarked contaners sha be prepared n accordance wth the pro-
cedure prescrbed by secton 175.57a.
Par. 17. Secton 175.95 s amended by changng the perod at the
end of the frst sentence to a coon and addng the foowng:
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379
2 00-3195.
Provded, That upon appcaton (Form 9 ) the assstant regona comms-
soner of the regon n whch the port of entry Is stuated may, n nonrecurrng
cases, authorze the reease from customs custody of dsted sprts n contaners
whch, through unntentona error, are not marked competey In accordance wth
the provsons of ths part, f the Commssoner fnds that such reease w not
afford a eopardy to the revenue.
Par. 1 . Secton 175.115 s amended to read as foows:
When the permt of a botte manufacturer or botter s suspended, revoked,
or surrendered, stocks of quor bottes and other authorzed marked contaners
ou hand or n process may be dsposed of under permt to a person authorzed to
receve quor bottes, n accordance wth the drectons of the Commssoner.
ppcaton sha he made o Form US by such person for permsson to acqure
the entre stock, regardess of pace of storage or persons or concerns hodng
tte thereto, and submtted to the assstant regona commssoner of the regon
In whch the appcant Is ocated: Provded, That, where t s found that the
entre stock cannot be dsposed of to one authorzed botter, the Commssoner
may authorze the dsposa of such contaners, n ots, by sze or type, to more
than one botter If he fnds that such authorzaton w not afford a |eopardy
to the revenue. The appcaton on Form US sha be supported by a statement
fed by the vendor settng forth whether the Form US covers hs entre stock, or
hs entre stock of a partcuar sze or type of botte. sampe of each sze or
type of contaner represented n the stock whch the appcant or appcants
desre to purchase sha 1m submtted to the assstant regona commssoner
wth the appcaton Form 9 and the supportng statement of the vendor. If
such stocks are not dsposed of n accordance wth the drectons of the
Commssoner, they sha e sezed and forfeted, as provded n secton 2S71
of the Interna evenue Code.
Par. 19. The footnote to the source of sectons 175.1 to 175.131,
whch reads Sectons 175.60, 175.62, 175.63, 175.7 , 175.75, 175.76,
175.77, 175.7 , 175.96 and 175.122 appearng heren are amendments
effectve ony durng the perod of the unmted natona emergency
procamed by the Presdent on May 27,19 1 (Proc. 2519; 3 CFR 19 3
Cum. Supp.). Upon termnaton of the unmted natona emer-
gency these amendments w be automatcay revoked and the regu-
atons, as they e sted pror to the ssuance of Treasury Decson 5292,
sha be ressued. , s revoked.
These reguatons sha be effectve upon the date of pubcaton n
the Federa Regster.
(Ths Treasury Decson s ssued under the authorty contaned
n sees. 2 71 and 3170 of the Interna Revenue Code (53 Stat. 331, 373
as amended; 26 U. S. C. 2 71,3170).)
M. . Fosom,
ctng Secretary of the Treasury.
November 23, 1953.
(Pubshed n the Federa Regster, November 2 , 1U33)
( so Secton 32 5, Secton 325.21; Secton Rev. Ru. 26
3290, Secton 325. 2, Reguatons 132.)
INT RN L R NU COD
utomobes contanng property that s used or ntended for use
n connecton wth operatons whch are n voaton of the wagerng
ta aw (oh. 27 of the Interna Revenue Code) are sub|ect to
sezure and forfeture by the Federa Government under secton 3116
of the Code.
2 670 5 25
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SS 2soo-3co.|
3 0
dvce s requested whether automobes contanng ottery para-
phernaa whch are owned and operated by ottery operators who have
not pad the requred wagerng ta are sub|ect to sezure and forfeture
by the Federa Government.
The provsons of the Interna Revenue Code mposng the ta es on
wagerng do not contan any specfc reference to sezures or forfe-
tures. owever, authorty for sezure by the Federa Government of
property ntended for use n voaton of the nterna revenue aws s
contaned n secton 3116 of the Code whch provdes as foows:
It sha be unawfu to have or possess any quor or property Intended for use
In voatng the provsons of ths part, or the nterna-revenue aws, or regua-
tons prescrbed under such part of aws, or whch has been so used, and no
property rghts sha e st n any such quor or property. search warrant mar
ssue as provded n tte I of the ct of une 15, 1917, 0 Stat. 22 (D. S. C,
tte 1 , C11-C53), for the sezure of such quor or property. Nothng n ths
secton sha n any manner mt or affect any crmna or forfeture provson
of the nterna-revenue aws, or of any other aw. The sezure and forfeture
of any quor or property under the provsons of ths part, and the dsposton
of such quor or property subsequent to sezure and forfeture, or the dsposton
of the proceeds from the sae of such quor or property, sha be n accordance
wth e stng aws or those hereafter n e stence reatng to sezures, forfetures,
and dsposton of property or proceeds, for voaton of the nterna-revenue aws.
though secton 3116 of the Code appears n the subchapter of
ths Code reatng to ndustra acoho, ts authorzaton for forfe-
tures and sezures of quor or property ntended for use n voaton
of nterna revenue aws s not mted ony to voatons of nterna
revenue aws governng ndustra acoho. The eadng case settng
forth ths prncpe s Unted States v. 3935 Cases of Dsted Sprts,
55 Fed. Supp. , whch nvoved property that was sezed under sec-
ton 3116 of the Code for voaton of the whoesae quor ta aw.
The camant contended that secton 3116 was not ntended to ncude
a voatons of the nterna revenue aws, but was mted to voa-
tons nvovng ndustra acoho. Ths contenton was re|ected by
the court and after quotng from the egsatve hstory of secton 3116
of the Code, t concuded wth respect thereto that These reports
pany and unequvocay refer to the nterna revenue aws generay
and are not confned to those whch have to do wth ndustra acoho.
The phrase nterna revenue aws and reguatons pre-
scrbed under such aws of course refer to nterna revenue
aws, and snce no quafcaton s made to the effect that ony some
nterna revenue aws are meant, the pan and tera meanng of
the secton s that the voaton or the ntended voaton of any vad
nterna revenue aw or reguaton gves rse to operaton of secton
3116.
The prncpe set forth n the above case has been consstenty fo-
owed n other cases nvovng ths ssue. See nderson v. Unted
States, 1 5 Fed. (2d) 3 3; One Ford Tudor utomobe, 19 6 Mode,
Motor No. 99 1229317 v. Unted States, 16 Fed. (2d) 1020 (mpos-
ton of penates by other sectons of the Code does not prevent for-
fetures under secton 3116 of the Code); Unted States v. Wnde, 15
Fed. (2d) 196; and Unted States v. One 19 2 Pontac Sedan utomo-
be et a, 56 Fed. Supp. 929. _
In vew of the foregong, t s hed that automobes contanng
property that s used or ntended for use n connecton wth operatons
whch are n voaton of the wagerng ta aw (ch. 27 of the Interna
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3 1 Msc. Regs., 171.176.
Revenue Code) are sub|ect to sezure and forfeture by the Federa
Government under secton 3116 of the Code.
Msceaneous Reguatons Reatng to Lquor, Rev. Ru. 1
Secton 171.2: asc permt procedure under
Federa coho dmnstraton ct.
nterna revenue code
Canceaton of requrement to fe appcatons for new basc
permts under the Federa coho dmnstraton ct to cover
changes n ocaton.
ev. Ru. 37, C. . 1953-1, , revoked.
1. Purpose. The purpose of ths Revenue Rung s to rescnd Rev.
Ru. 37, C. . 1953-1, , whch requred the fng of appcatons for
new basc permts under the Federa coho dmnstraton ct to
cover changes n ocaton.
2. Procedure Now ppcabe. Form 1G 3, ppcaton for
mended asc Permt Under the Federa coho dmnstraton
ct, w agan be used to report changes of ocaton of hoders of
permts under the Federa coho dmnstraton ct, as t was
pror to the ssuance of Revenue Rung No. 37. Ths change n pro-
cedure s beng made because of admnstratve and enforcement dff-
cutes encountered as a resut of Revenue Rung No. 37.
3. Correspondence. ny correspondence reatve to ths Revenue
Rung shoud refer to the number and date thereof and to the symbos
0: T: P.
Orgnay Issued as I .UccRrnyh No. 1M, dated May , 1053.
Msceaneous Reguatons Reatng to Lquor, Rev. Ru. 205
Secton 171.176: Dsted sprts.
nterna revenue code
Natona emergency transfers of dsted sprts
1. Ths Revenue Rung prescrbes detaed reportng procedure
for transactons authorzed by Treasury Decson 5 6 , C. . 1951-2,
2 , as amended by Treasury Decson 6005, C. . 1953-1, 5, con-
cernng natona emergency transfers of dsted sprts. The term
Treasury Decson when used wthout a number n ths Revenue
Rung sha mean Treasury Decson 5 6 , as amended by Treasury
Decson 6005.
2. The Treasury Decson authorzes:
(a) ddtona types of transfers n bond and removabe from
bonded premses as:
(1) Transfers n bond from regstered and frut dster-
es and nterna revenue bonded warehouses to ndustra
acoho pants and bonded warehouses,
(2) Transfers n bond from ndustra acoho pants and
bonded warehouses to regstered and frut dsteres and n-
terna revenue bonded warehouses, and
Orgnay ssued at IR-MImeograph 10 , dated une , 1953.
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Msc. Regs., 171.176.
3 2
(3) Removas of dsted sprts produced at regstered
and frut dsteres, f of a proof of 160 or more, from an
ndustra acoho pant or bonded warehouse for any ta -
free purpose, or upon payment of ta for any purpose,
authorzed by part II of subchapter C, or from any dstery
or nterna revenue bonded warehouse for any purpose au-
thorzed by part II of subchapter C or for any purpose author-
zed n the case of ke sprts produced at a dstery; and
() Temporary storage of dsted sprts and acoho at
regstered and frut dsteres and ndustra acoho pants.
In order that detas of reportng such transactons may be unform
and that necessary statstcs may be made avaabe, the foowng re-
portng procedure s prescrbed, suppementng that prescrbed by the
Treasury Decson and Reguatons 3, ,5, and 10.
3. The term dsted sprts s defned n secton 171.176 of the
Treasury Decson as foows: Dsted sprts or sprts sha
ncude acoho, but not those beverage sprts commony known as
whsky, brandy, rum, gn, etc., or other beverage sprts of ess than
160 of proof, e cept when removed for redstaton or for storage
pendng redstaton. owever, for the purpose of carty n re-
portng such dsted sprts, the term dsted sprts, as used
heren, represents ony the producton of regstered and frut ds-
teres, and the term acoho, as used heren, represents the produc-
ton of an ndustra acoho pant.
R GIST R D DISTILL RI S
. Removas. (a) Dster s report. Dsted sprts produced at
a regstered dstery and removed therefrom for any purpose au-
thorzed by the Treasury Decson but not covered by Form 159 , w
be reported on such form n part 2, Statement of Wthdrawas/
The purpose of remova, as, for e ampe, Transferred to ndustra
acoho pant, Removed for use of Unted States, etc., w be
reported n coumn 15 or 16. Such transactons summarzed for the
month w be entered n part 3, secton , Summary of Wthdrawas,
usng bank nes and nternng as may be necessary.
(6) Statstca report. The assstant dstrct commssoner w n-
cude n hs monthy statstca report, Form 155 - , addtona tems
reported on Form 159 , usng bank nes and nternng as may be
necessary.
5. Temporary storage. Transactons concernng dsted sprts
and acoho receved at a regstered dstery for temporary storage
pursuant to secton 171.231, must be reported separatey from dsted
sprts produced at the dstery and therefore w not be reported
by the dster on Form 159 or by the storekeeper-gauger on Form
16 6. Such transactons w be reported as foows:
(a) Dsters report. The recepts, removas, and stocks of
dsted sprts and acoho w be reported by the dster on
Form 1 3- revsed to read Report of Dsted Sprts and
coho Stored Temporary at Regstered Dstery. Recepts
w be reported on part 1 and removas on part 2. Such trans-
actons w be summarzed for the month n part 2, secton 2,
Summary, usng bank nes and mternng as may be neces-
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3S3
Msc. Regs., 171.176.
sary. The dster w prepare Form 1 3- n trpcate. e
w submt them wth Form 159 to the storekeeper-gauger.

(b) Storekeeper-gauger- record. The storekeeper-gauger w
mantan a record on Form 1621 of dsted sprts and acoho
stored temporary at the dstery n order that he may nsure
the dster s proper markng of such dsted sprts and acoho
removed therefrom and verfy the tota recepts and removas dur-
ng the month and the quantty on hand at the end of the month
as reported by the propretor on Form 1 3- . fter verfca-
ton of Form 1 3- he w nta a three copes, submt the
orgna and one copy wth Form 159 to the assstant dstrct
commssoner, and return the remanng copy to the propretor.
(c) Statstca report. The assstant dstrct commssoner
w prepare a speca statstca report on Form 155 - . The
tte w be revsed to read Statstca Report of Dsted Sprts
and coho Stored Temporary at Regstered Dsteres.
of the transactons reported n part 2, secton 2, of Form 1 3-
w be reported on Form 155 - , usng bank nes and nternng
as may be necessary.
6. Removas. (a) Dster s report. Dsted sprts produced
at a frut dstery and removed therefrom for any purpose authorzed
by the Treasury Decson but not covered by Form 15, w be re-
ported on such form n part 2, Statement of Wthdrawas. The
purpose of remova, as, for e ampe, Transferred to ndustra acoho
pant, Removed for use of Unted States, etc., w be reported n
coumn 15 or any other avaabe coumn. Such transactons sum-
marzed for the month w be entered n part 3, secton 7, Statement
of Producton and Wthdrawas, usng bank nes and nternng as
may be necessary.
(b) Statstca report. The assstant dstrct commssoner w n-
cude n hs monthy statstca report, Form 155 , addtona tems
reported on Form 15, usng bank nes and nternng as may be
necessary.
7. Temporary storage. Transactons concernng dsted sprts
and acoho receved at a frut dstery for temporary storage pur-
suant to secton 171.231, must be reported separatey from dsted
sprts produced at the dstery and therefore w not be reported by
the dster on Form 15. Such transactons w be reported as
foows:
(a) Dster s report. The recepts, removas, and stocks of
dsted sprts and acoho w be reported by the dster on
Form 1 3- revsed to read Report of Dsted Sprts and
coho Stored Temporary at Frut Dstery. Recepts w
be reported on part 1 and removas on part 2. Such transactons
w be summarzed for the month n part 2, secton 2, Summary,
usng bank nes and nternng as may be necessary. The ds-
ter w prepare Form 1 3- n trpcate. e w submt
them to the storekeeper-gauger at the ad|onng nterna revenue
bonded warehouse. fter verfcaton by the storekeeper-gauger
as provded n paragraph (b) he w submt the orgna and one
copy wth Form 15 to the assstant dstrct commssoner.
FRUIT DISTILL RI S
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Msc. Regs., 171.176.
3
(b) Storekeeper-ganger s record. The storekeeper-gauger at
the ad|onng nterna revenue bonded warehouse w mantan
a record on Form 1621 of dsted sprts and acoho stored tem-
porary at the dstery n order that he may nsure the dster s
proper markng of such dsted sprts and acoho removed
therefrom and verfy the tota recepts and removas durng the
month and the quantty on hand at the end of the month as re-
gorted by the dster on Form 1 3- . fter verfcaton of
orm 1 3- , he w nta a three copes and return them to
the dster.
(c) Statstca report. The assstant dstrct commssoner w
prepare a speca statstca report on Form 155 . The tte w
be revsed to read Statstca Report of Dsted Sprts and
coho Stored Temporary at Frut Dsteres. of the
transactons reported n part 2, secton 2, of Form 1 3- w be
reported on Form 155 , usng bank nes and nternng as may
be necessary.
INT RN L R NU OND D W R OUS S
. (a) Storekeeper-ganger s report. Dsted sprts and acoho
receved at and removed from nterna revenue bonded warehouses
w be reported by the storekeeper-gauger on Forms 1621 and 1699,
usng bank nes and nternng as may be necessary.
( o) Statstca report. The audt cerk n the offce of the assst-
ant dstrct commssoner w report transactons coverng dsted
sprts and acoho receved at and removed from nterna revenue
bonded warehouses on Form 1700, n the manner prescrbed by such
form.
INDUSTRI L LCO OL PL NTS
9. Removas. (a) Propretor s report. coho produced at an n-
dustra acoho pant and removed therefrom for any purpose author-
zed by the Treasury Decson but not covered by Form 1 2, w be
reported on such form n part 2, Statement of Wthdrawas. The
purpose of remova, as, for e ampe, Transferred to regstered ds-
tery, w be reported n coumn 1 . Such transactons summarzed
for the month w be entered n part 3, secton , Summary of Wth-
drawas, usng bank nes and nternng as may be necessary.
(b) Statstca report. The assstant dstrct commssoner w
ncude n hs monthy statstca report, Form 1555, addtona tems
reported on Form 1 2, usng bank nes and nternng as may be
necessary.
10. Temporary storage. Transactons concernng dsted sprts
and acoho receved at an ndustra acoho pant for temporary stor-
age pursuant to secton 171.2 , must be reported separatey from aco-
ho produced at the pant and therefore w not be reported by the
propretor on Form 1 2 or by the storekeeper-gauger on Form 16 6.
Such transactons w be reported as foows:
(a) Propretors report. The recepts, removas, and stocks of
dsted sprts and acoho w be reported by the propretor on
Form 1 3- revsed to read Report of coho Stored Tempo-
rary at Industra coho Pant. Recepts w be reported
on part 1 and removas on part 2. Such transactons w be sum-
marzed for the month n part 2, secton 2, Svunmary, usng
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3 5 Msc. Regs., 171.17G.
bank nes and nternng as may be necessary. The propretor
w prepare Form 1 3- n trpcate. e w submt them
wth Form 1 2 to the storekeeper-gauger.
(b) Storekeeper-ganger s record. The storekeeper-gauger w
keep such memoranda records of the dsted sprts and acoho
receved for temporary storage as w enabe hm to verfy the
tota recepts and removas durng the month and the quantty
on hand at the end of the month as reported by the propretor
of the ndustra acoho pant on Form 1 3- . fter verf-
caton of Form 1 3- , he w nta a three copes, submt
the orgna and one copy wth Form 1 2 to the assstant ds-
trct commssoner, and return the remanng copy to the
propretor.
(c) Statstca report. The assstant dstrct commssoner w
prepare a speca statstca report on Form 1555. The tte w
be revsed to read Statstca Report of coho Stored Tempo-
rary at Industra coho Pants. of the transactons
reported n part 2. secton 2, of Form 1 3- w be reported on
Form 1555, usng bank nes and nternng as may be necessary.
INDUSTRI L LCO OL OND D W R OUS S
11. (a) Propretors report. Dsted sprts and acoho receved
at and removed from ndustra acoho bonded warehouses w be
reported by the propretor on hs reguar monthy reports, Forms
1 3- and 1 3- . Recepts and removas authorzed by the
Treasury Decson but not covered by such forms w be reported n
parts 1 and 2, respectvey. The purpose of remova, as, for e ampe,
Transferred to Interna Revenue onded Warehouses, w be re-
ported n avaabe coumns. Such transactons w be summarzed
for the month n part 2, secton 2, Summary, of the forms, usng
bank nes and nternng as may be necessary.
(b) Storekeeper-ganger s record. Dsted sprts and acoho re-
ceved at and removed from ndustra acoho bonded warehouses
w be reported by storekeeper-gaugers on ther memoranda records
prescrbed by Reguatons 3 for acoho receved at and removed from
such premses.
(c) Statstca report. The assstant dstrct commssoner w n-
cude n hs monthy statstca report, Form 1555- , addtona tems
reported on Forms 1 3- and 1 3- , n the manner prescrbed by
Form 1555- .
COPI S OF R I ORTS FOR GO RNM NT L G NCI S
12. Genera. Secton 171.279 of the Treasury Decson authorzes
the Commssoner to requre such addtona copes of forms pe-
scrbed theren, or such other records, as he may deem necessary to
meet the requrements of the natona defense. Pursuant to such
authorzaton, addtona copes of forms and reports reatng to re-
movas of denatured or undenatured dsted sprts and acoho made
by, or for the account of the Reconstructon Fnance Corporaton,
Offce of Synthetc Rubber, Materas Procurement, Washngton 25,
T . C. (herenafter referred to as the Reconstructon Fnance Corpora-
ton), w be prepared and dsposed of n accordance wth the fo-
owng nstructons.
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Msc. Regs., 171.176.
3SG
R PORTS FO R CONSTRUCTION FIN NC CORFOR TIOM
13. Removas from dsteres and nterna revenue bonded ware-
houses. In addton to the forms prescrbed by the Treasury Decson
coverng removas of dsted sprts and acoho from dsteres and
nterna revenue bonded warehouses, the storekeeper-gauger w pre-
pare two e tra copes of Form 1520 and the propretor w prepare
two e tra copes of Form 236, 170 , or 1 53, as the case may be.
copes of the forms reportng shpments from each type of premses
for the Reconstructon Fnance Corporaton w be seray numbered
n the upper rght hand corner begnnng wth 1 for the frst report
of each caendar year, e cept that, where forms are requred by
reguatons or the nstructons on the form to be seray numbered,
a separate seres of numbers for the Reconstructon Fnance Corpora-
ton w be paced above other requred sera numbers. The sera
numbers used for the Reconstructon Fnance Corporaton w be
dentfed by precedng them wth the symbo RFC. ach e tra
copy of the forms w be marked Copy for Reconstructon Fnance
Corporaton. The storekeeper-gauger w gve one of the e tra cop-
es of Form 236, 170 , or 1 53, wth one of the e tra copes of Form
1520 attached, to the propretor to send to the Reconstructon Fnance
Corporaton. The storekeeper-gauger w send the remanng e tra
copy of Form 236 or 170 , wth Form 1520 attached thereto, to the
storekeeper-gauger at the consgnee s premses. The remanng e tra
copy of Form 1 53, wth attached Form 1520, w be sent to the
consgnee. Upon recept of the dsted sprts or acoho transferred
pursuant to Form 236, the storekeeper-gauger at the consgnee s
premses w e ecute hs certfcate of recept on the e tra copy of
Form 236 marked for the Reconstructon Fnance Corporaton and
dever t, wth the attached marked e tra copy of Form 1520, to the
propretor, who w forward them to the Reconstructon Fnance
Corporaton. Upon recept of dsted sprts transferred pursuant
to Form 170 , the consgnee propretor w e ecute hs certfcate of
recept on the e tra copy of Form 170 marked for the Reconstructon
Fnance Corporaton and w gve t, wth the attached marked e tra
copy of Form 1520, to the storekeeper-gauger who w note hs ver-
fcaton, foowed by hs sgnature and tte n the ower eft hand
porton of Form 170 . The storekeeper-gauger w then return the
e tra copy of Form 170 , wth Form 1520 attached, to the propretor
who w forward them to the Reconstructon Fnance Corporaton.
Upon recept of dsted sprts or acoho descrbed on Form 1 53,
the consgnee w e ecute hs certfcate of recept on the e tra copy
of the form marked for the Reconstructon Fnance Corporaton and
send t, wth the attached marked e tra copy of Form 1520, to the
Reconstructon Fnance Corporaton.
1 . Removas from ndustra acoho pants, bonded warehouses, and
denaturng pants. In addton to the forms prescrbed by the Treas-
ury Decson coverng transfers n bond and other removas from n-
dustra acoho pants, bonded warehouses, and denaturng pants, the
propretor w prepare two e tra copes of Form 1 0, 1 53,1 53- ,
1 67, or 1 73, as the case may be. copes of the forms reportng
shpments from each type of premses for the Reconstructon Fnance
Corporaton w be seray numbered begnnng wth 1 for the
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3 7
Msc. Regs., 171.176.
frst report for each caendar year. The sera numbers w be paced
on the forms n the upper rght hand corner preceded by the symbo
RFC. ach e tra copy of the forms w be marked Copy for Re-
constructon Fnance Corporaton.
(a) Removas from ndustra acoho pants and bonded ware-
houses. The propretor w submt to the storekeeper-gauger a
copes of Form 1 0 coverng transfers n bond of acoho to other
bonded premses and removas of acoho to denaturng pants.
e w submt to the storekeeper-ganger a copes of Forms 1 0
and 1 53 coverng removas ta -free for the use of the Unted
States. The storekeeper-gauger w endorse on the front of the
e tra copes of the forms the word verfed foowed by hs name
and tte. e w return one each of the e tra copes to the pro-
retor to transmt to the Reconstructon Fnance Corporaton,
e w send the remanng e tra copy of Form 1 0, or Forms
1 0 and 1 53, to the storekeeper-gauger at the recevng premses
or to the consgnee, as the case may be. Upon recept of acoho
covered by Form 1 0, the consgnee propretor w e ecute hs
record of recept on the e tra copy of Form 1 0 marked for the
Reconstructon Fnance Corporaton and w submt the form
to the storekeeper-gauger who w note thereon the word ver-
fed foowed by hs name and tte. The storekeeper-gauger
w return such e tra copy of Form 1 0 to the propretor who
w forward t to the Reconstructon Fnance Corporaton. Upon
recept of acoho covered by Form 1 53, the consgnee w e ecute
hs certfcate of recept on the e tra copy of the form marked for
the Reconstructon Fnance Corporaton and send t wth the at-
tached marked e tra copy of Form 1 0 to the Reconstructon
Fnance Corporaton.
(b) Removas from denaturng pants. The dsposton of
copes of Form 1 0 coverng transfers of acoho between de-
naturng pants, and copes of Forms 1 10 and 1 53 coverng re-
movas from denaturng pants of acoho, ta -free, for use of the
Unted States, w be n accordance wth the provsons of para-
graph (a) above. In the case of transfers of denatured acoho
to another denaturng pant, the propretor w submt to the
storekeeper-gauger a copes of Forms 1 07 and 1 73. The store-
keeper-gauger w endorse on the front of the e tra copes of
the forms the word verfed foowed by hs name and tte.
e w return one each of the e tra copes to the propretor to
transmt to the Reconstructon Fnance Corporaton. The store-
keeper-gauger w send the remanng e tra copes of such forms
to the storekeeper-gauger n charge of the recevng denaturng
pant. Upon recept of the denatured acoho covered by Forms
1 67 and 1 73, the consgnee propretor w e ecute hs certfcate
of recept on the e tra copy of the Form 1 73 marked for the
Reconstructon Fnance Corporaton and w submt the form to
the storekeeper-gauger, who w note thereon the word verfed
foowed by hs name and tte. The storekeeper-ganger w re-
turn the e tra copy of Form 1 73 to the propretor who w
forward t wth the marked e tra copy of Form 1 07 to the Re-
constructon Fnance Corporaton. In the case of ta -free re-
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Msc. Regs., 171.176.)
3SS
movas of denatured acoho for use of the Unted States covered
by Form 1 53- , or removas of denatured acoho to manufac-
turers or users thereof covered by Form 1 73, as the case may be,
the propretor w submt to the storekeeper-gauger a copes of
such forms. The storekeeper-gauger w endorse on the front of
the e tra copes of the forms the word verfed foowed by hs
name and tte. e w return one each of the e tra copes to the
propretor to transmt to the Reconstructon Fnance Corporaton.
The storekeeper-gauger w send the remanng e tra copes of
such forms to the consgnee. Upon recept of the denatured a-
coho covered by Form 1 53- or 1 73, as the case may be, the
consgnee w e ecute hs certfcate of recept cn the e tra copy
of the form marked for the Reconstructon Fnance Corporaton
and forward t to the Reconstructon Fnance Corporaton.
15. Wthdracas from customs custody of mported acoho. In
addton to the forms prescrbed by Reguatons 3 coverng wth-
drawas of acoho from customs custody, two e tra copes of Form
1 0 w be prepared and marked Cony for Reconstructon Fnance
Corporaton. The customs offcer w forward the e tra copes of
Form 1 10 to the storekeeper-gauger at the consgnee s premses, who
w note thereon hs verfcaton of the quantty of acoho receved,
foowed by hs sgnature and tte. The storekeeper-gauger w de-
ver the marked e tra copes to the propretor of the consgnee prem-
ses who w forward them to the Reconstructon Fnance Corpora-
ton. copes of Form 1 0 reportng recept from customs custody
for the Reconstructon Fnance Corporaton w be seray numbered
by the propretor n the upper rght hand corner of the form begnnng
wth 1 for the frst report for each caendar year. The sera num-
bers w be preceded by the symbo RFC. In addton, the name of
the vesse from whch the sprts were unaden w be shown on
Form 1 0.
16. Propretor s monthy report. Propretors of ndustra acoho
pants, ndustra acoho bonded warehouses, dsteres, and nterna
revenue bonded warehouses storng dsted sprts and acoho, under
contract, e cusvey for the Reconstructon Fnance Corporaton, w
prepare one e tra copy each of the monthy report, Form 1 3 ,
1 3- , or 52-C, as the case may be, marked Copy for Reconstructon
Fnance Corporaton. Propretors of denaturng pants storng or
denaturng acoho, under contract, e cusvey for the Reconstructon
Fnance Corporaton, w prepare one e tra copy each of Forms
1 G - , 1 G - , 1 6 -C, 1 6 -D, and 1 6 - marked Copy for Re-
constructon Fnance Corporaton. The e tra copes of the reports
w be submtted to the storekeeper-gauger who w note hs verfca-
ton thereon, foowed by hs name and tte. The e tra copes w
then be forwarded by the propretor to the Reconstructon Fnance
Corporaton.
OT R GO RNM NT L G NCI S
17. Genera. Upon request submtted to the Revenue Servce by
any governmenta agency, the Commssoner w ssue nstructons
reatve to the preparaton and dsposton of addtona copes of
forms and records reatng to transactons n dsted sprts and
acoho,
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3 9
Msc. Regs., 171.176.
DDITION L INSTRUCTIONS CONC RNING R MO LS FOR R CONSTRUCTION
FIN NC CORPOR TION
PIP LIN S
1 . Fe be hose. Ppenes conformng to the requrements of
Reguatons 3 (26 CFR, pt, 1 2) or 10 (26 CF , pt. 1 5), as the case
may be, sha be used for the fng of approved conveyances of
unpackaged denatured or undenatured dsted sprts and acoho,
e cept the sprts may be transferred to such conveyances by means of
fe be hose where the entre ength thereof s n fu vew of the
storekeeper-gauger.
INSP CTION PRIOR TO FILLING OF T N C RS,
T N TRUC S, T N RG S, TC.
19. Procedure. pproved conveyances whch are to be used for
shppng unpackaged denatured or undenatured dsted sprts or
acoho, and approved ppenes and fe be hoses used n connecton
wth the transfer of denatured or undenatured dsted sprts and
acoho to and from storage tanks, weghng tanks, and approved con-
veyances, sha be cean and free of any foregn substance whch woud
contamnate the sprts to be deposted or conveyed theren. Store-
keeper-gaugers w make nspectons for ceanness n the case of
tank cars, tank trucks, tank barges, ppenes, and hosenes whch are
to be used for the conveyance of denatured or undenatured dsted
sprts and acoho. In addton, the Reconstructon Fnance Cor-
poraton w, at ts opton, assgn censed petroeum or other n-
spectors to make nspectons for ceanness n the case of barges to
be used for the conveyance of denatured or undenatured dsted
sprts and acoho. If nspecton by the storekeeper-gauger dscoses
that the vesses are not cean and free from foregn substance key
to contamnate the sprts to be deposted or conveyed theren, the use
of such vesses w be prohbted unt they are propery ceaned and
put n sutabe condton: Provded, That where the propretor re-
ports to the Reconstructon Fnance Corporaton the unceanness of
a conveyance, t may be used, upon the acceptance of the conveyance
n ts uncean condton by the Reconstructon Fnance Corporaton.
Such acceptance of an uncean conveyance sha be gven, n dupcate,
to the storekpeeper-gauger, one copy of whch sha be retaned by
hm. The remanng copy of the acceptance w be attached by the
storekeeper-gauger to the Form 1520,1 0, or 1 G7 whch s furnshed
to the assstant dstrct commssoner of the dstrct n whch the
shppng pant s ocated. The storekeeper-gauger w aso note such
nformaton on a copes of Form 1520,1 0, or 1 G7.
S MPL S
20. Sampes at pont of shpment. representatve one-pnt
sampe of unpackaged denatured or undenatured dsted sprts or
acoho w be taken for each conveyance, e cept that a sampe w
not be taken when such sprts are transferred by ppene between
pants as provded n secton 171.201 of the Treasury Decson.
Sampes w be taken from the ppene or hose by the propretor of
the shppng premses n the mmedate presence of the storekeeper-
gauger at the tme the dsted sprts or acoho are beng pumped
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Msc. Regs., 171.176.
390
nto, and pror to ther depost n, the tank car, tank truck, tank barpe,
or other approved conveyance. n addtona representatve one-
pnt sampe w aso be permtted to be taken from each conveyance
n the presence of the storekeeper-gauger by a censed petroeum or
other nspector, -where such nspectors are assgned by the Reconstruc-
ton Fnance Corporaton, mmedatey after the conveyance has been
oaded for shpment and pror to ts seang. The sampes w be
paced n screw top pnt gass bottes whch w be provded by the
shppng propretor. In no case w cork stoppers be used. ach
botte w be abeed to show the date the sampe was taken, the knd
of sprts (denatured or undenatured acoho, neutra sprts, etc.),
whether the sampe was taken durng or after oadng, the name and
address of the shpper, the knd and regstry number of the shpper s
pant, the name and address of the consgnee, the knd and regstry
number of the consgnee s pant, the name or number of the tank car
or barge or the tank truck State cense number (traer cense n the
case of a tank traer), as the case may be, the number of wne gaons
n the shpment, the proof of the dsted sprts or acoho, the sera
number of Form 1 0, 1520, 1 67, 236, 170 , 1 53, 1 53- , or 1 73,
as the case may be, and such other nformaton as may be necessary to
fuy dentfy the shpment. sampes, after beng taken and
abeed, sha be paced n the custody of the storekeeper-gauger who
sha pace hs name or ntas and tte upon the abes and keep the
sampes under Government ock. Requests to forward the sampes
taken by the propretor to a aboratory for anayss w be made by
the Reconstructon Fnance Corporaton. Requests to forward
sampes taken by an nspector assgned by the Reconstructon Fnance
Corporaton to aboratores for anayss w be made by such nspector
wth the assent of the Reconstructon Fnance Corporaton. If no
request s receved to send such sampes to the coho and Tobacco
Ta Dvson ranch Laboratory, or to another aboratory desgnated
by the Reconstructon Fnance Corporaton, wthn 60 days, the store-
keeper-gauger w dump them nto tanks contanng smar sprts
at the shppng premses. The bottes w be returned to the pro-
pretor for ceanng and reuse when takng other sampes.
21. Sampes at pont of recept. representatve one-pnt sampe
w be taken from each shpment of unpackaged denatured or undena-
tured dsted sprts or acoho receved n tank barges. Such sampes
w be taken by the consgnee propretor n the mmedate presence
of the storekeeper-gauger, pror to remova of the sprts from the tank
barge. The sampes w be paced n screw top pnt gass bottes
whch w be provded by the consgnee propretor. In no case w
cork stoppers be used. ach botte w be abeed to show the date the
sampe was taken, the knd of sprts (denatured or undenatured aco-
ho, neutra sprts, etc.), the name and address of the consgnee, the
knd and regstry number of the consgnee s pant, the name and ad-
dress of the shpper, the knd and regstry number of the shpper s
ment, the proof of the dsted sprts or acoho, the sera number of
Form 1 0,1520,1 67,236,170 ,1 53,1 53- , or 1 73, as the case may
be, and such other nformaton as may be necessary to fuy dentfy
the shpment. such sampes, after beng taken and abeed, sha
be paced n the custody of the storekeeper-gauger who sha pace hs
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391
Msc. Regs., 171.176.
name or ntas and tte upon the abes and keep the sampes under
Government ock. Requests to forward the sampes to a aboratory
for anayss w be made by the Reconstructon Fnance Corporaton.
If no request s receved to send such sampes to the coho and To-
bacco Ta Dvson ranch Laboratory, or to another aboratory
desgnated by the Reconstructon Fnance Corporaton, wthn 60 days,
the storekeeper-gauger w dump them nto tanks contanng smar
sprts at the recevng premses. The bottes w be returned to the
propretor for ceanng and reuse when takng other sampes. dd-
tona sampes desred by the propretor for hs organoeptc or abora-
tory e amnaton w be taken n accordance wth the provsons of
Reguatons 3 and 10.
22. Reports of anayss of sampes. The coho and Tobacco Ta
Dvson ranch Laboratory anayzng sampes of dsted sprts or
acoho w prepare a report of the resuts of anayss. ach report
w be prepared n trpcate and w dentfy the sampe anayzed
by showng theren the nformaton appearng on the abe aff ed to
the sampe. The orgna report w be sent mmedatey to the Re-
constructon Fnance Corporaton, and one copy w be retaned by the
aboratory. In the case of sampes taken at the pont of shpment, the
remanng copy of the report w be sent to the shpper, and n the case
of sampes taken at the pont of recept, the copy w be sent to the
consgnee.
G N R L INSTRUCTIONS CONC RNING N TION L M RG NCY TR NSF RS OF
DISTILL D SPIRITS ND LCO OL
R MO LS TO DISTILL RI S FROM INDUSTRI L LCO OL PL NTS
ND OND D W R OUS S
23. mended notce, Form 27- or Form 27y2. Dsters who de-
sre to wthdraw acoho from ndustra acoho pants and ndustra
acoho bonded warehouses as provded n secton 171.231 of the Treas-
ury Decson sha fe amended notce on Form 27- or Form 27y2,
as the case may be, as provded n secton 171.25 n accordance wth
the appcabe provsons of Reguatons or 5, respectvey. The
purpose for whch notce s fed sha be stated, To wthdraw acoho
from ndustra acoho pants and ndustra acoho bonded ware-
houses under secton 31 3 of the Interna Revenue Code. If such
acoho s to be wthdrawn for redstaton, the dster sha st
on the notce under knd of matera to be used, coho under sec-
ton 31 3, IRC.
R MO LS TO INT RN L R NU OND D W R OUS S FROM
INDUSTRI L LCO OL PL NTS ND OND D W R OUS S
2 . mended appcaton, Form 27-D. Propretors of nterna
revenue bonded warehouses who desre to wthdraw acoho from n-
dustra acoho pants or ndustra acoho bonded warehouses as
provded n secton 171.2 0 of the Treasury Decson sha fe amended
appcaton on Form 27-D, as provded n secton 171.25 n accord-
ance wth the appcabe provsons of Reguatons 10. The purpose
for whch appcaton s fed sha be stated, To wthdraw acoho
from ndustra acoho pants and ndustra acoho bonded ware-
houses under secton 31 3 of the Interna Revenue Code. Propretors
sha aso amend ther appcatons by addng the ndcated underscored
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M.sc Regs., 171.176.
392
phrasng thereto, as foows: Notce s hereby gven, that
to carry on or engage n the busness of warehousng dsted sprts
(ncudng acoho wthdrawn under sec. 31 3, I C)
R MO LS TO INDUSTRI L LCO OL PL NTS, POND D W R OUS S, ND D N TURING
PL NTS FROM DISTILL RI S ND INT RN L R NU DOND D W R OUS S
25. mended appcaton, Form 1 -31. Propretors of ndustra
acoho pants, ndustra acoho bonded warehouses, or denaturng
pants who desre to wthdraw dsted sprts from dsteres or
nterna revenue bonded warehouses as provded n sectons 171.2
and 171.260 of the Treasury Decson, sha fe appcaton on Form
1 31 for amendment of basc permt, Form 1 33, as provded n sec-
tons 171.251 and 171.261 n accordance wth the appcabe provsons
of Reguatons 3. The purpose for whch appcaton s fed sha
be stated, For amendment of permt to authorze wthdrawas of
dsted sprts from dsteres and nterna revenue bonded ware-
houses under secton 31 3 of the Interna Revenue Code. t ne 11,
ndcated underscorng sha be added as foows: n accordance wth
the provsons of sectons 3070 to 3125, and 31 3, Interna Revenue
(3ode, as amended and suppemented, and reguatons promugated
thereunder, etc. If dsted sprts are to be wthdrawn for reds-
taton, the propretor sha st n the appcaton under knd of
matera to be used Dsted sprts under secton 31S3, IRC.
26. mended permt, Form 1 33. Upon approva of appcaton
on Form 1 31, the assstant dstrct commssoner sha amend the pro-
pretor s basc permt, Form 1 33, as provded n sectons 171.251 and
171.2C1 of the Treasury Decson. t ne , ndcated underscor-
ng sha be added as foows: n accordance wth the terms hereof,
and the provsons of sectons 3070-312 and 31 3, Interna Revenue
Code, as amended and suppemented, and a reguatons ssued pur-
suant thereto. In the space foowng Stpuaton 11, and above hs
sgnature, the assstant dstrct commssoner sha nsert Ths permt
authorzes the wthdrawa of dsted sprts from dsteres and n-
terna revenue bonded warehouses pursuant to secton 31S3, Interna
Revenue Code.
G UGING OF DISTILL D SPIRITS ND LCO OL
27. determnaton of proof. The proof of dsted sprts and
acoho sha be determned n accordance wth secton 171.217 of
Treasury Decson 5 6 as amended by Treasury Decson 6005.
2 . Gauge by voume. In nstances where the dsted sprts or
acoho are gauged by voume n tanks, the report of gauge sha show
the proof gaon content computed by mutpyng the tota wne ga-
ons by the proof, e tended to tenths of degrees. For e ampe, .000
wne gaons at 190.3 of proof woud be reported as 7,612.0 proof
gaons. When dsted sprts are wthdrawn or receved on vou-
metrc gauge, the number of wne gaons sha be ncuded n the re-
port of gauge on Form 1520.
20. Gauge by weght. In nstances where the dsted sprts or
acoho are gauged n weghng tanks mounted on scaes, or by wegh-
ng raroad cars on raroad car scaes, or by weghng tank trucks on
tank truck scaes, the proof gaon content sha be computed from
Tabe No. (Revsed 1053) of the Gaugng Manua. When dsted
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393
Regs. 29, 197.21.
sprts are to be receved on voumetrc gauge, or are wthdrawn for
ta -free purposes under Treasury Decson 5 6 , the number of wne
gaons sha be ncuded n the shppng report of gauge on Form
1520.
30. Correspondence reatve to ths Revenue Rung shoud refer to
the number thereof and the symbos O: T: PPt.
C PT R 27 OCCUP TION L T S
SU C PT R .-SP CI L PRO ISIONS
P RT II. LI UOR
S CTION 3250. T
Reguatons 29, Secton 197.21: Cams. T. D. 00
( so Sectons 197.21a, 197.22, 197.2 ,
197.25, 197.25a, 197.35, 197.36, 197.37,
197.3 , 197.39, 197. 0, 197. 1, 197. 2,
197. 3, 197. , 197. 5, 197. 6, 197. 7,
197. , 197. 9, 197.50, 197.51, 197.52,
197.53, 197.5 , 197.55, 197.56, 197.57.)
TITL 20 INT RN L R NU . C PT R I, SU C PT R C, P RT 197.
DR W C OF T ON DISTILL D SP1RI1S US D IN T M NUF CTUR OF
NON R U PRODUCTS
mendment of Reguatons 29 o permt tbe fng of cams for
drawback on a monthy bass and to make changes of admnstratve
nature.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
Secton 3250(1) (5) of the Interna Revenue Code was amended by
Pubc Law 2 3 ( 3d Cong.) p. , ths uetn , to read as foows:
S C. 3250. T .
(1) Manufacturers ob Producers of Desgnated NoNn vw O Tnnn-
t|cts.

(5) Drawback. In the case of dsted sprts ta pad and used as pro-
vded n ths subsecton, a drawback sha be aowed
( ) at the rate of G on each proof gaon upon whch ta Is pad at
a rate of 9 per proof gaon pror to the effectve date of secton 02 of
the Revenue ct of 1951,
( ) at the rate of 9.50 on each proof gaon upon whch ta s pad
at a rate of 10.50 per proof gaon on and after the effectve date of
secton 02 of the Revenue ct of 1951, and
(C) at the rate of on each proof gaon upon whch ta Is pad at
a rate of 9 per proof gaon after March 31, 195 .
Such drawback sha he due and payabe quartery upon fng of a proper
cam wth the Secretary ; e cept that, where any person entted to such draw-
back sha eect n wrtng to fe monthy cams therefor, such drawback
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Regs. 29, 197.21.
30
sha be due and payabe monthy upon fng of a proper cam wth the
Secretary: Provded, however, That the Secretary may requre persons
eectng to fe monthy drawback cams to fe wth hm a bond or other
securty In such amount and wth such condtons as he sha by reguatons
prescrbe. ny such eecton may be revoked upon fng of notce thereof
wth the Secretary. No cam under ths subsecton sha be aowed uness
fed wth the Secretary wthn the 3 months ne t succeedng the quarter n
whch the dsted sprts covered by the cam were used as provded n
ths subsecton.

In order to conform Reguatons 29 26 CFR, pt. 107 , to such
amendment, and to conform the reguatons to the deegaton to assst-
ant regona commssoners, coho and Tobacco Ta , of fna author-
ty for aowance or dsaowance of drawback cams, such reguatons
are amended as foows:
Paragraph 1. Secton 197.21 s amended to read as foows:
The cam for drawback sha be fed on Form 3, (orgna ony) wth tbe
assstant regona commssoner, for the regon n whch the pace of manufacture
Is ocated, and sha pertan ony to dsted sprts used n the manufacture or
producton of nonbeveruge products durng any one quarter of the year, and
ony one cam may be fed for each quarter: Provded, That where the manu-
facturer has notfed the assstant regona commssoner, n wrtng, of hs n-
tenton to fe cams on a monthy bass, n eu of a quartery bass, and has
fed a bond n compance wth the provsons of secton 197.21a, cams may be
fed monthy n eu of quartery: Provded further, That any such eecton
for the fng of monthy cams may be revoked upon fng of notce thereof, n
wrtng, wth the assstant regona commssoner.
Par. 2. There s nserted mmedatey foowng secton 197.21 the
foowng new secton:
Sec. 197.21a. ond, Form 1730. very person desrng to fe cams for draw-
back on a monthy bass sha, upon fng hs notce of such ntenton as pro-
vded n secton 197.21, e ecute a bond on Form 1730, n trpcate, n conformty
wth the provsons of sectons 197.35 through 197.50, and fe the same wth
the assstant regona commssoner. The pena sum of the bond must be
suffcent to cover the amount of drawback whch w, durng any quartery
perod, consttute a charge aganst the bond: Provded, That the pena sura
of any bond sbn not e ceed 200,000 nor be ess than 1,000. The bond sha
be a contnung one, and the abty thereof sub|ect to ncrease as successve
monthy cams are aowed thereunder and to decrease as the verfcatons of
such monthy cams are made. When the mt of abty under a bond gven
n ess than the ma mum pena sum has been reached, no further drawback
on monthy cams w be aowed uness pror charges aganst the bond have
been decreased, or a new, or addtona, bond n suffcent pena sum Is furnshed.
Par. 3. Secton 197.22 s amended to read as foows:
uartery cams for drawback must be fed wth the assstant regona
commssoner wthn the 3 months ne t succeedng the quarter n whch the
dsted sprts covered by the cam were used n tbe manufacture of non-
beverage products. Monthy cams for drawback may be fed at any tme
after the end of the month n whch the dsted sprts covered by the cam
were used In the manufacture of nonheverage products, but must be fed not
ater than the cose of the thrd month succeedng the quarter n whch such
sprts were used.
Par. . Secton 197.2 s amended as foows:
( ) y strkng the phrase whch sha be prepared n dupcate
n the frst sentence.
( ) y strkng the second sentence, whch begns One copy
sha be .
(C) y strkng the word coecton n tem (5) of paragraph
(a) and nsertng n eu thereof the foowng: nterna revenue .
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395
Regs. 29, 197.21.
(D) y strkng the words Deputy Commssoner wherever they
appear n subparagraphs (3) and ( ) of paragraph (o) and nsertng
n eu thereof the foowng: Drector .
( ) y strkng the phrase mercan Insttute of omeopathy
n subparagraph (3) of paragraph (c) and nsertng n eu thereof
the foowng: omeopathc Pharmacopoea of the Unted States .
(F) y strkng the phrase . I. ., n subparagraph (3) of
paragraph (c) and nsertng n eu thereof the foowng:
P. U. S., .
(G) y strkng the word quarter wherever t appears n sub-
paragraphs (1), (2), (3), and ( ) of paragraph (d) and nsertng
n eu thereof the word perod .
( ) y strkng the word quarter wherever t appears n para-
graph (e) and nsertng n eu thereof the word perod .
Par. 5. Secton 197.25 and headnote are amended to read as foows:
Sec. 197.25. cton on uartery Cams. The assstant regona comms-
soner w date stamp the cam and, after recordng, w e amne the cam
for the purpose of determnng whether t s propery e ecuted and that a
supportng data have been submtted and w conduct such nqures and n-
vestgatons as may be necessary to verfy that drawback s aowabe on the
dsted sprts covered by the cam. fter competon of such verfcaton he
w aow or dsaow the cam n accordance wth hs fndngs and e stng
aw and reguatons.
Par. 6. There s nserted mmedatey foowng secton 197.25 the
foowng new secton:
Sec. 197.25a. cton on Monthy Cams. The assstant regona comms-
soner w date stamp the cam and, after recordng, w e amne the cam
for the purpose of determnng whether t s propery e ecuted and that a
requred supportng data have been submtted. Where a bond n the ma mum
pena sum or, f ess than such ma mum, n a suffcent pena sum, s on fe,
the assstant regona commssoner w verfy that the amount of drawback
camed s correcty cacuated, based on the quantty of dsted sprts stated
to have been used by the manufacturer, and, wthout nvestgaton, aow or
dsaow the cam (ncudng the fna cam for any quarter) n accordance
wth e stng aw and reguatons. Where the bond on fe s not n a suffcent
pena sum, acton on the cam w be wthhed pendng competon of an n-
vestgaton subsequent to the end of the quartery perod. When the fna cam
for a quarter s receved, the assstant regona commssoner w conduct such
Investgaton as may be necessary to verfy, as to each cam fed for the
quarter, that the drawback aowed, or camed where bond was nsuffcent,
was proper: Provded, That where the tota charges outstandng aganst the
manufacturer s bond are ess than the pena sum of such bond, the assstant
regona commssoner may, at hs dscreton, conduct such Investgaton at ess
frequent Intervas. Upon competon of verfcaton the assstant regona
commssoner w credt the manufacturer s bond n an amount equa to the
drawback on the sprts found to have been awfuy used.
Par. 7. There s nserted at the end of artce II the foowng
new artce:
RTICL III. ONDS ND CONS NTS OF SUR TI S
Sec. 197.35. Genera. very person requred to fe a bond or consent of
surety under the provsons of ths part sha prepare and e ecute It on the
prescrbed form, n trpcate, n accordance wth the provsons n ths part
and the Instructons prnted on the form, and sha submt It to the assstant
regona commssoner. The bonds requred by the provsons n ths part sha
be gven wth surety or coatera securty. The surety may be ndvdua or
corporate. The surety may not have any Interest, ether drect or ndrect, n
the busness of the prncpa on the bond.
2 670 5 26
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Regs. 29, 197.21.
396
Sec. 197. 6. Corporate Surety. onds may be gven wth corporate surety
authorzed by the Secretary of the Treasury to become surety on Federa bonds,
sub|ect to the mtatons prescrbed by the Secretary n Treasury Department
Form 356, Commssoner of ccounts, Surety onds ranch, whch s ssued
annuay, and sub|ect to such amendatory crcuars as may be ssued from tme
to tme. bond e ecuted by two or more corporate suretes sha be the |ont
and severa abty of the prncpa and the suretes: Provded, That each
corporate surety may mt ts abty In terms upon the face of the bond n
a defnte, specfed amount, whch amount sha not e ceed the mtatons
prescrbed for such corporate surety by the Secretary, as set forth u Treasury
Department Form 356. When the suretes so mt ther abty, the aggregnte
of such mted abtes must equa the requred pena sum of the bom.
Sec. 197.37. Powers or ttorney. Powers of attorney and other evdence of
appontment of agents and offcers to e ecute bonds on behaf of corporate
suretes are requred to be fed wth, and passed upon by. the Commssoner of
ccounts, Surety onds ranch, Treasury Department. Such powers and other
evdence of appontment need not be fed wth, or submtted to, assstant
regoua commssoners. Powers of attorney or other evdence of appontment
of agents and offcers to e ecute bonds on behaf of the prncpa, must be fed
on Form 153 , n trpcate, wth the assstant regona commssoner wth whom
the bond Is fed.
Skc. 197.3 . Indvdua Suretes. onds may be gven wth Indvdua
suretes of whch there must be not ess than two, each of whom m-st quafy
by e ecutng Form 33( T), In trpcate. Indvdua suretes must be ctzens
of the Unted States and resde In the State In whch the busness of the prn-
cpa Is to be conducted. No person w be accepted as an ndvdua surey
n a State n whch he s not authorzed to become a surety.
Sec. 197.39. Ownershp or Rea Property. ach ndvdua surety must own
unencumbered rea property, In fee smpe, the apprased vaue of whch, over
and above any e emptons from e ecuton aowed by the aws of the State. Is
equa to the pena sum of the bond. Such rea property must be ocated wbn
the State where the busness of the prncpa s to be conducted. The rea
property must be descrbed n the surety s affdavt, Form 33 ( T), wth a of
the formates requred In conveyances of rea estate by the aws of the State
n whch t s stuated.
Sec. 197. 0. ecuton or Form 33( T). The surety s affdavt on Form
33( T) sha contan a of the Informaton requred by ths part and the nstruc-
tons prnted on the form. The form sha be subscrbed and sworn to before an
offcer duy authorzed to admnster oaths, and one copy thereof sha be attached
to each copy of the bond to whch It reates.
Sec. 197. 1. Certfcate of Tte. There must be submtted wth the surety s
affdavt. Form 33( T), a certfcate of tte, n trpcate, showng that the surety
has a fee smpe tte free of encumbrances to the reaty descrbed In the form:
Provded, That where recognzed by the aws of the State n whch the reaty a
ocated, there may be submtted, n eu of a certfcate of tte, a document of
comparabe vadty, such as a certfed copy of a tte nsurance pocy or a
certfcate of search and fndng e ecuted by an authorzed attorney.
Sec. 197. 2. pprasa. There w aso be submtted wth Form 33 ( T) an
apprasa, n trpcate, by two or more competent persons, desgnated by the
assstant regona commssoner for the purpose, showng separatey the vaue of
the and and budngs, and a fu and cear statement of the method empoyed by
them n determnng ther vauaton. The apprasa sha be at the e pense of the
prncpa on the bond, uness It Is made by Government offcers.
Sec. 197. 3. Investgaton. The assstant regona commssoner must cause
an nvestgaton to be made of a the facts stated In the surety s affdavt on
Form 33( T) and supportng documents, and sha forward oue copy of tha
report of such nvestgaton to the Commssoner wth the bond and accompany-
ng Form 33( T).
Skc. 197. . Requakcaton. The Commssoner or assstant regona com-
mssoner may at any tme requre the requafcaton of ndvdua suretes on
Form 33 ( T).
Sec. 197. 5. Depost of Coatera. cept as provded In ths secton, bonds
or notes of the Unted States, or other obgatons whch are uncondtonay
guaranteed as to both nterest and prncpa by the Unted States, may be pedged
and deposted by prncpas as coatera securty n eu of ndvdua or corpo-
rate suretes. ssstant regona commssoners on recevng such bonds or notes,
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o 7
Regs. 29, 5 197.21.
or other obgatons, pedged and deposted by prncpas as coatera securty n
eu of surety, sha depost such securtes as requred by Department Crcuar
No. 15 , revsed (31 CF , pt. 225). Unted States savngs, defense savngs, and
war savngs bonds ssued under the authorty of secton 22 of the Second Lberty
ond ct, as amended, and other bonds and notes of the Unted States, whch are
nontransferabe or the hypothecaton of whch w not be recognzed by the
Treasury Department, wuy not be pedged and deposted as securty n eu of
corporate or ndvdua suretes. (Sec 1126, Stat. 122 as amended, sec. 7,
9 Stat. 22; 6 U. S. C. 15.)
Sec. 11)7. 6. Consents or Surety. Consents of surety to a change In the terms
of a bon must be e ecuted on Form 1533, n as many copes as are requred of the
bond whch they affect, by the prncpa and a suretes wth the same formaty
nn. proof of authorty to e ecute as are requred for the e ecuton of bonds.
Form 1533 w be used by obgors on coatera bonds as we as those on surey
bonds. The Form 1533 must propery dentfy the bond affected thereby and
state specfcay and precsey what s covered by the e tended terms thereof.
If the surety s a corporaton, the consent may be e ecuted by an agent or attorney
n fact duy authorzed so to do by power of attorney ted by the surety wth the
approprate assstant regona commssoner, or the consent may be e ecuted y
the home offce offcas of such corporate surety; e cept that, n cases where the
savng of tme s an eement, the consent may be e ecuted by an agent or attorney
n fact where the home offce offcas, by specfc drecton, order ts e ecuton.
copy of such specfc drecton shoud be attached to each copy of such consent.
Sec. 197. 7. pprova Requred. No person usng dsted sprts n the manu-
facture of nonbeverage products may fe monthy cam for drawback under Ite
provsons of ths part unt bond on Form 1730 has been approved by the assstant
regona commssoner.
Sec. 197. . uthorty to pprove. ssstant regona commssoners are
authorzed to approve a bonds and consents of surety requred by ths part.
Sec. 197. 9. ddtona oh Strengthenng onds. In a cases where the
pena sum of a bond on fe and In effect s not suffcent, computed as prescrbed
by ts part, the prncpa may gve an addtona or str gthenng bond n a
suffcent pena sum, provded the surety thereon Is the same as on the bond
aready on te nod n effect: otherwse a n. w bond coverng the entre abty
w be requred. Such addtona or strengthenng bonds, beng fed to ncrease
the bond abty of the prncpa and the surety, sha not be construed n any
sense to be substtute bonds, and the assstant regona commssoner w re-
fuse to approve an addtona or strengthenng bond where any notaton s made
thereon whch may be construed as a reease of any former bond or as mtng
the amount of ether bond to ess than ts fu pena sum. ddtona or
strengthenng bonds must show the current date of e ecuton and the effectve
date n the bank spaces provded therefor. Such bonds must have marked
theeon, by the obgors at the tme of e ecuton, ddtona ond, or Strength-
enng ond. as the case may be.
Sec. 197.50. New or Supersedng onds. The prncpa on any bond fed
pursuant to ths part may, at any tme, substtute a new bond therefor. -
ecutors, admnstrators, assgnees, recevers, trustees, or other persons actng
n a fducary capacty, contnung or qudatng the busness of the prncpa,
must e ecute and fe a new bond or obtan the consent of the surety or suretes
on the e stng bond or bonds. When, n the opnon of the Commssoner or
the assstant regona commssoner, the nterests of the Government demand t
or n any case where the securty of the bond becomes mpared n whoe or n
part for any reason whatever, the prncpa w be requred to gve a new bond.
new bond sha be requred mmedatey n case of death, remova from the
State, or nsovency of an ndvdua surety, or the nsovency of a corporate
surety. Where a bond Is found to be not acceptabe or for any reason becomes
nvad or of no effect, the prncpa sha be requred to fe mmedatey a new
and satsfactory bond. Supersedng bonds must show the current date of
e ecuton and the date they are to be effectve, and each such bond sha have
marked thereon, by the obgors at the tme of e ecuton, Supersedng ond.
Where a new bond s submtted by the prncpa to supersede a bond or bonds
then n effect, and such supersedng bond has been approved, the superseded bond
sha be reeased as to transactons occurrng whoy subsequent to the effectve
ate of the supersedng bond and notce of termnaton of the superseded bond
may be ssued as provded n secton 197.55.
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Regs. 29, 107.21.
39S
Sec. 197.51. ccount Wth Drawback ond. The assstant regona comms-
soner w keep an account wth each bond governng the aowance of draw-
back on a monthy bass. The prncpa w be charged wth the amount of
drawback aowed on each monthy cam. Credt w be gven on the account
wth the bond n the amount equa to the drawback found by audt and nvest-
gaton to be aowabe, under the provsons of ths part.
T RMIN TION OF ONDS
Sec 197.52. Genera. Contnung bonds on Form 1730 w be termnated by
the assstant regona commssoner as to abty on drawback aowed after
a specfed future date (a) pursuant to a notce by the surety as provded n sec-
ton 197.53, (6) foowng approva of a supersedng bond, as provded n sec-
ton 197.50, or (c) foowng notfcaton by the prncpa of hs Intent to ds-
contnue the fng of cams on a monthy bass: Provded, That the bond w
not be termnated unt a outstandng abty thereunder has been dscharged.
Upon termnaton, the assstant regona commssoner w mark the bond
canceed foowed by the date of canceaton, and w ssue a notce of term-
naton, Form 1 90, or a notce of reease, Form 1 91, as provded n secton
197.50.
Sec. 197.53. ppcaton of Surety for Reease From ond. surety on any
bond requred by ths part may at any tme, n wrtng, notfy the assstant re-
gona commssoner n whose offce the bond s on fe, and the prncpa, that
he desres to be reeved of abty under the bond at a date not ess than 60
days after the (ate of the notfcaton. One copy of the notce must be devered
to the prncpa and two copes sha be devered to the assstant regona com-
mssoner. If the notce s gven by an agent of the surety t must be accom-
paned by a power of attorney authorzng the agent to gve such notce, or by
a verfed statement that such power of attorney s on fe wth the Treasury
Department. The surety must aso fe wth the assstant regona commssoner
an acknowedgment or other proof of servce of such notce on the prncpa.
Sec 197.5 . tent of Reease of Surety From Labty Under ond. If
the notce requred by secton 197.53 ts not wthdrawn thereafter n wrtng, the
rghts of the prncpa as supported by the sad bond sha be termnated on the
date named n the notce, and the surety w be reeved from abty for draw-
back aowed subsequent to the date named. Labty for drawback aowed
pror to the date named n the surety s notce w contnue unt the cams for
such drawback have been propery verfed by the assstant regona comms-
soner accordng to aw and ths part. Where the prncpa fes a vad super-
sedng bond, the surety on the bond superseded w be reeved from abty
for drawback aowed whoy subsequent to the effectve date of the supersedng
bond.
Sec 197.55. cton by ssstant Regona Commssoner. When an app-
caton by the surety for reease from bond s fed wth the assstant regona
commssoner, or when a supersedng bond has been approved, or when the
prncpa has dscontnued fng cams on a monthy bass, the assstant re-
gona commssoner w make a compete e amnaton of records to determne
whether there s any abty then due and payabe, or chargeabe, outstandng
aganst the bond. If It s found that abtes chargeabe aganst the bond
have not been pad or credted or otherwse setted, no further acton w be
taken unt a such abtes have been setted. If the assstant regona com-
mssoner fnds that the bond may be propery termnated, he w ssue notce
of termnaton n accordance wth the provsons of secton 197.50.
Sec 197.5(S. Notce of Tf.kmnaton. Upon determnng that the bond on
Form 1730 may be termnated, the assstant regona commssoner w e ecute
a notce of termnaton, Form 1 90, where a supersedng bond has been ap-
proved, or a notce of reease, Form 1 91, where the prncpa has dscontnued
tng monthy cams, or where the surety has made appcaton for reease from
bond as provded n secton 197.53. The notce of termnaton or the notce of
reease sha be prepared n quadrupcate where there s but one surety, and n
quntpcate where thare are two suretes. The assstant regona comms-
soner w forward the orgna of the notce to the Commssoner, together wth
a copy of the surety s appcaton, f any, furnsh one copy to each obgor, and
retan one copy of the notce and the surety s appcaton, f any, on fe wth
te bond to whch t reates.
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399
Regs. 59, 323.22.
Sec. 197.57. Reease of Co ateba. The reease of coatera pedged and
deposted to support bonds requred by ths part w be n accordance wth
the provsons of Department Crcuar No. 15 , revsed (31 CFR, pt. 225), sub-
|ect to the condtons governng ssuance of notces on Forms 1 90 and 1 91 of
the termnaton of such bonds. When the assstant regona commssoner de-
termnes that there s no outstandng abty aganst the bond, and has sats-
fed hmsef that the nterests of the Government w not be |eopardzed, the
securty may be reeased and returned to the prncpa. ( Stat. 122 as
amended; 6 U. S. C. 15.)
Compance wth the notce, pubc procedure thereon, and effectve
date requrements of the dmnstratve Procedure ct, approved
une 11, 19 6, has been found mpractcabe and contrary to the
pubc nterest n connecton wth the ssuance of these amendments,
for the reason that the provsons of secton 3250(1) (5) as amended
by Pubc Law 2 3 ( 3d Cong.) are effectve October 1, 1953.
These amendments w become effectve October 1,1953, e cept the
amendment to secton 197.25 whch s hereby made effectve uy 1,
1953.
(Ths Treasury Decson s ssued under the authorty contaned
n sectons 3250(1) as amended and 0 1 of the Interna Revenue Code
(53 Stat. 33 as amended, 95; 26 U. S. C. 3250(1) as amended, 0 1).)
T. Coeman ndrews,
Commssoner of Interna Revenue.
pproved October 6,1953.
M. . Fosom,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster October 9,1953, : 9 a. m.)
P RT I . COIN-OP R T D MUS M NT ND G MING D IC S
S CTION 3267. T ON COIN-OP R T D MUS M NT
ND G MING D IC S
Rkcuatons 59, Secton 323.22: Rates and Rev. Ru. 179
computaton of ta .
INT RN L R NU COD
recordng machne whch, upon the nserton of a con, records
a person s voce, pays the recordng back, and then devers the record
to the purchaser s not consdered to be a con-operated amusement or
musc devce wthn the meanng of secton 3267 of the Interna Reve-
nue Code, and no abty for the speca ta mposed by that secton s
ncurred wth respect to ts mantenance for use.
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53310. 00
C PT R 27 . W G RING T S
SU C PT R .-T ON W G RS
S CTION 32 5. T
Reguatons 132, Secton 325.21: Scope of ta .
INT RN L R NU COD
Sezure of automobes used n voaton of wagerng ta aw. (See
Rev. Ru. 26 , p. 379.)
SU C PT R .-OCCUP TION L T
S CTION 3290. T
Reguatons 132, Secton 325. 2: Rate and
computaton of ta .
nterna revenue code
Sezure of automobes used n voaton of wagerng ta aw. (See
Rev. Ru. 26 , p. 379.)
C PT R 2 . PRO ISIONS COMMON TO MISC L-
L N OUS T S
SU C PT R .-G N R L PRO ISIONS
P RT II. SS SSM NT. COLL CTION, ND R FUND
S CTION 3310. R TURNS ND P YM NT OF T
T. D.6025
TITL 26 INT RN L R NU . C PT R I, SU C PT R . P RT 77
R TURN ND P YM NT OF C RT IN CIS T S
Fng of returns and payment of certan e cse ta es requred on
a quartery bass In eu of a monthy bass; such quartery returns
to be accompaned wth prescrbed depostary recepts.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
On May 15, 1953, notce of proposed ruemakng, reatng to the
fng of returns and payment of certan e cse ta es, was pubshed
n the Federa Regster (1 F. R. 2 27). fter consderaton of a
such reevant matter as was presented by nterested persons regard-
ng the rues proposed, the reguatons set forth beow are hereby
adopted.
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U1
3310.
Secton Tabe of Con tents
77.1. Statutory provsons.
77.2. uartery ta returns.
77.3. Fng of e cse ta returns.
77. . Payment of ta .
77.5. ffectve date.
Secton 77 Statutory Provsons.
S CTION 3310. R TURNS ND P YM NT OF T INT RN L
R NU COD . S M ND D Y S C. 71(b), R NU
CT OF 1951, PPRO D OCTO R 20. 1961 .

(f) Dscreton owed Commssoner.
(1) Returns and payment of ta . Notwthstandng any other
provson of aw reatng to the fng of returns or payment of any
ta mposed by chapter 0, 9 , 10, 12, 19, 21, 30, 32, subchapter
of chapter 25, subchapter of chapter 27 , or subchapter of
chapter 29, the Commssoner may by reguatons approved by the
Secretary prescrbe the perod for whch the return for such ta
sha be fed, the tme for the fng of such return, the tme for the
payment of such ta , and the number of copes of the return re-
qured to be fed.
(2) Use of government depostares. The Secretary may au-
thorze Federa Reserve banks, and ncorporated banks or trust
companes whch are despostares or fnanca agents of the Unted
States, to receve any ta Imposed by ths tte, n such manner, at
such tmes, and under such condtons as he may prescrbe; and
he sha prescrbe the manner, tmes, and condtons under whch
the recept of such ta by such banks and trust companes s to
be treated as payment of such ta to the coector.
Sec. 77.2. uartery Ta Returns. (a) Genera rues, In rues and regu-
atons appcabe to the ureau of Interna Revenue and n returns, notces,
mmeographs, nstructons, crcuars, and any other forms or pubcatons of
whatever nature prescrbed, furnshed, or used n or by the ureau of Interna
Revenue wth respect to the e cse ta es and reguatons sted n paragraph (b)
of ths secton, the foowng rues sha, e cept as otherwse provded n
secton 77.3(b), appy:
(1) Reference to a month as the perod for whch a return must be fed sha,
wth respect to the return requred for any perod begnnng on or after uy 1,
1053, be deemed to refer to one quarter of a caendar year.
(2) Reference to a monthy return sha, wth respect to the return requred
for any perod begnnng on or after uy 1,1953, be deemed to refer to a quartery
return.
(3) The term quarter of a caendar year, as used heren, means a perod of
3 caendar months endng on March 31, une 30, September 30, or December 31.
The term quartery return means a return for a quarter of a caendar year.
(b) cse ta es and reguatons sub|ect to genera rues. The e cse ta es
and reguatons referred to n paragraph (a) of ths secton are as foows:
Reguatons Reatng to ta on
2 (19 2 dton) Safe depost bo es; transportaton of o by ppe-
ne; teephone, teegraph, rado and cabe
messages, and servces; transportaton of per-
sons.
3 (19 1 dton) dmssons, dues, and Intaton fees.
(19 dton) Gasone, ubrcatng o, and matches.
6 (19 0 dton) Saes by the manufacturer.
7 (Rev. 192 )1 Saes by the manufacturer of pstos and re-
vovers.
1 Processng of certan os.
51 (19 1 dton) Saes by the retaer.
991 Manufacture of manufactured sugar.
113 (19 3 dton) Transportaton of property.
119 Dese fue .
1 These reguatons made appcabe to the Interna Revenue Code by Treasury Decson
5 IC. . 1939-1 (Part 1), 96 , approved February 11, 1939.
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S3310.
02
Sec. 77.3. Fng of cse Ta Returns. (a) uartery returns. cept
as otherwse provded n paragraph (b) of ths secton, every person requred by
any of the reguatons sted n secton 77.2(b) to fe a return and pay any of
the e cse ta es covered by such reguatons sha make a ta return on Form
720 for the frst caendar quarter begnnng on or after uy 1,1953, n whch fas
a month for whch such person woud be requred to fe a return under such
reguatons were t not for the provsons of ths part, and for each subsequent
caendar quarter unt he fes a fna return. fna return s not to be fed so
ong as the ta payer contnues the operaton of any busness or actvty n whch
he may ncur abty for any of the ta es reportabe on Form 720. Form 720
sha be used n eu of the form specfed In the appcabe reguatons sted n
secton 77.2(b). ach quartery return sha be fed on or before the ast day
of the frst month foowng the perod for whch t s made. owever, f, and
ony f, the return s accompaned by depostary recepts (Form 537, Depostary
Recept for Federa cse Ta es), showng tmey deposts, n fu payment of
the ta es due for the entre caendar quarter, the return may be fed on or
before the 10th day of the second month foowng the perod for whch t s made.
For the purpose of the precedng sentence, the tmeness of the depost w be
determned by the date of the endorsement by a desgnated commerca bank
or by a Federa Reserve bank made on the reverse sde of Form 537. Depost
of the ta es for the ast month of the caendar quarter wth a desgnated com-
merca bank or a Federa Reserve bank, as the case may be, may be made on or
before the ast day of the frst month foowng the cose of such quarter. If the
ast day for fng any return fas on Sunday or a ega hoday, the return may be
fed on the ne t foowng busness day. If paced n the mas, the return sha
be posted n ampe tme to reach the dstrct drector of nterna revenue for
the ta payer s dstrct, under ordnary handng of the mas, on or before the due
date.
(b) Monthy returns. If the dstrct drector of nterna revenue determnes
that any ta payer who s requred to make depost of ta es under the provsons
of secton 77. (c) has faed to make depost of such ta es for the frst or second
month of any caendar quarter, such ta payer sha L.e requred, f so notfed n
wrtng by the dstrct drector, to fe a monthy return on Form 720 of the
e cse ta es sted n secton 77.2 for the caendar mouth n whch such notce s
receved from the dstrct drector and for each subsequent caendar month
unt he fes a fna return or s agan authorzed to fe quartery returns. If
the notce s receved n the second or thrd month of a caendar quarter, the ta
due for the pror month or months of the quarter sha be ncuded n the frst re-
turn fed pursuant to the notce. ach monthy return sha be fed not ater
than the ast day of the month foowng the perod for whch t s made and
sha be prepared n accordance wth the nstructons and reguatons appcabe
to such return. If the dstrct drector s satsfed that the ta payer w compy
wth the depostary recept requrements of secton 77. (c), f agan permtted
to fe quartery returns, the ta payer may fe returns as provded n paragraph
(a) of ths secton upon notfcaton to that effect by the dstrct drector.
Sec. 77. . Payment of Ta . (a) In genera. The e cse ta es sted n sec-
ton 77.2 requred to be reported on a return on Form 720 are due and payabe
to the dstrct drector of nterna revenue, wthout assessment by the Comms-
soner or notce by the dstrct drector, at the tme f ed for fng such return.
ach quartery return fed after une 30,1953, pursuant to ths part sha ceary
show the dentfcaton number, f any, assgned to such ta payer for depostary
recept purposes.
(b) Drect remttance to dstrct drector. very person requred to fe a
return and pay any of the e cse ta es sted n secton 77.2 sha ncude wth hs
return drect remttance to the dstrct drector of nferna revenue for the tota
amount of such ta es, e cept that the provsons of paragraph (c) of ths secton
sha appy f such person s requred to fe a quartery return of such e cse
ta es and the tota amount of a such ta es reportabe by hm e ceeds 100 for
a caendar month.
(c) Use of Federa Reserve banks and authorzed commerca banks requred
n connecton wth payment of ta es. (1) Payments for frst 2 months of the
caendar quarter. If any person requred to fe a quartery return and pay any
of the e cse ta es sted n secton 77.2 has a tota abty of more than 100
for a such e cse ta es reportabe by hm for a caendar month, the amount of
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03
3310.
ta reportabe wth respect to such caendar month sha be deposted by hm
wth a Federa Reserve bank on or before the ast day of the ne t succeedng
caendar month. The remttance of such amount sha be accompaned wth a
Depostary Recept for Federa cse Ta es (Form 537). Such depostary
recept sha be prepared n accordance wth the nstructons and reguatons
appcabe thereto. The ta payer, at hs eecton, may forward such remttance,
together wth such depostary recept, to a commerca bank authorzed n
accordance wth Treasury Department Crcuar No. to accept remttances
of the aforementoned ta es for transmsson to a Federa Reserve bank. fter
the Federa Reserve bank has vadated the depostary recept, such depostary
recept w be returned to the ta payer. very ta payer makng deposts pur-
suant to ths secton sha attach to hs return for the caendar quarter wth
respect to whch such deposts are made, n part or fu payment of the ta es
shown thereon, depostary recepts so vadated, and sha pay to the dstrct
drector of nterna revenue the baance, If any, of the ta es due for such
quarter.
(2) Payments for ast month of the caendar quarter. Wth respect to pay-
ment of ta for the ast month of the caendar quarter, the ta payer may ether
ncude wth hs return drect remttance to the dstrct drector of nterna
revenue for the amount of such ta es or attach to such return a depostary
recept vadated by a Federa Reserve bank as provded n subparagraph (1) of
ths paragraph. Payment of the ta es requred to be reported on the return, n
the form of vadated depostary recepts or drect remttances, sha be made
to the dstrct drector at the tme f ed for fng such return. If a depost s
made for the ast month of the quarter, the ta payer sha make t n ampe
tme to enabe the Federa Reserve bank to return the vadated recept to the
ta payer so that t can be attached to and fed wth the ta payer s return at
the tme f ed for fng the return.
(3) Procurement of depostary recept form. Intay, Form 537, Depostary
Recept for Federa cse Ta es, w so far as possbe be furnshed the ta -
payer by the dstrct drector of nterna revenue. ta payer not supped wth
the proper form shoud make appcaton therefor to the dstrct drector n
ampe tme to have such form avaabe for use n makng hs nta depost
wthn the tme prescrbed n subparagraph (1) of ths paragraph. Thereafter,
a bank form w be sent to the ta payer by the Federa Reserve bank when
returnng the vadated depostary recept. ta payer may secure addtona
forms from a Federa Reserve bank by appyng therefor and advsng the bank
of hs dentfcaton number. The ta payer s Identfcaton number and name,
on each depostary recept, shoud be the same as they are requred to be shown
on the return to be fed wth the dstrct drector. The address of the ta payer
as shown on each depostary recept, shoud be the address to whch the recept
shoud be returned foowng vadaton by the Federa Reserve bank.
( ) Ta payer s dentfcaton numocr. The ta payer s dentfcaton number
for the Depostary Recept for Federa cse Ta es, Form 537, sha be the
same as the dentfcaton number, f any, assgned to the ta payer for use n
connecton wth depostary recepts requred for other nterna revenue ta es.
If a ta payer does not have an dentfcaton number, he shoud request the
assgnment of such a number by the dstrct drector of nterna revenue for
hs dstrct.
Sec. 77.5. ffectve Date. These reguatons sha be effectve on and after
uy 1, 1953.
(Ths Treasury Decson s ssued pursuant to the authorty con-
taned n sees. 3310(f) and 3791 of the Interna Revenue Code (63
Stat. 66 ; 53 Stat. 67; 26 U. S. C. 3310(f), 3791).)
T. Coeman ndrews,
Commssoner of Interna Revenue.
pproved uy 3,1953,
M. . Fosom,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster uy , 1953, :52 a. m.)
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Regs. 6, 316.0, etc. 0
C PT R 29. M NUF CTUR RS CIS ND IMPORT
T S
SU C PT R . M NUF CTUR RS CIS T S
S CTIONS 3 00-3 15. M NUF CTUR RS CIS T S
Reguatons 6, Secton 316.0, etc. T. D. 6029
( so Secton 3 3, Secton 316.2U ;
Secton 3 , Secton 316.7.)
TITL 26 INT RN L R NU C PT R I, SU C PT R C, P RT 316.
CIS T S ON S L S Y T M NUF CTUR R
Reguatons 6 (19 0 edton) amended to conform to the Revenue
ct of 1951, and for other purposes.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
7 o Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
On December 2,1952, notce of proposed ruemakng was pubshed
n the Federa Regster (17 F. R. 10 70) n order to conform Regua-
tons 6 (19 0 edton) 26 CFR, pt. 316 , reatng to e cse ta es
on saes by the manufacturer under chapter 29 of the Interna Revenue
Code, to sectons 1- , ncusve, and secton 90 of the Revenue
ct of 1951 (Pubc Law 1 3, 2d Cong., 1st sess.), approved October
20,1951; to Pubc Law 251 ( 2d Cong., 1st sess.), C. . 1951-2, 3531,
approved October 31, 1951; and to Pubc Law 352 ( 2d Cong., 2d
sess.) C. . 1952-1, 259 , approved May 21, 1952, and for other pur-
poses. fter consderaton of a such reevant matter as was pre-
sented by nterested persons regardng the proposa, the amendments
to Reguatons 6 (19 0 edton) set forth beow are hereby adopted.
Paragraph 1. Secton 316.0, as amended by Treasury Decson 5 5
C. . 1951-2, 205 , approved September 13, 1951 26 CFR 316.0 , s
further amended by renumberng (b)(16) as (b)(17) and nsertng
the foowng after tem (a) (15):
(16) Mechanca pencs, fountan and bapont pens, and mechanca
ghters for cgarettes, cgars, and ppes; and
Par. 2. There s nserted mmedatey precedng secton 316.2 26
CFR 316.2 the foowng:
S C. 1. UTOMO IL S. TRUC S, ND P RTS OR CC S-
SORI S R NU CT OF 1951, PPRO D OCTO R 20,
1951 .

(g) ffectve Date of Subsecton (f). The amendment made by
subsecton (f) sha be effectve wth respect to artces purchased (by
the user thereof) on or after the frst day of the frst month whch
begns more than 10 days after the dnte of the enactment of ths ct
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05
Regs. 6, 316.0, etc.
S C. 2. N IG TION R C I RS SOLD TO T UNIT D
ST T S R NU CT OF 1951, PPRO D OCTO R 20,
1951 .

(f) ffectve Dates. The amendments made by subsectons (a) and
(b) sha take effect as provded In secton 90. The amendments made
by subsectons (c) and (e) sha be appcabe wth respect to artces
used n recevers sod to the Unted States on or after the frst day of the
frst month whch begns more than 10 days after the date of the enact-
ment of ths ct, and the amendment made by subsecton (d) sha be
appcabe wth respect to artces resod to the Unted States on or after
such frst day.
S C. . R P L OF T ON L CTRIC L N RGY R NU
CT OF 1951, PPRO D OCTO R 20,1951 .

(b) ffectve Date.
(1) cept as provded n paragraph (2), the provsons of sub-
secton (a) sha appy to eectrca energy sod on or after the frst
day of the frst month whch begns more than 10 days after the
date of the enactment of ths ct.
(2) In the case of eectrca energy sod whch Is bed to the
customer for a perod begnnng before the effectve date specfed
n paragraph (1) and endng on or after such date, the provsons
of subsecton (a) sha appy to that porton of the amount bed
for the eectrca energy sod durng such perod whch the number
of days n such perod on and after such effectve date bears to the
tota number of days n such perod. Ths secton sha not appy to
eectrca energy sod before such effectve date for whch a b was
rendered pror to such date.
S C. 90. FF CTI D T OF P RT III R NU CT OF
1951, PPRO D OCTO R 20, 1951 .
cept as otherwse e pressy provded n ths part, the amendments
made by ths part sees. 1- 9, nc. sha take effect on the frst day
of the frst month whch begns more than 10 days after the date of the
enactment of ths ct.
PU LIC L W 251 ( 2d CONG., 1st S SS.), PPRO D
OCTO R 31, 1951

Sec. . Notwthstandng the provsons of secton 90 of the Revenue
ct of 1951, the effectve date of so much of the amendment made by sec-
ton 5 of such ct to secton 3 00(a) (3) of the Interna Revenue Code
as reates to eectrc heatng pads sha be pr 1,1952.
PU LIC L W 352 ( 2d CONG., 2d S SS.), PPRO D
M Y 21,1952

(b) The provsons of subsecton (a) sha be effectve as of November
1,1951.
Par. 3. Secton 316.2, as amended by Treasury Decson 5 5 2G
CFR 316.2 , s further amended by addng at the end thereof the fo-
owng new paragraphs:
Part III of Tte-T of the Revenue ct of 1951, effectve November 1, 1951,
provdes for an ncrease n the rates of ta on chasss and bodes for trucks and
other automobes and parts or accessores therefor, e cept that begnnng pr
1, 195 , the rates revert to the rates n effect pror to November 1, 1951; the
remova of the ta on certan sportng goods, the ncrease of the rate of ta on
those sportng goods whch reman sub|ect to ta (other than certan fshng
tacke), ezepet that begnnng pr 1,195 , the rate reverts to the rate n effect
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Regs. 6, 316.0, etc.
06
pror to November 1 1951; an Increase In the rate of ta on photographc fm,
the mtng of the ta to certan cameras, enses, and fm, and the redacton of
the rate of ta on cameras and enses; a change n the method of computng ta
abty on saes of rebut automobe parts or accessores sod on an e change
bass; a refund or credt to manufacturers of automobe parts or accessores
used or sod as repar or repacement parts for farm equpment; an e empton
of certan types of communcaton, detecton, or navgaton recevers sod to the
Unted States for ts e cusve use, and components ta abe under secton
3 0 (b) used or sod for use by the vendee as matera In the manufacture or
producton of, or as a component part of, such recevers, together wth compe-
mentary credt or refund provsons; ta -free saes of refrgerator components to
vendees for resae to manufacturers of refrgeraton equpment; the mposton
of ta on mechanca pencs, fountan and bapont pens, and mechanca
ghters for cgarettes, cgars, and ppes; the revson of secton 3 )G(a)(3),
reatng to eectrc, gas, and o appances, by appyng the ta Imposed there-
tnder to eectrc drect motor-drven fans and ar crcuators of the nonn-
dustra type and to an ncreased number of other appances of the househod
type ony ; the remova of the ta on tres for toys, etc.; and the re ea of the ta
on eectrca energy.
The provsons of Pubc Law 251, 2d Congress, approved October 1, 1951,
postpone the repea of the ta on eectrc beatng pads, as provded for by the
Revenue ct of 1951, from November 1,1951, to pr 1,1952.
The provsons of Pubc Law 352, 2d Congress, approved May 21, 1952, ds-
contnue the ta on unperforated mcrofm effectve November 1, 1951.
Par. . Immedatey precedng secton 316.7 26 CFR 316.7 , there
s nserted the foowng:
S C. 2. N IG TION R C I RS SOLD TO T UNIT D
ST T S R NU CT OF 1951, PPRO D OCTO R 20,
1951 .

(e) Use by Manufactubeb of Ta abe Pabts. Secton 3 (b)
(reatng to ta on use by manufacturer of ta abe artces) Is hereby
amended to read as foows:
(b) Ths secton sha not appy wth respect to the use by the manu-
facturer, producer, or Importer of artces descrbed n secton 3 0 (b)
f such artces are used by hm as matera n the manufacture or pro-
ducton of, or as a component part of, communcaton, detecton, or
navgaton recevers of the type used In commerca, mtary, or marne
nstaatons f such recevers are to be sod to the Unted States for
ts e cusve use.

Par. 5. Secton 316.7, as amended by Treasury Decson 5 5 26
CFR 316.7 , s further amended as foows:
( ) y emendng the frst sentence thereof to read as foows:
If a person manufactures, produces, or mports an artce covered by these regu-
atons, wth the e ceptons noted n the ne t two succeedng paragraphs, and
uses t for any purpose (other than as matera n the manufacture or produc-
ton of, or as a component part of, another artce manufactured or produced
by hm whcn w be ta abe or sod free of ta under the provsons of secton
16.21, 316.22, or 316.61 ), he sha be abe for ta wth respect to the use of
such artce n the same manner as f It were sod by hm.
(II) y nsertng mmedatey after the second paragraph a new
paragraph to read as foows:
If a person manufactures, produces, or mports an artce ta abe under sec-
ton 3 0 (b) and uses t as matera n the manufacture or producton of, or as a
component part of, a communcaton, detecton, or navgaton recever of the type
used In commerca, mtary, or marne nstaatons, he Incurs no abty for
ta wth respect to such use of the artce, provded he has a copy of a contract,
purchase order, or other wrtten evdence estabshng that the recever s to
be sod to the Unted States on or after November 1, 1951, for ts e cusve use.
(See sec. 316.61 .)
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Regs. 6, 316.0, etc.
Pah. 6. Immedatey precedng secton 316.30 26 CFR 316.30 ,
there s nserted the foowng:
S C. 1. UTOMO IL S, TRUC S, ND P RTS OR CC SSO-
RI S R NU CT OP 1951, PPRO D OCTO R 20,1951 .

(h) Remova of Ta on Tres fob Tots, etc. Paragraph (1) of sec-
ton 3 00(a) (reatng to ta on tres) s hereby amended by addng at
the end thereof the foowng: The ta mposed by ths paragraph sha
not appy to ( ) tres whch are not more than 20 nches n dameter
and not more than one and three-fourths nches n cross-secton, f such
tres are of a-rubber constructon (whether hoow center or sod)
wthout fabrc or meta renforcement, or ( ) tres of e truded trng
wth nterna wre fastenng agent.
Par. 7. Secton 316.30, as amended by Treasury Decson 53
C. . 19 , 613 , approved March 15, 191 26 CFR 316.30 , s fur-
ther amended as foows:
( ) y changng the headng to read as foows:
Sec. 316.30. Scope of Ta . (o) In genera.
( ) y addng a new paragraph at the end thereof to read as
foows:
(6) Certan Tres Not Sub|ect to Ta . On and after November 1, 1951, the
ta does not appy to saes of (1) tres of a rubber constructon (whether
hoow center or sod) havng no fabrc or meta renforcement f such tres
are not more than 20 nches n dameter measured to the outsde crcumference
and not more than one and three-fourth nches n cross secton measured on a
horzonta pane, or (2) tres of any sze or dmensons manufactured or pro-
duced from e truded trng the ends of whch are fastened or hed together by
means of a wre or other metac matera Inserted nto the e truded trng.
Par. . Immedatey precedng secton 316.50 26 CFR 316.50 ,
there s nserted the foowpg:
S C. 1. UTOMO IL S, TRUC S, ND P RTS OR CC S-
SORI S R NU CT OF 1051, PPRO D OCTO R 20,
1951 .
(a) Increase n Ta on Trucks. Secton 3 03(a) (ta on trucks,
busses, etc.) s hereby amended by strkng out 5 per centum and n-
sertng n eu thereof per centum, e cept that on and after pr 1,
195 , the rate sha be 5 per centum .
(b) Increase n Ta on Passenger utomobes and Motorcyces.
Secton 3 03(b) (ta on automobe chasss and bodes, etc.) s hereby
amended to read as foows:
(b) Other Chasss and odes, tc. Other automobe chasss
and bodes, chasss and bodes for traers and semtraers (other than
house traers) sutabe for use n connecton wth passenger automo-
bes, and motorcyces (ncudng n each case parts or accessores
therefor sod on or n connecton therewth or wth the sae thereof),
e cept tractors, 10 per centum, e cept that on and after pr 1, 195 ,
the rate sha be 7 per centum. sae of an automobe, traer, or
semtraer sha, for the purposes of ths subsecton, be consdered to
be a sae of the chasss and of the body.

Par. 9. Secton 316.50, as amended by Treasury Decson 5099
C. . 19 1-2,267 , approved November 2 ,19 1 26 CFR 316.50 , s
further amended by addng at the end thereof the foowng new
paragraph:
The ta does not appy to house traers sod on and after November 1,1951.
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Regs. 6, 316.0, etc.
0S
Par. 10. Paragraph (b) of secton 316.50 , as added by Treasury
Decson 5099 26 CFR 316.50 , s amended by addng at the end
thereof the foowng sentence:
On and after November 1,1951, the term sha not Incude house traers.
Par. 11. Secton 316.51, as amended by Treasury Decson 5099
26 CFR 316.51 , s further amended to read as foows:
Sec. 316.51. Rates of Ta . The ta Is payabe by the manufacturer on the
sae prce of the artces sted at the rates specfed beow:
(a) utomobe truck chasss and bodes; hghway tractors;
automobe bus chasss and bodes; automobe truck and bus
traer and semtraer chasss and bodes:
October 1, 19 1 to October 31, 1951, ncusve 5 percent
November 1, 1951 to March 31, 195 , ncusve percent
On and after pr 1, 195 5 percent
(b) Other automobe chasss and bodes; other automobe
traer and semtraer chasss and bodes; motorcyces:
October 1, 19 1 to October 31, 1951, Incusve 7 percent
November 1, 1951 to March 31, 195 , ncusve 10 percent
On and after pr 1, 195 - 7 percent
(c) ouse traers:
October 1,19 1 to October 31.1951, ncusve 7 percent
On and after November 1, 1951 None
In each case the ta abe sae prce sha be determned n accordance wth the
provsons of sectons 316. to 316.15, ncusve.
Par. 12. The frst two sentences of secton 316.52, as amended by
Treasury Decson 5099 26 CFR 316.52 , are further amended to
read as foows:
If the manufacturer of a truck body Instas t on an other automobe chasss
manufactured by hm, he must record and b the sae of the body and chasss
separatey, and pay ta on the separate sae prce of the body and chasss at
the rate appcabe to each such artce. In case a passenger body Is nstaed
by the manufacturer thereof on an automobe truck chasss manufactured by
hm, the transacton must be banded n a smar manner, and the ta pad at
the rate appcabe to each separate artce.
Par. 13. Immedatey precedng secton 316.5 26 CFR 316.5 ,
there s nserted the foowng:
S C. 1. UTOMO IL S, TRUC S, ND P RTS OR CC S-
SORI S R NU CT OF 1951, PPRO D OCTO R 20.
1951 .

(e) Technca mendment. Secton 3-03(e) (reatng to certan
credts aganst the ta mposed by secton 3 03) s hereby amended by
strkng out n the case of an artce ta abe under subsecton (a), 5
per centum, and n the case of an artce ta abe under subsecton (b),
7 per centum and nsertng n eu thereof n the case of an artce
ta abe under subsecton (a) or subsecton (b), the appcabe percent-
age rate of ta provded In such subsectons .

Par. 1 . Secton 316.5 , as amended by Treasury Decson 5 5 26
CFR 316.5 , s further amended as foows:
( ) The second sentence of the second paragraph s amended to
read as foows:
For e ampe, f the sae prce of an automobe s 2,000, the ta payabe ereon
200, and the cost to the automobe manufacturer of the tres, nner tubes or
automobe rado or teevson recevng set, sod on or n connecton therewth
Is S0, the manufacturer w be permtted to take a credt aganst the ta
payabe on the seng prce of the automobe n an amount equa to 10 percent
of 0, or .
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Regs. 6, 316.0, etc.
( ) The thrd paragraph s amended by strkng out rate of 7 per-
cent and nsertng n eu thereof appcabe rate .
Par. 15. Immedatey precedng secton 316.55 26 CFR 316.55 ,
there s nserted the foowng:
S C. 1. UTOMO IL S, TRUC S, ND P RTS OR CC S-
SORI S R NU CT OP UNO, PPRO D OCTO R 20,
1951 .

(c) Increase n Ta on Parts ob ccessores. Secton 3 03(c)
(ta on parts or accessores for automobes, etc.) s hereby amended by
strkng out 5 per centum and nsertng n eu thereof per centum,
e cept that on and after pr 1, 195 , the rate sha be 5 per centum .
(d) Rebut Parts or ccessores. Secton 3 03(c) (ta on parts or
accessores) s hereby amended by addng at the end thereof the foow-
ng: In determnng the sae prce of a rebut automobe part or ac-
cessory there sha be e cuded from the prce, n accordance wth
reguatons prescrbed by the Secretary, the vaue of a ke part or
accessory accepted n e change.

Par. 16. Immedatey foowng secton 316.55 26 CFR 316.55 ,
there s nserted the foowng new secton:
Sec. 316.55 . Rebut Parts ob ccessores Sod on an change ass.
On and after November 1, 1951, the ta on the sae of rebut automobe parts
or accessores w be determned wthout takng nto consderaton the vaue of a
ke part or accessory accepted n e change. The tota amount charged n terms
of cash n an e change w be the bass for ta . For e ampe, f a rebut
automobe engne s sod for 100 on an e change bass, the ta on the rebut
engne w be computed on the bass of 100.
Par. 17. Secton 316.56, as amended by Treasury Decson 5099
26 CFR 316.56 , s further amended to read as foows:
Sec. 316.56. Rates of Ta . The ta s payabe by the manufacturer on the
sae prce of the artces sted at the rates specfed beow:
utomobe parts and accessores:
October 1, 19 1 to October 31, 1951, Incusve 5 percent
November 1, 1951 to March 31, 195 , ncusve percent
On and after pr 1, 195 5 percent
In each case the ta abe sae prce sha be determned n accordance wth
the provsons of sectons 316. to 316.15, ncusve.
Par. 1 . Immedatey precedng secton 316.60 26 CFR 31G.C0 ,
there s nserted the foowng:
S C. 2. N IG TION R C I RS SOLD TO T UNIT D
ST T S R NU CT OP 1951, PPRO D OCTO R 20,
1951 .
(a) empton on Saes to Unted States of Certan Rado Sets.
Secton 3 0 (a) (reatng to manufacturers e cse ta on rado recev-
ng sets, etc.) s hereby amended by addng at the end thereof the foow-
ng new sentence: No ta sha be mposed under ths subsecton wth
respect to the sae to the Unted States for Its e cusve use of a com-
muncaton, detecton, or navgaton recever of the type used In com-
merca, mtary, or marne nstaatons.
(b) Ta -Free Saes of Rado Parts. Secton 3 0 (b) (reatng to
manufacturers e cse ta on component parts of rado recevng sets,
etc.) s hereby amended by addng at the end thereof the foowng new
sentence: Under reguatons prescrbed by the Secretary, no ta sha be
mposed under ths subsecton wth respect to the sae of any artce for
use by the vendee as matera n the manufacture or producton of, or
as a component part of, communcaton, detecton, or navgatona re-
cevers of the type used n commerca, mtary, or marne nstaatons
If such recevers are to be sod by the vendee to the Unted States for
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Regs. 6, 316.0, etc.
10
Its e cusve use. If any artce sod ta -free to such vendee s not so
used by hm, or beng so used the recever s not so sod, the vendee sha
be consdered as the manufacturer or producer of such artce.

Par. 19. Immedatey foowng secton 316.61 26 CFR 316.61 ,
there s nserted the foowng new secton:
Sec. 316.61 . Specfc empton of Certan Communcaton Recevers, etc,
and Component Parts. (a) Recevers. On and after November 1, 1951, the
ta mposed under secton 3 0 (a) does not appy wth respect to the sae to the
Unted States for ts e cusve use of a communcaton, detecton, or navgaton
recever of the type used n commerca, mtary, or marne nstaatons, o
estabsh the rght to e empton from the ta wth respect to such sae, t s
necessary that the manufacturer (1) have n hs possesson a copy of the prme
contract, subcontract, or Government purchase order, under whch the sae to
the Unted States s made by hm drecty or through the prme contractor, or
(2), n the absence of such contract or purchase order, obtan from an authorzed
offcer of-the Unted States and retan n hs possesson a propery e ecuted
e empton certfcate n the form prescrbed by ths paragraph.
The certfcate requred by ths paragraph sha be n substantay the foow-
ng form:
MPTION C RTIFIC T
(To support ta -free saes to the Unted States of communcaton, detecton,
or navgaton recevers under secton 3 0 (a) of the Interna Revenue Code, as
amended by secton S2 of the Revenue ct of 1051.)
, 19
(Date)
The undersgned hereby certfes that he s of
(Tte of offcer)
; that he s authorzed
(Unted States Governmenta Unt)
to e ecute ths certfcate; and that the artce or artces specfed n the ac-
companyng order, or on the reverse sde hereof, are purchased from
for the e cusve use of the Unted States.
(Name of company)
It s understood that the e empton from ta n the case of saes of artces
under ths e empton certfcate to the Unted States s mted to the sae of
artces purchased for ts e cusve use. It s aso understood that the fraudu-
ent use of ths certfcate to secure e empton w sub|ect the undersgned and
a guty partes to a fne of not more than 10,000, or to mprsonment for not
more than fve years, or both, together wth costs of prosecuton.
(Sgnature)
(Tte of offcer)
The artces covered by the e empton certfcate must be fuy dentfed as
to type, quantty, and date of sae. If t s mpractcabe to furnsh a separate
e empton certfcate for each order or contract, a certfcate coverng a orders
between gven dates (such perod not to e ceed 6 mouths) w be acceptabe.
Such certfcates and proper records of nvoces, orders, etc., reatve to ta -
free saes must be retaned as provded n secton 310.202.
Whore the evdence requred to support a ta -free sae s obtaned subsequent
to the sae but pror to the tme the manufacturer s requred to fe a return
coverng ta es due for the month durng whch the sae was made he sha ncude
the ta on such sae n hs return for that month, n the Item Tota ta due ,
but may deduct an amount equvaent to the ta appcabe to such sae and pay
the net ta resutng, makng approprate e panaton ether on the face of the
return or on a rder attached thereto. If such evdence s not so obtaned, the
manufacturer must Incude the ta on such sae n hs return for the month n
whch the sae was made. owever, f such evdence s ater obtaned a cam
for refund of ta pad may be fed on Form 3, or a credt taken upon a sub-
sequent return, but such acton must be taken wthn the -year perod of
mtaton prescrbed by secton 3313.
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Regs. 6, 316.0, etc.
No sae of a recever may be made free of ta by the manufacturer to a deaer
for resae to the Unted States. owever, where a ta pad recever Is sod by
a deaer on or after November 1, 1951, to the Unted States for Its e cusve
use, the manufacturer may be aowed a credt or refund n the amount of ta
pad on the artce In accordance wth the provsons of secton 316.20 .
(6) Components for recever . On and after November 1, 1051, no ta at-
taches under secton 3 0 (b) wth respect to the sae by the manufacturer of any
component named n such secton for use by hs vendee as matera n the
manufacture or producton of, or as a component part of, a communcaton,
detecton, or navgaton recever of the type used In commerca, mtary, or
marne Instaatons If such recever s to be sod by such vendee to the Unted
States for ts e cusve use.
Where the Unted States contracts for the manufacture and purchase of re-
cevers of the prescrbed character under a prme-subcontract arrangement
whereby the recevers or subassembes for such recevers are manufactured or
produced by a subcontractor, the entre arrangement Is consdered as a snge
transacton so that a sae of a component ta abe under secton 3 0 (b) to the
subcontractor s consdered a sae to the vendee manufacturng the recever for
sae by hm, drecty or through the prme contractor, to the Unted States.
To estabsh the rght to e empton wth respect to any component ta abe
under secton 3 0 (b), the manufacturer must obtan pror to or at the tme of
the sae, and retan n hs possesson, a certfcate substantay In the form
prescrbed beow showng that the artce s to be used by hs vendee for the
purpose mentoned above.
If any person purchases a component free of ta under an e empton certfcate
for use In the manufacture of a recever of the prescrbed character to be sod
to the Unted States for ts e cusve use or for use n the manufacture of a
subassemby of such a recever, and If the component Is not so used or, beng
so used, the recever Is not so sod, such person sha be consdered the manu-
facturer of such component and sha be abe for ta on hs use or resae of
the component.
The foowng form of e empton certfcate w be acceptabe for the purpose
of ths paragraph:
MPTION C RTIFIC T
(To support ta -free saes of components under secton 3 0 (b) of the In-
terna Revenue Code, as amended by secton 2 of the Revenue ct of 1051,
to be used n the manufacture of communcaton, detecton, or navgaton recevers
to be sod to the Unted States.)
19
(Date)
The undersgned hereby certfes that he Is engaged In the manufacture
of 1 recevers of the type used n
(Communcaton, detecton, or navgaton) (Commerca,
nstaatons or subassembes for such recevers; that the com-
mUtarv, or marne)
ponents ta abe under secton 3 0 (b) of the Interna Revenue Code whch are
specfed n the accompanyng order or contract w be used by hm as matera
n the manufacture or producton of, or as a component part of, such recevers
or subassembes to be ncorporated theren; and that the recevers w be sod
to the Unted States for Its e cusve use, ether drecty by hm or under a
prme-subcontract arrangement wth the Unted States to whch he s a party.
It s understood that f any of the components purchased under ths certfcate
are resod separatey by the undersgned, or are used for any purpose other
than that stated above, the undersgned w be consdered as the manufacturer
of the components so purchased and sha pay to the Government the ta on
such resae or use uness hs resae or use of the artces s e empt from ta
under another provson of aw.
It s further understood that the frauduent use of ths certfcate to secure
e empton w sub|ect the undersgned and a guty partes to a fne of not more
than 10,000, or to mprsonment for not more than 5 years, or both, together
wth costs of prosecuton.
2 70 -
(Name)
( ddress)
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Regs. 6, 316.0, etc.
12
If t s Impractcabe to furnsh a separate e empton certfcate wth each
order or contract, a certfcate coverng a orders between gven dates (such
perod not to e ceed 6 months) w be acceptabe.
The certfcates and proper records of orders, nvoces, etc., sha be retaned
by the manufacturer of the components as provded n secton 316.202.
Where a certfcate s not n the possesson of the manufacturer at the tme
he ses the components, he s abe for the ta and s not entted to a credt
or refund on the ground that the recever s to be sod by hs vendee to the Unted
States. The manufacturer of the recever may, however, be aowed a credt
or refund n the amount of the ta pad on the components n accordance wth
the provsons of secton 316.20 after he ses the recever to the Unted States.
The e empton provded for under ths paragraph appes to the sae of a
ta abe component for use by the vendee as matera n the manufacture or pro-
ducton of, or as a component part of, a communcaton, detecton, or navgaton
recever to be sod by such vendee to the Unted States for ts e cusve use.
The e empton aso appes to the sae of a ta abe component to the manufacturer
of a nonta abe subassemby provded the subassemby s to be sod to a manu-
facturer for use as matera n the manufacture or producton of, or as a com-
ponent part of, a communcaton, detecton, or navgaton recever to be sod
by such manufacturer to the Unted States for ts e cusve use. Ths e empton
s ustrated by the foowng e ampe: hods a prme contract wth the
Unted States for the manufacture of a commerca type of nonta abe detecton
recever; subcontracts wth for a nonta abe chasss to be used n the manu-
facture of such recever; and subcontracts wth C for certan ta abe tubes
to be used n the manufacture of the chasss. Nether nor s requred to
pay ta on hs sae nasmuch as the artce sod by hm s nonta abe. C s
e empt from ta on hs sae of tubes to , snce the tubes are to become com-
ponents of the detecton recever to be sod to the Unted States by .
For provsons wth respect to ta -free saes for further manufacture of ta -
abe artces under secton 3 2, see sectons 316.20 to 316.23, ncusve.
Par. 20. Immedatey precedng secton 316.70 26 CFR 316.70 ,
there s nserted the foowng:
S C. 3. T -FR S L S OF R FRIG R TOR COMPON NTS
TO W OL S L RS FOR R S L TO M NUF CTUR RS
R NU CT OF 1951, PPRO D OCTO R 20,1951 .
Secton 3 05(b) s hereby amended by nsertng (herenafter referred
to as refrgeratng equpment ) before the perod at the end of the frst
sentence and by strkng out the second and thrd sentences and nsertng
n eu thereof the foowng: Under reguatons prescrbed by the Secre-
tary, the ta under ths subsecton sha not appy n the case of saes
of any such refrgerator components by the manufacturer, producer,
or mporter to (1) a manufacturer or producer of refrgeratng equp-
ment, or (2) a vendee for resae to a manufacturer or producer of re-
frgeratng equpment f such components are n due course so resod.
If any such refrgerator components are resod by the manufacturer or
producer to whom sod or resod otherwse than on or n connecton wth,
or wth the sae of, compete refrgeratng equpment manufactured or
produced by hm, then for the purposes of ths secton such manufacturer
or producer sha be consdered the manufacturer or producer of the re-
frgerator components so resod by hm.
Par. 21. Secton 316.70, as amended by Treasury Decson 5 5 26
CFR 316.70 , s further amended by strkng out the frst sentence of
the fourth paragraph of (c) and nsertng n eu thereof a new sen-
tence to read as foows:
manufacturer of househod type refrgerators, other type refrgerators,
househod type unts for the quck freezng or frozen storage of foods, other
quck-freeze unts, or refrgeratng or coong apparatus may purchase ta free
for use as components n the manufacture of such artces any of the refrgeratng
and freezng apparatus specfed In secton 3 05(b).
Par. 22. Secton 316.71, as amended by Treasury Decson 5 5 26
CFR 316.71 | s further amended by strkng out the ast sentence and
nsertng n eu thereof a new sentence to read as foows:
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tegs. 6, 316.0, etc.
Saes of such refrgeratng apparatus as component parts of compete refrgerat-
ors, refrgeratng or coong apparatus, or quck-freeze unts are not sub|ect to
ta .
Par. 23. Secton 316.72, as added by Treasury Decson 5 5 20
CFR 316.72 , s amended as foows:
( ) y strkng the fourth paragraph and nsertng n eu thereof
the foowng:
Pror to November 1,1951, ths e empton from ta does not appy n the case
of a sae of refrgerator components by the manufacturer thereof to a whoesaer,
|obber, deaer, etc., where such whoesaer, |obber, dener, etc., does not quafy
as a manufacturer of compete refrgerators, refrgeratng or coong apparatus,
or quck-freeze unts.
On and after November 1, 1951, a manufacturer of ta abe refrgerator com-
ponents, as specfed n secton 3 05(b), may se such refrgerator components
ta free to a whoesaer, |obber, deaer, or any other person buyng for resae
to a manufacturer of compete refrgerators, refrgeratng or coong apparatus,
or quck-freeze unts. Ta -free saes of such refrgera nr components may not be
made to reparmen or servcemen for repar or servce work.
In order to make a ta -free sae It s necessary that the manufacturer of
the components (a) obtan from the whoesaer, etc., pror to or at the tme of
the sae and retan In bs possesson, a statement showng that the component
Is beng purchased for resae to a manufacturer of compete refrgerators,
refrgeratng or coong apparatus, or quck-freeze unts, and (b) obtan proof
that the component has been so resod. Such proof sha be ether an e empton
certfcate n the form set forth beow propery e ecuted by the manufacturer
purchasng the component for further manufacture, or a statement by the
whoesaer, etc., that he has obtaned from bs vendee, and has n hs posses-
son, avaabe for nspecton by nterna revenue offcers, such a certfcate.
The statement referred to n (a) above suspends the abty of the manu-
facturer of the component for payment of the ta for a perod of two months
from the date of hs sae. If wthn such perod the manufacturer of the com-
ponent has not obtaned proof of the ta -free character of the resae by the
whoesaer, etc., then the temporary suspenson of abty for the payment
of the ta ceases, and the manufacturer of the component sha ncude the ta
on the sae of such component In hs return for the month n whch such 2-month
perod e pres. If such proof subsequenty becomes avaabe, a credt for
the ta pad may be taken upon a subsequent return or a cam for refund may
be fed at any tme wthn the -year perod of mtaton prescrbed by secton
3313. Where the manufacturer of the ta abe component has n hs possesson
the evdence requred by (a) above but eects to pay the ta nstead of makng
a ta -free sae, he may take a credt or fe a refund cam for the ta so pad
when he has n hs possesson the proof requred by (b) above.
The foregong e empton and credt or refund provsons appy ony where
tbere s not more than one ntervenng sae between the manufacturer of the
component and the manufacturer of the compete refrgerator, refrgeratng
or coong apparatus, or quck-freeze unt.
( ) y strkng out the words refrgerators, refrgeratng and
coong apparatus, or quck-freeze unts n the frst paragraph of
the empton Certfcate and nsertng n eu thereof the
words compete refrgerators, refrgeratng or coong apparatus,
or quck-freeze unts .
Par. 2 . Immedatey precedng secton 316.90 26 CFR 316.90 ,
there s nserted the foowng:
S C. . SPORTING GOODS R NU CT OF 1951, PPRO D
OCTO R 20, 1951 .
Secton 3 06(a) (1) (reatng to manufacturers e cse ta on sportng
goods) s hereby amended to read as foows:
(1) Sportng Goons. admnton nets; badmnton rackets
(measurng 22 Inches overa or more n ength) ; badmnton racket
frames (measurng 22 Inches overa or more n ength) ; badmnton
racket strng; badmnton shuttecocks; badmnton standards;
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Regs. 6, 316.0, etc.
1
bard and poo tabes (measurng 5 Indes overa or more In
ength); bard and poo bas and cues for such tabes; bowng
bas and pns; cay pgeons and traps for throwng cay pgeons;
crcket bas; crcket bats; croquet bas and maets; curng
stones; deck tenns rngs, nets, and posts; gof bags (measurng
20 nches or more n ength); gof bas; gof cubs (measurng 30
nches or more In ength); acrosse bas; acrosse stcks; poo
bas; poo maets; sks, sk poes; snowshoes; snow toboggans
and seds (measurng more than 00 nches overa n ength) ;
squash bas; squash rackets (measurng 22 nches overa or more
n ength) ; squash racket frames (measurng 22 nches overa or
more n ength) ; squash racket strng; tabe tenns tabes, bas,
nets, and paddes; tenns bas; tenns nets; tenns rackets (meas-
urng 22 Inches overa or more n ength); tenns racket frames
(measurng 22 Inches overa or more In ength) ; tenns racket
strng; 15 per centum, e cept that on and after pr 1,195 , the rate
sha be 10 per centum ; fshng rods, crees, rees, and artfca ures,
bats, and fes; 10 per centum.
Par. 25. Secton 316.90, as added by Treasury Decson 5099
26 CFR 316.90 , s amended as foows:
( ) y changng the headng to read as foows:
Sec. 316.90. Scope of Ta . (a) For the perod October 1, ), to October
SI, 1951, ncusve.
( ) y addng at the end thereof the foowng:
(6) For the perod begnnng November 1, 1951. On and after November 1,
1951, the ta does not appy wth respect to saes of the foowng:
aseba parapherna and equpment
asketba paraphernaa and equpment
Footba paraphernaa and equpment
ockey paraphernaa and equpment
Indoor baseba paraphernaa and equpment
Soccer paraphernaa and equpment
Softba paraphernaa and equpment
oey ba paraphernaa and equpment
Water poo paraphernaa and equpment
Wrestng paraphernaa and equpment
o ng apparatus and equpment
Fencng apparatus and equpment
Track apparatus and equpment
Gymnasum apparatus and equpment
Push bas apparatus and equpment
Mass bas apparatus and equpment
Skates apporatus and equpment
Snow toboggans and seds (measurng s ty nches or ess overa In ength)
artces sub|ect to ta durng the perod October 1, 19 1 to October 31,1951,
ncusve, and not sted above contnue to be sub|ect to ta .
Par. 26. Secton 316.91, as added by Treasury Decson 5099 26
CFR 316.91 , s amended to read as foows:
Sec. 316.91. Rates of Ta . The ta s payabe by the manufacturer on the
sae prce of the artces sted at the rates specfed beow:
(a) artces, e cept fshng tacke:
October 1,19 1 to October 31, 1951, ncusve 10 percent
November 1,1951 to March 31,195 , ncusve 15 percent
On and after pr 1, 195 10 percent
(b) Fshng tacke:
perods 10 percent
In each case the ta abe prce sha be determned In accordance wth the
provsons of sectons 316. to 316.15, ncusve.
Par. 27. Immedatey precedng secton 316.110 26 CFR 316.110 ,
there s nserted the foowng:
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Regs. 6, 316.0, etc.
S C. 5. L CTRIC, G S, ND OIL PPLI NC S R NU
CT OF 1951, PPRO D OCTO R 20, 1951 .
Secton 3 06(a)(3) (reatng to manufacturers e cse ta on eec-
trc, gas, and o appances) s hereby amended (1) by strkng out
ectrc drect motor-drven fans and ar crcuators; and nsertng
In eu thereof ectrc drect motor-drven fans and ar crcuators
(not of the ndustra type) ; and the foowng appances of the house-
hod type: , (2) by strkng out eectrc heatng pads and bankets
and nsertng n eu thereof eectrc bankets, sheets, and spreads ,
and (3) by nsertng after |ucers; the foowng: eectrc bet-
drven fans; eectrc e haust bowers; eectrc or gas cothes drers;
eectrc door chmes; eectrc dehumdfers; eectrc dshwashers; eec-
trc foor poshers and wa ers; eectrc food choppers and grnders;
eectrc hedge trmmers; eectrc ce cream freezers; eectrc manges;
eectrc moton or st pcture pro|ectors; eectrc pants pressers;
eectrc garbage dsposa unts; and power awn mowers; .
PU LIC L W 251 ( 2d CONG., 1st S SS.), PPRO D
OCTO R 31, 1951
Sec. . Notwthstandng the provsons of secton 90 of the Revenue
ct of 1951, the effectve date of so much of the amendment made by
secton 5 of such ct to secton 3 00(a) (3) of the Interna Revenue
Code as reates to eectrc heatng pads sha be pr 1, 1952.
Par. 2 . Secton 316.110, as amended by Treasury Decson 53
26 CFR 316.110 , s further amended as foows:
( ) y changng the headng to read as foows:
Sec. 316.110. Scope of Ta . (a) For the perod October 1, 19k, to October
SI, 1951, ncusve.
( ) y addng the foowng new paragraphs at the end thereof:
(6) For the perod begnnng November 1, 1951. (1) ectrc drect motor-
drven fans and ar crcuators. On and after November 1,1951, secton 3 06(a)
(3) mposes a ta on saes by the manufacturer of a eectrc drect motor-drven
fans and ar crcuators e cept those of the ndustra type. The foowng st
s ustratve of the drect motor-drven fans and ar crcuators whch are of
the nonndustra type and therefore sub|ect to ta :
Ceng fans of the wood bade type (regardess of whether the bades are
made of wood or other matera)
assock type rada dscharge fans and ar crcuators and modfcatons
thereof, regardess of bade dameter
haust or ntake ventatng fans of the househod type for use n wndow
or attc
haust or ntake ventatng fans of the househod ktchen type (but-n
wa and but-n ceng types)
Desk, bracket, and pedesta type fans and ar crcuators wth bade dameter
of 16 nches and ess
(2) ousehod type eectrc, gas, or o appances. On and after November
1, 1951, secton 3 06(a) (3) mposes a ta on saes by the manufacturer of the
appances sted beow f they are of the househod type. The term househod
type s genera n appcaton so that any artce fang wthn the category of
those named n the foowng st Is consdered of the househod type and sub|ect
to ta f t has an actua practca commerca ftness for househod use or f
It s specfcay desgned and constructed for use n the househod:
ectrc, gas, or o water heaters
ectrc fat rons
ectrc ar heaters (not ncudng furnaces)
ectrc mmerson heaters
ectrc bankets, sheets, and spreads
ectrc heatng pads (ony f sod pror to pr 1, 1952)
ectrc, gas, or o appances of the type used for cookng, warmng, or
keepng warm food or beverages for consumpton on the premses
ectrc m ers, whppers, and |ucers
ectrc bet-drven fans
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Regs. 6, 316.0, etc.
16
ectrc e haust bowers
ectrc or gas cothes drers
ectrc door chmes
ectrc dehumdfers
ectrc dshwashers
ectrc foor poshers and wa ers
ectrc food choppers and grnders
ectrc hedge trmmers
ectrc ce cream freezers
ectrc manges
ectrc moton or st pcture pro|ectors
ectrc pants pressers
ectrc garbage dsposa unts
Power awn mowers
(3) Part or accessore . The ta aso attaches to any parts or accessores
sod on or n connecton wth, or wth the sae of, any ta abe drect motor-drven
fan or ar crcuator or any househod type appance.
Par. 29. Immedatey precedng secton 316.120 26 CFR 316.120 ,
there s nserted the foowng:
S C. 6. D USTM NTS OF T R T S ON P OTOGR P IC
PP R TUS ND FILM; R P L OF T ON C RT IN
IT MS R NU CT OF 1951, PPRO D OCTO R 20,
1951 .
(a) Items Sub|ect to Ta . Secton 3 06(a)( ) (reatng to the
manufacturers e cse ta on photographc apparatus) s hereby amended
to read as foows:
( ) Photographc apparatus. Cameras and camera enses,
and une posed photographc fm n ros (ncudng moton pcture
fm), 20 per centum. The ta mposed under ths paragraph sha
not appy to -ray cameras, to cameras weghng more than four
pounds e cusve of ens and accessores, to st camera enses
havng a foca ength of more than one hundred and twenty m-
meters, to moton pcture camera enses havng a foca ength of
more than thrty mmeters, to -ray fm, to fm more than one
hundred and ffty feet n ength, or to fm more than twenty-fve
feet n ength and more than thrty mmeters n wdth. ny per-
son who acqures une posed photographc fm not sub|ect to ta
under ths paragraph and ses such une posed fm n form and
dmensons sub|ect to ta hereunder (or n connecton wth a sae
cuts such fm to form and dmensons sub|ect to ta hereunder)
sha for the purpose of ths subsecton be consdered the manu-
facturer of the fm so sod by hm.
(b) Foor Stocks Refunds on ubs.
(1) Wth respect to any photo-fash or other bub upon whch the
ta mposed under secton 3 06(a) ( ) of the Interna Revenue Code
has been pad, and whch on the effectve date specfed n secton
9 of ths ct s hed by any person and ntended for sae, or for use
n the manufacture or producton of any artce ntended for sae,
there sha be credted or refunded to the manufacturer or producer
of such bub (wthout Interest), sub|ect to such reguatons as may
be prescrbed by the Secretary, an amount equa to so much of the
ta so pad as has been pad by such manufacturer or producer to
such person as rembursement for the emnaton on such effectve
date of the ta on such bub, If cam for such credt or refund Is
fed wth the Secretary pror to the e praton of three months
after such effectve date. No credt or refund sha be aowabe
under ths paragraph for any bub hed by any person for sae whch
was purchased by such person as a component part of any other
artce.
(2) No person sha be entted to credt or refund under para-
graph (1) uness he has n hs possesson such evdence of the nven-
tores wth respect to whch he has made the rembursements
descrbed In paragraph (1) as the reguatons under paragraph
(1) sha prescrbe.
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Regs. 6, 316.0, etc.
(3) provsons of aw, Incudng penates, appcabe wth
respect to the ta mposed under secton 3 06(a) ( ) of the Interna
Revenue Code sha, nsofar as appcabe and not nconsstent wth
ths subsecton, be appcabe n respect of the credts and refunds
provded for n ths subsecton to the same e tent as f such credts
or refunds consttuted credts or refunds of such ta es.
PU LIC L W 352 ( 2d CONG. 2d S SS.), PPRO D M T 21, 1952.

That (a) the second sentence of secton 3 06(a)( ) of the Interna
Revenue Code as amended by secton 6(a) of the Revenue ct of 1951
s further amended by addng after the comma foowng the words to
-ray fm the foowng: to unperforated mcrofm, .

Par. 30. Secton 316.120, as amended by Treasury Decson 51 9
C. . 19 2-2, 226 , approved November 30, 19 2 26 CFR 316.120 ,
s further amended as foows:
( ) y changng the headng to read as foows:
Sec. 316.120. Scope of Ta . (a) For the perod October 1,19k, to October St,
1951, ncusve.
( ) y addng at the end thereof the foowng:
(6) For the perod begnnng November 1, 1951. On and after November 1,
1951, secton 3 06(a)( ) mposes a ta on saes by the manufacturer of the
foowng artces:
Cameras (other than -ray cameras) weghng pounds or ess e cusve
of ens and accessores
St camera enses havng a foca ength of one hundred and twenty m-
meters or ess
Moton pcture camera enses havng a foca ength of thrty mmeters
or ess
Une posed photographc fm (other than -ray fm and unperforated
mcrofm) n ros (1) one hundred and ffty feet or ess n ength and
thrty mmeters or ess n wdth and (2) twenty-fve feet or ess n
ength and more than thrty mmeters n wdth
Parts or accessores of any of the above artces sod on or In connecton
therewth, or wth the sae thereof
egnnng November 1,1951, any person who acqures une posed photographc
fm n dmensons not sub|ect to ta and cuts such fm to dmensons whch
are sub|ect to ta sha be consdered the manufacturer of such fm and sha
be abe for ta on hs saes of such cut fm.
Par. 31. Secton 316.122, as amended by Treasury Decson 51 9
26 CFR 316.122 , s further amended to read as foows:
Sec. 316.122. Rates of Ta . The ta s payabe by the manufacturer on the
sae prce of the artces sted at the rates specfed beow:
(a) Cameras and enses:
October 1, 19 1 to October 31, 19 2, ncusve 10 percent
November 1,19 2 to October 31,1951, ncusve 25 percent
On and after November 1, 1951 20 percent
(b) Une posed photographc fm n ros (e cept -ray fm):
October 1, 19 1 to October 31, 19 2, ncusve 10 percent
November 1,19 2 to October 31,1951, ncusve 15 percent
On and after November 1,1951 20 percent
(c) Unperforated mcrofm:
October 1,19 1 to October 31, 19 2, ncusve 10 percent
November 1,19 2 to October 31, 1951, Incusve 15 percent
On and after November 1, 1951 None
(d) Une posed photographc pates and senstzed paper:
October 1,19 1 to October 31, 19 2, ncusve 10 percent
November 1,19 2 to October 31, 1951, ncusve 15 percent
On and after November 1. 1951 None
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Regs. 6, 316.0, etc.
1
(e) Photographc apparatus and equpment:
October 1, 19 1 to October 31, 19 2, ncusve 10 percent
November 1,19 2 to October 31, 1951, ncusve 25 percent
On and after November 1, 1951 None
(f) pparatus and equpment desgned for use n takng,
deveopng, etc., pctures:
October 1, 19 1 to October 31, 19 2, Incusve 10
November 1,19 2 to October 31, 1951, ncusve 25
On and after November 1, 1951 None
In each case the ta abe sae prce sha be determned In accordance wth
the provsons of sectons 316. to 316.15, Incusve.
Par. 32. Immedatey foowng secton 316.19 26 CFR 316.19 ,
there s nserted the foowng:
S C. . R P L OF T ON L CTRIC L N RGY R -
NU CT OP 1951, PPRO D OCTO R 20, 1951 .
(a) Repea of Ta . Secton 3 11 (reatng to ta on eectrca en-
ergy for domestc or commerca consumpton), and sectons 3 1(d)
and 3 7(c) (reated provsons), are hereby repeaed.
(b) ffectve Date.
(1) cept as provded In paragraph (2), the provsons of sub-
secton (a) sha appy to eectrca energy sod on or after the frst
day of the frst month whch begns more than 10 days after the
date of the enactment of ths ct,
(2) In the case of eectrca energy sod whch s bed to the
customer for a perod begnnng before the effectve date specfed n
paragraph (1) and endng on or after such date, the provsons of
subsecton (a) sha appy to that porton of the amount bed for
the eectrca energy sod durng such perod whch the number of
days n such perod on and after such effectve date bears to the
tota number of days n such perod. Ths secton sha not appy to
eectrca energy sod before such effectve date for whch a b was
rendered pror to such date.
Sec. 316.195. Tebmnaton of Ta . ffectve November 1, 1951, no ta sha
appy to eectrca energy sod for domestc or commerca consumpton on or
after that date. Whether or not the ta s appcabe s dependent upon the
perod durng whch the eectrca energy was sod and not upon the date th
b for such eectrca energy was rendered to the purchaser. Therefore, the
ta w appy to eectrca energy sod before November 1, 1951, regardess of
whether the b was rendered to the purchaser before or after that date. Where
eectrca energy s sod and bed to the customer for a perod begnnng pror
to November 1, 1951, and endng on or after such date, the ta w not appy
to that porton of the tota amount bed whch the number of days n such
perod on and after November 1, 1951, bears to the tota number of days n the
entre perod. For e ampe, f a b s rendered for the perod Octotber 15,
1951, to November 1 , 1951, (both dates ncusve), a tota of 31 days, no ta
w appy to fourteen thrty-frsts of the tota amount bed.
Par. 33. The headng Subpart U. Msceaneous Protstons ,
as desgnated by Treasury Decson 5099, s redesgnated as Subpart
. Msceaneous Provsons , and mmedatey foowng Subpart
T a new Subpart U s added to read as foows:
SU P RT U. M C NIC L P NCILS, FOUNT IN ND LL-
POINT P NS, ND M C NIC L LIG T RS FOR CIG R-
TT S, CIG RS, ND PIP S
S C. 7. IMPOSITION OF T ON M C NIC L P NCILS,
FOUNT IN ND LLPOINT P NS, ND M C NIC L
LIG T RS FOR CIG R TT S, CIG RS, ND PIP S R -
NU CT OF 1951, PPRO D OCTO R 20. 1951 .
Chapter 29 (reatng to manufacturers e cse and mport ta es)
s hereby amended by addng after secton 3 07 the foowng new
secton:
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19
Regs. 6, 316.0, etc.
S C. 3 0 . T ON M C NIC L P NCILS, FOUNT IN ND
LLPOINT P NS, ND M C NIC L LIG T RS FOR
CIG R TT S, CIG RS, ND PIP S.
(a) Imposton op Ta . There sha be Imposed on the foowng
artces, sod by the manufacturer, producer, or mporter, a ta equa to
15 per centum of the prce for whch so sod: Mechanca pencs, foun-
tan pens, and bapont pens; mechanca ghters for cgarettes, cgars,
and ppes.
(b) empton p rtce Ta abe as ewery. No ta sha be
mposed under ths secton on any artce ta abe under secton 2 00
(reatng to |ewery ta ). If any artce, on the sae of whch ta has
been pad under ths secton, s further manufactured or processed re-
sutng n an artce ta abe under secton 2 00, the person who ses such
artce at reta sha, n the computaton of the retaers e cse ta
due on such sae, be entted to a credt or refund n an amount equa
to the ta pad under ths secton.
Sec. 316.196. Scope of Ta . The a mposed by secton 3 0 attaches to the
sae by the manufacturer on and after November 1, 1951, of mechanca pencs,
fountan pens, bapont pens, and mechanca ghters for cgarettes, cgars,
and ppes.
Sec. 316.197. Use of Terms. The term mechanca penc ncudes any
wrtng nstrument contanng a moveabe markng or wrtng nstrument con-
tanng a moveabe markng or wrtng substance n whch the desred ength of
the markng or wrtng substance s controed by a propeng or repeng devce.
The term fountan pen Incudes a wrtng nstrument of the type equpped
wth a reservor for hodng nk or other wrtng fud whch feeds the pont when
the nstrument Is n use.
The term bapont pen ncudes a wrtng Instrument of the type havng
an nkng reservor or magazne whch feeds a ba wrtng part when the
nstrument s n use.
The term mechanca ghters for cgarettes, cgars, and ppes Incudes any
artces desgned to produce by means of any type of mechanca acton a fame
or other heat generatng source for the ghtng of cgarettes, cgars, and ppes.
Sec. 316.19 . empton f rtces Ta abe as ewery. The ta Imposed
by secton 3 0 does not appy to the sae by the manufacturer of any artce
named theren f such artce s, when sod, sub|ect to the ta mposed by secton
2 00 (reatng to |ewery, etc.). For further detas, see secton 320 33 of Regu-
atons 51 26 CFR 320.33 .
Where subsequent to the sae by the manufacturer and pror to the sae at re-
ta, any artce named n secton 3 0 Is further manufactured or processed n
any manner so that t becomes sub|ect to the ta mposed under secton 2 00, the
person who ses such artce at reta sha, n computng the retaers e cse
ta due on such sae, be entted to a credt or refund In an amount equa to the
ta pad under secton 3 0 . owever, such credt or refund s not aowabe to
the manufacturer who orgnay pad ta under secton 3 0 , but s aowabe
ony to the person who ses the artce at reta.
Sec. 316.199. Rate of Ta The ta s payabe by the manufacturer at the
rate of 15 percent of the sae prce as determned under sectons 316. to 316.15,
ncusve
Par. 3 . Immedatey precedng secton 316.20 26 CFR 316.20 ,
there s nserted the foowng:
S C. 1. UTOMO IL S, TRUC S, ND T RTS OR CC SSORI S
R NU CT OF 1951, PPRO D OCTO R 20, 1951 .

(f) Parts or ccessores for Farm qupment. Secton
3 3(a) (3) ( ) s hereby amended by strkng out the perod at the end
of cause (v) and nsertng n eu thereof a semcoon, and by nsertng
after cause (v) the foowng:
(v) n the case of artces ta abe under secton
3 03(c) (other than spark pugs, storage batteres, eaf
sprngs, cos, tmers, and tre chans), used or resod for
use as repar or repacement parts or accessores for farm
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Regs. 6, 316.0, etc.
20
equpment (other than equpment ta abe under sub-sec-
ton (a) or (b) of secton 3 03); .

S C. 2. N IG TION R C I RS SOLD TO T UNIT D
ST T S R NU CT OF 1051, PPRO D OCTO R 20,
1951 .

(c) Refund n Case of Use of Parts. Secton 3 3(a) (1) (reatng
to credts and refunds) s hereby amended to read as foows:
(1) to a manufacturer or producer, In the amount of any ta
under ths chapter whch has been pad wth respect to the sae of
( ) any artce (other than a tre. Inner tube, or automobe
rado or teevson recevng set ta abe under secton 3 0 ) pur-
chased by hm and used by hm as matera n the manufacture
or producton of. or as a component part of. an artce wth re-
spect to whch ta under ths chapter has been pad, or whch
has been sod free of ta by rtue of secton 3 2, reatng to
ta -free saes;
( ) any artce descrbed In secton 3 0 (b) purchased by
hm and used by hm as matera n the manufacture or produc-
ton of, or as a component part of, communcaton, detecton, or
navgaton recevers of the type used n commerca, mtary, or
marne nstaatons f such recevers have been sod by hm to
the Unted States for ts e cusve use.
(d) Refund n Case of Resae to Unted States. Secton
3 3(a)(3)( ) s hereby amended by addng at the end thereof the
foowng:
(v) n the case of a communcaton, detecton, or nav-
gaton recever of the type used n commerca, mtary,
. or marne nstaatons, resod to the Unted States for ts
e cusve use.

Par. 35. Secton 316.20 , as amended by Treasury Decson 5 0
C. . 1952-1, 217 , approved February 11, 1952 26 CFR 316.20 , s
further amended as foows:
( ) y nsertng (1) mmedatey after the words wth respect
to the sae of n the frst sentence of the frst paragraph and by chang-
ng the perod at the end thereof to a comma and addng the foowng:
or (2) any artce descrbed In secton 316.61 purchased and used by such manu-
facturer as matera n the manufacture or producton of, or as a component part
of, a recever of the type descrbed n secton 316.61 (a) whch s sod on or
nfter November 1,1951, to the Unted States for ts e cusve use drecty by Mm
or under a prme-subcontractor arrangement to whch he s a party.
( ) y addng at the end thereof the foowng new paragraphs:
y vrtue of the provsons of secton 3 3(a) (3) ( ) (v) of the Code, as
added by secton 2(d) of the Revenue ct of 1951, a manufacturer of a com-
muncaton, detecton, or navgaton recever of the type used n commerca
mtary, or marne nstaatons may be aowed a refund or may take credt
on a subsequent return In the amount of any ta pad by hm on the sae of
such a recever, f on or after November 1, 1951, such recever s sod by any
person to the Unted States for ts e cusve use. Refund or credt w be
aowed n 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)( ).
Under the provsons of secton 3 3(a)(3)( ), pror to November 1, 1951,
no credt or refund was aowabe wth respect to ta pad on automobe parts
or accessores used or resod for use as repar or repacement parts or accessores
for farm equpment even though t was known at the tme of the sae that te
artces woud be so used. On and after November 1,1951, a manufacturer ma|
be aowed a refund or may take credt aganst the ta shown to be due upon
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21
Regs. 6, 316.0, etc.
any subsequent monthy return, In the amount of ta pad by hm wth respect
to the sae of any artce ta abe under secton 3 03(c) (other thaa spark pugs,
storage batteres, eaf sprngs, cos, tmers, and tre chans) used by tha utmate
vendor thereof (retaer, reparman, etc.) on or after November 1,1951, or resod
by such utmate vendor on or after such date for use by hs purchaser, as a
repar or repacement part or as an accessory for farm equpment (other than
equpment ta abe under subsecton (a) or (b) of secton 3 03), provded the
manufacturer can estabsh the date the ta on hs sae of such artce was pad
to the Unted States and the amount of such ta , and he has n hs possesson a
certfcate from the utmate vendor n the form prescrbed In the foowng
paragraph. Where the certfcate s obtaned pror to the tme the manufacturer
Is requred to fe a return coverng ta es due for the month n whch the sae
was made, he shoud ncude the ta on such sae n hs return for that month,
In the tem Tota ta due , but he may deduct an amount equvaent to the
ta appcabe to such sae and pay the net ta resutng, makng approprate
e panaton on a rder attached to the return. If the certfcate s not so
obtaned, the manufacturer must ncude the ta on such sae n hs return for
the month n whch the sae was made, and when the certfcate s ater obtaned
be may fe a cam for refund on Form 3, or take a credt upon any subsequent
return, but such acton must be taken wthn the four-year perod of mtaton
prescrbed by secton 3313.
The foowng s the form of certfcate whch w be acceptabe for the pur-
poses of the precedng paragraph:
CR DIT OR R FUND C RTIFIC T
(For use by utmate vendors (retaers, reparmen, etc.) to support a credt
or cam for refund under secton 3 3(a) (3) ( ) (v) of the Interna Revenue
Code.)
The undersgned vendor hereby certfes that the automobe parts or accesso-
res (other than spark pugs, storage batteres, eaf sprngs, cos, tmers, and
tre chans) specfed beow or on the reverse sde hereof were purchased ta
pad and, on or after November 1, 1951, were used by hm or were resod for
use by the purchaser thereof as repar or repacement parts or accessores for
farm equpment (other than automobe truck chasss and bodes, etc., ta abe
under secton 3 03 (a) or (b) of the Interna Revenue Code) ; that the purpose
for whch such parts or accessores were used or resod comes wthn the credt
or refund provson of secton 3 3(a) (3) ( ) (v) of the Interna Revenue
Code, as added by secton 1(f) of the Revenue ct of 1951; that he consents
to the aowance of a credt or refund to
(Name and address of manufacturer)
In the amount of the ta pad by such manufacturer on the sae of the artces;
and that he has not heretofore gven hs consent to the aowance of ths credt
or refund to any other manufacturer and has not made appcaton for a credt
or refund of ths Federa ta from any other source.
It s understood by the undersgned that the frauduent use of ths certfcate
w sub|ect hm to a fne of not more than 10,000, or to mprsonment of not
more than 5 years, or both, together wth the cost of prosecuton.
(Name)
( ddress)
(Date)
Name and
Suppers rtce and Date of use address of
Invoce No. quantty or resae customer
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Regs. 6, 316.55.
22
If t s mpractcabe to furnsh a separate certfcate for each use or resae,
a certfcate coverng each use or resae between gven dates (such perod not
to e ceed 6 months) w be acceptabe. Such certfcate and supportng records
sha be retaned by the manufacturer as provded by secton 316.202.
(Ths Treasury Decson s ssued pursuant to the authorty con-
taned n sees. 3 50 and 3791 of the Interna Revenue Code (53
Stat. 19, 67; 26 U. S. C. 3 50, 3791).)
T. Coeman ndrews,
Commssoner of Interna Revenue.
pproved uy , 1953.
. Chapman Rose,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster uy 1 , 1953, : a. m.)
S CTION 3 03. T ON UTOMO IL S, TC.
Reguatons 6, Secton 316.50: Scope of Rev. Ru. 165
ta .
( so Secton 316.55, Reguatons 6.)
INT RN L R NU COD
oppers or beds whch are prmary desgned or adapted to be
mounted on or pued behnd trucks or tractors and equpped wth
power drven devces, used soey n spreadng fertzers or other
materas on farms, or n the constructon, mantenance of, or spread-
ng ce contro materas on hghways, streets, sdewaks, etc., are not
ta abe automobe truck bodes or automobe parts or accessores
wthn the purvew of secton 3 03 of the Interna Revenue Code.
Reguatons 6, Secton 316.55: Defnton Rev. Ru. 166
of parts or accessores.
nterna revenue codb
grease sea kt, consstng of a stee fange, a grease sea, gaskets,
and cork seas, wth or wthout an a e nut, whch s prmary de-
sgned or adapted for use on a rear a e of an automobe truck of the
type used on hghways, s consdered a part or accessory for an auto-
mobe truck chasss and ta abe under secton 3 03(c) of the Interna
Revenue Code when sod by the manufacturer, producer, or mporter,
even though t s sod for heavy duty use on trucks operatng on forest
tras as we as on the hghways and s used ether as a repacement
of or an addtona unt to be attached to the grease seas nstaed
on such trucks by the manufacturer of the trucks. The grease sea,
gaskets, cork seas, and a e nut, when sod separatey, are not con-
sdered to be parts or accessores of a truck chasss but artces sus-
ceptbe of genera use; accordngy, the separate saes of such parts
are not sub|ect to ta . owever, the stee fange normay made a
part of the kt s consdered to be a part or accessory for an auto-
mobe truck chasss and s sub|ect to ta whether sod separatey or
as a part of the kt.
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Regs. 6, 316.55.
S CTION 3 03. T ON UTOMO IL S, TC.
Reguatons 6, Secton 316.55: Defnton Rev. Ru. 1 0
of parts or accessores.
INT RN L R NU COD
ear assembes for mk tank trucks consttute parts or acces-
sores of automobe truck bodes wthn the meanng of secton
3 03(c) of the Interna Revenue Code and are sub|ect to the ta m-
posed by that secton upon the sae thereof by the manufacturer.
dvce s requested concernng the appcaton of the ta on auto-
mobe parts or accessores, mposed by secton 3 03(c) of the Interna
Revenue Code, to the sae by the manufacturer of rear assembes
for mk tank trucks used by the dary ndustry. In the nstant
case, some of the parts for the assembes are purchased by the
manufacturer on the open market and some are constructed by the
manufacturer of the assembes. Saes of the compete assembes
are made by the manufacturer both at whoesae and reta.
Secton 3 03(c) of the Code mposes a ta of percent on the
sae by the manufacturer of parts or accessores for automobe truck
bodes and other artces ta abe under subsectons (a) and (b) of
secton 3 03 of the Code. The term parts or accessores for an auto-
mobe truck or other automobe chasss or body ncudes (a) any
artce the prmary use of whch s to mprove, repar, repace, or
serve as a component part of such vehce or artce, (o) any artce de-
sgned to be attached to or used n connecton wth such vehce or art-
ce to add to ts utty or ornamentaton, or (c) any artce the pr-
mary use of whch s n connecton wth such vehce or artce whether
or not essenta to ts operaton or use. (Sec. 316.55, Reguatons 6.)
It s hed that the rear assembes n queston are parts or acces-
sores of automobe truck bodes wthn the meanng of secton
3 03(c) of the Code. ccordngy, saes of the rear assembes by
the manufacturer are sub|ect to the ta regardess of whether they
are nstaed by the manufacturer or by other persons. owever,
the manufacturer may take credt for the ta pad on any new parts
purchased and used n the manufacture of the assembes aganst
ta due on the sae of the competed assembes.
Wth respect to saes of assembes by the manufacturer at whoe-
sae, the ta s based on the whoesae (. e. nvoce) prce sub-
|ect to the foowng ad|ustments provded by secton 3 1(a) of
the Code. To the nvoce prce there shoud be added any charge
made for coverngs and contaners of whatever nature and any other
charge ncdent to pacng the assembes n condton packed ready
for shpment and any charge for transportaton or devery. From
such ad|usted prce may be e cuded any transportaton or devery
e pense actuay ncurred by the manufacturer n effectng devery
of the artces to the purchasers; charges for nstaaton of the
artces; any e pense for nsurng the shpments to the purchasers,
and the ta , f not ncuded on the nvoce as a separate charge.
Where the manufacturer ses the compete assembes to a deaer
or |obber for resae or to a truck owner, and nstaaton s made
by the purchaser no ad|ustment of the sae prce s requred for an
nstaaton e pense snce no such e pense s ncurred by the manu-
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Regs. 6, 316.55.)
2
facturer. Where the assemby s nstaed by the manufacturer and
a bona fde nstaaton charge s made separatey n addton to the
sae prce of the assemby, such charge s not to be ncuded n the
sae prce of the assemby for the purpose of computng the ta .
If the manufacturer s sae prce of the assemby ncudes the e -
pense of nstaaton, the sae prce shoud be reduced by deductng
the nstaaton e pense before computng the ta . In such case
the manufacturer s records must show the amount actuay aocabe
to the e pense of nstaaton.
Under the authorty of secton 3 1(b) of the Code, the ta on
saes of assembes by the manufacturer at reta s to be based upon
the estabshed hghest whoesae prce to ndependent deaers after
ad|ustment for the addtons and e cusons stated n connecton
wth the saes at whoesae, ncudng ad|ustment for any nstaaton
e pense ncurred by the manufacturer.
Reouatons 6, Secton 316.55: Defnton Rev. Ru. 193
of parts or accessores.
INT RN L R NU COD
Sheded spark pngs, whch are sutabe for use on chasss or
vehces ta abe under subsectons (a) and (b) of secton 3 03 of
the Interna Revenue Code, consttute parts or accessores for such
artces wthn the meanng of secton 3 03(c) of the Code and are
sub|ect to ta even though sod by the manufacturer for use on
tanks, arcraft, or other nonta abe artces.
dvce s requested whether the ta on automobe parts or accesso-
res mposed by secton 3 03(c) of the Interna Revenue Code appes
to the sae by a manufacturer of sheded spark pugs desgned pr-
mary for use on mtary |eeps, trucks, tanks, arcraft, and motor
generator sets for settng |et engnes.
Secton 3 03(c) of the Code mposes a ta of percent on the sae
by the manufacturer of parts or accessores for automobe chasss or
vehces ta abe under subsectons (a) and (b) of secton 3 03 of the
Code. That secton aso provdes that spark pugs, storage batteres,
eaf sprngs, cos tmers, and tre chans whch are sutabe for use
on any of the artces enumerated n subsectons (a) and (b) of the
secton sha be consdered parts or accessores for such artces,
whether or not prmary adapted for such use.
It s hed that snce the sheded spark pugs descrbed above are
sutabe for use on |eeps and trucks whch are ta abe under secton
3 03(a) of the Code, they consttute automobe parts or accessores
wthn the meanng of secton 3 03(c) of the Code and are sub|ect to
the ta of percent mposed by that secton even though sod by the
manufacturer for use on tanks, arcraft, or other nonta abe artces.
Reguatons 6, Secton 316.55: Defnton Rev. Ru. 2 S
of parts or accessores.
INT RN L R NU COD
Payment receved by a manufacturer pursuant to a contract wth
a customer for producng an e permenta mode brake assemby s
not ta abe under secton 3 03(c) of the Interna Revenue Code,
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25
Regs. 0, 316.55.
where the crcumstances are such that the amount receved const-
tutes compensaton for research and deveopment rather than the
sae prce of the artce.
dvce s requested concernng the appcaton of the ta on auto-
mobe parts or accessores, mposed by secton 3 03(c) of the Interna
Revenue Code, as amended, where a manufacturer pursuant to a con-
tract wth a customer produces an e permenta mode automobe
brake assemby. The manufacturer receved payment of consderaby
more for the e permenta mode, whch was especay made for the
customer, than the sae prce of a comparabe brake assemby n
ordnary producton.
Where a manufacturer, operatng under a contract of research and
deveopment, produces a specmen or sampe artce for testng and
e permenta purposes, whch comes wthn any of the cassfcatons
of artces sub|ect to the manufacturers e cse ta es, and the crcum-
stances are such that the payment to the manufacturer consttutes
compensaton for research and deveopment rather than the sae prce
of the artce as such, the performance of the contract does not resut
n a ta abe sae. owever, the fact that an artce s ntended to
be used for e permenta and testng purposes does not n tsef render
the sae thereof nonta abe. specfc sae by the manufacturer of
a ta abe artce as such s sub|ect to ta even though the artce s
procured by the purchaser strcty for e permenta or testng
purposes.
In the nstant case, t s hed that the amount receved by the man-
ufacturer under the contract wth ts customer for producng the
e permenta mode s consdered compensaton for research and
deveopment rather than the sae prce of the artce as such. ccord-
ngy, the performance of the contract dd not resut n a ta abe sae
and the manufacturer ncurred no ta abty under secton 3 03(c)
of the Code wth respect thereto.
Reguatons 6, Secton 316.55: Defnton Rev. Ru. 2 2
of parts or accessores.
INT RN L R NU COD
Spark pug termna protectors are not consdered to be automobe
parts or accessores wthn the meanng of secton 3 03(c) of the In-
terna Revenue Code but artces susceptbe of genera use. c-
cordngy, saes of such artces by the manufacturer are not sub|ect
to the ta mposed by that secton of the Code.
Reguatons 6, Secton 316.55: Defnton Rev. Ru. 2 3
of parts or accessores.
nterna revenue code
Ftted truck top covers made accordng to ndvdua desgn and
measurement from matera furnshed by the manufacturer for feet
operators and other consumers thereof are sub|ect to the ta Im-
posed by secton 3 03(c) of the Interna Revenue Code. Where a
feet owner or other truck operator makes such covers for use In the
operaton of bs busness he s abe for the ta under secton 3
of the Code wth respect to the use of the covers.
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Regs. 6, 316.55.
2G
dvce s requested concernng the appcaton of the ta on auto-
mobe parts or accessores mposed by secton 3 03(c) of the Interna
Revenue Code to ftted truck top covers made accordng to ndvdua
desgn and measurement from matera furnshed by the manufacturer
for feet operators and other consumers thereof.
Secton 3 03(c) of the Code mposes a ta of percent on the sae
by the manufacturer of parts or accessores for automobe truck bodes
and other artces ta abe under subsectons (a) and (b) of secton
3 03 of the Code. The term parts or accessores for an automobe
truck or other automobe chasss or body ncudes (a) any artce
the prmary use of whch s to mprove, repar, repace, or serve as
a component part of such vehce or artce, (6) any artce desgned
to be attached to or used n connecton wth such vehce or artce
to add to ts utty or ornamentaton, or (c) any artce the prmary
use of whch s n connecton wth such vehce or artce whether
or not essenta to ts operaton or use. Secton 316.55, Reguatons 6.
Ftted truck top covers are consdered to be automobe parts or
accessores wthn the meanng of secton 3 03(c) of the Code and
saes thereof by the manufacturer are sub|ect to ta whether made at
whoesae or reta. In accordance wth secton 3 of the Code
any person who manufactures such covers for hs own use s kewse
abe for the ta mposed by secton 3 03(c) of the Code. owever,
a fat rectanguar pece of canvas whch may be used as a truck top
cover but whch s not prmary desgned or adapted for such use s
not a ta abe part or accessory wthn the purvew of secton 3 03(c)
of the Code.
It has been the poston of the Interna Revenue Servce that the
ony crcumstances under whch the ta does not appy to saes by
the manufacturer of ftted top covers for trucks s where the top covers
are ndvduay desgned, cut and ftted to trucks beongng to the
person who contracts for the performance of such operaton and such
person s the consumer of the top covers. Upon reconsderaton t
s now hed that where a manufacturer furnshes the matera and
produces ftted truck top covers for the consumers thereof, ncudng
feet operators, accordng to ndvdua desgn and measurement, the
saes by the manufacturer of such covers consttute saes at reta
and are ta abe under secton 3 03(c) of the Code regardess of
whether they are nstaed by the manufacturer or by other persons.
It has been the pocy of the Servce not to regard saes by a manu-
facturer of ftted truck top covers smary produced, to a deaer
of new or used trucks as saes to the consumer of the covers, but as
saes at whoesae. Ths pocy s not affected by the rung heren
and such saes reman sub|ect to the ta .
The foowng sets forth the method of computng the ta wth re-
spect to saes by manufacturers of ftted truck top covers at whoesae,
whoesae and reta, and reta ony, or upon the use of such covers
by the manufacturer thereof.
Wth respect to saes of ftted truck top covers at whoesae, the
ta mposed by secton 3 03(c) of the Code shoud be based on the
whoesae prce sub|ect to the foowng ad|ustments provded by
secton 3 1(a) of the Code. To the whoesae prce there shoud be
added any charge for contaners of whatever nature ncdent to pacng
the covers n condton packed ready for shppng and any charge
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27
Regs. 6, 316.55.
for transportaton or devery. From such ad|usted prce shoud be
e cuded any e penses actuay ncurred by the manufacturer (1) n
effectng devery of the covers to the purchasers, (2) for nstaaton
of the fnshed covers, and (3) for nsurng shpments to the purchasers.
The amount of ta s to be e cuded f not entered on the nvoce as
a separate charge.
Under the authorty of secton 3 1(b) (1) of the Code the ta on
reta saes of ftted truck top covers by a manufacturer who aso
ses such artces at whoesae, s to be based upon hs hghest estab-
shed whoesae prce to ndependent deaers, sub|ect to the same ad-
|ustments herenbefore stated n connecton wth saes at whoesae.
The ta on saes of ftted truck top covers by a manufacturer who
ses ony at reta s to be computed, under the authorty of secton
3 1(b) (1) of the Code, on the prce for whch such artces are sod
by manufacturers or producers n the ordnary course of trade as
determned by the Commssoner. Such determnaton has been made
wth respect to ftted truck top covers and t has been found to repre-
sent 75 percent of the estabshed reta prce sub|ect to ad|ustment
wth respect to the above-mentoned addtons and e cusons provded
by secton 3 1(a) of the Code. No further ad|ustment of the estab-
shed reta prce shoud be made wth respect to any trade or quan-
tty dscount or reducton n prce because of antcpated further saes
to a customer. In any case where the actua saes prce as ad|usted
n accordance wth secton 3 1(a) of the Code s ess than 75 percent
of the estabshed reta prce as ad|usted the ta may be computed on
the ad|usted actua saes prce. If the ta s to be charged as a sep-
arate tem on the nvoce t shoud be computed at percent of the
ad|usted reta prce. If the ta s ncuded n the ad|usted reta
prce t may be computed at 2/27 ( /10 ) of such prce.
Where a feet owner or other truck operator makes ftted truck top
covers for use n the operaton of hs busness, the owner or operator
s abe for ta under the provsons of secton 3 of the Code at
the tme the covers are used by hm. In accordance wth the provsons
of that secton the ta shoud be computed on the prce for whch such
covers are sod by manufacturers or producers n the ordnary course
of trade as determned by the Commssoner. Such determnaton has
been made and has been found to represent the actua cost of producng
the covers pus 10 percent of such cost
ecause of the poston heretofore mantaned regardng the non-
appcaton of the ta to ftted truck top covers made accordng-to
ndvdua desgn and measurement for the consumer thereof, t s
concuded that under the authorty contaned n secton 3791(b) of the
Code the nstant rung w not be apped retroactvey wth respect
to ftted truck top covers sod by manufacturers to the consumers
thereof or used by the manufacturers thereof pror to anuary 1,195 .
owever, any ta that has been pad on the sae or use of such covers
w not be refunded uness n a partcuar case t s estabshed to the
satsfacton of the Commssoner, as requred by secton 3 3(d) of
the Code, that the manufacturer by reason of reyng on an e stng
rung that the sae of such top covers so produced was not ta abe, dd
not ncude n hs prce any part of the manufacturers e cse ta whch
may have subsequenty been pad on the sae.
2 070 6 2
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Regs. 6, 316.60.
2
S CTION 3 0 . T ON R DIO R C I ING S TS, T L -
ISION R C I ING S TS, P ONOGR P S. P ONO-
GR P R CORDS, ND MUSIC L INSTRUM NTS
Reguatons 6, Secton 316.60: Scope of ta . Rev. Ru. 167
INT RN L R NU COD
Rado recevng set kts whch contan components for use In the
assemby of rado recevng sets are ta abe under secton 3 0 (a)
of the Interna Revenue Code when sod by the manufacturer.
dvce s requested whether the ta on rado recevng sets mposed
by secton 3 0 (a) of the Interna Revenue Code s appcabe to the
sae by a manufacturer of rado kts whch contan a of the necessary
components for the assemby of a crysta rado recevng set, e cept
aera and ground wre, or for the assemby of a one tube rado recev-
ng set, e cept and batteres and aera and ground wres.
Secton 316. of Reguatons 6 provdes that the term manufac-
turer ncudes a person who produces a ta abe artce by combnng
or assembng two or more artces, and further provdes that a
manufacturer who ses a ta abe artce n a knockdown condton,
but compete as to a component parts, s abe for the ta .
It s hed that the above-descrbed rado kts consttute rado recev-
ng sets wthn the meanng of secton 3 0 (a) of the Code, even
though the sets are not assembed. ccordngy, saes of such kts by
the manufacturer are sub|ect to ta mposed by that secton of the
Code.
Under the provsons of secton 3 3(a) of the Code, credt aganst
ta due on the sae of the kts may be taken by the manufacturer of
the kts for ta pad by the manufacturer of the tubes or other ta abe
components purchased and used n assembng the kts.
Reguatons 6, Secton 316.60: Scope of ta . Rev. Ru. 22
INT RN L R NU COD
phonograph record payer attachment whch Is not capabe of
reproducng sound uness connected to an ampfyng system wth
a speaker attachment s not sub|ect to the ta mposed under secton
3 0 of the Interna Revenue Code. Pursuant to secton 3 the
ta on phonograph mechansms under secton 3 0 (b) attaches to
the use of such mechansms n the manufacture of nonta abe
record payers.
dvce s requested whether a phonograph record payer attach-
ment whch s net capabe of reproducng sound uness connected to
an ampfyng system wth a speaker attachment, s sub|ect to the
ta mposed under secton 3 0 (a) of the Interna Revenue Code.
In the nstant case, the manufacturer produces and ses a payer
attachment whch conssts of a turntabe, pckup arm, swtch, and a
wood base contanng a motor. The payer attachment s not capabe
of reproducng records or sounds uness attached to an ampfyng
system. The attachment s not sod n connecton wth rado or tee-
vson recevng sets or any other such ampfyng devces.
Secton 3 0 (a) of the Code mposes a ta equvaent to 10 percent
of the sae prce of rado recevng sets, teevson recevng sets,
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egs. 0, 310.63.
phonographs, and combnatons of any of the foregong sod by the
manufacturer or producer thereof. Secton 3 0 (b) of the Code m-
poses upon phonograph mechansms whch are sutabe for use on or
n connecton wth or as component parts of any of the artces enum-
erated n secton 3 0 (a) a ta equvaent to 10 percent of the
prce for whch sod.
The term phonograph mechansms ncudes devces whch are
sutabe for use n combnaton rado and phonograph sets, or phono-
graphs for the purpose of payng records. (Sec. 316.61 of Regua-
tons 6.) utomatc devces for payng or repeatng records,
phonograph pckups, and smar devces are sub|ect to the ta t
sod on or n connecton wt or wth the sae of rado recevng sets,
teevson recevng sets, phonographs, and combnatons thereof.
(Sec. 316.00 of Reguatons 6.)
It s hed thnt phonograph record payer attachment whch s not
capabe of reproducng sound uness connected to an ampfyng sys-
tem wth a speaker attachment s not sub|ect to the ta mposed under
secton 310 of the Interna Revenue Code.
Where the manufacturer of the payer attachment s aso the manu-
facturer of the phonograph mechansm, consstng of the turntabe,
pckup arm, and motor, whch becomes a component of the nonta abe
payer attachment, or f he purchases t free of ta , he s abe for the
ta on the use of such mechansm under secton 3 of the Code. The
manufacturer of such payers ncurs no ta abty f the mechansms
are purchased by hm on a ta pad bass.
If the manufacturer of the payers s the actua or statutory manu-
facturer of the phonograph mechansms used n the payers, the ta
attaches to that porton of the sae prce of the payers whch s at-
trbutabe to the phonograph mechansms. The ta may be based on
the owest estabshed prce for whch he ses the phonograph mech-
ansms separatey. If they are not sod separatey the ta may be
based on tnat porton of the sae prce of the payer whch s aocabe
to the phonograph mechansms determned on the bass of the cost of
the phonograph mechansms as compared to the cost of the nonta abe
components. Thus, f the cost of the phonograph mechansm repre-
sents three-ffths of the tota cost of the entre payer attachment, the
ta determned on the comparatve cost bass attaches to three-ffths
of the prce charged by the manufacturer for the compete unt.
Where the ta s not ncuded n the sae prce of the payer t shoud
be computed at the rate of 10 percent of that porton of the manufac-
turer s sae prce whch s determned to be attrbutabe to the phono-
graph mechansms. If the ta s ncuded n the sae prce of the
payer t shoud be computed at one-eeventh of the porton of such
prce determned to be attrbutabe to the phonograph mechansms.
Reguatons 6, Secton 316.63: Musca Rev. Ru. 206
nstruments.
INT RN L R NU COD
Method of computng the ta Imposed by secton 3 0 (d) of the
Interna Revenue Code, wth respect to panos sod by mporters at
whoesae, whoesae and reta, or ony at reta.
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Regs. 6, 316.70.
30
dvce s requested concernng the method of computng the ta
mposed by secton 3 0 (d) of the Interna Revenue Code, wth re-
spect to panos sod by mporters at whoesae, whoesae and reta, or
ony at reta.
Wth respect to saes of panos by an mporter at whoesae, the ta
mposed by secton 3 0 (d) of the Code sha be based on the whoe-
sae (. e., nvoce) prce sub|ect to the foowng ad|ustments pro-
vded by secton 3 1(a) of the Code. To the whoesae prce there
shoud be added any charge made for coverngs and contaners of
whatever nature ncdent to pacng the panos n condton packed
ready for shppng, and any charge for transportaton or devery.
From such ad|usted prce shoud be e cuded the transportaton or
devery e pense actuay ncurred by the mporter n effectng dev-
ery of the panos to the purchasers; any e pense for nsurng the shp-
ments to the purchasers, and the ta , f not entered on the nvoce as
a separate charge.
Under the authorty of secton 3 1(b) (1) of the Code, the ta on
reta saes of panos by an mporter who aso ses such nstruments
at whoesae, s to be based upon hs hghest estabshed whoesae prce
to ndependent deaers after ad|ustment for the addtons and e cu-
sons herenbefore stated n connecton wth saes at whoesae.
The ta on saes of panos by an mporter who ses ony at reta sha
be computed, under the authorty of secton 3 1(b) (1) of the Code,
on the prce for whch such artces are sod by manufacturers or pro-
ducers n the ordnary course of trade as determned by the Comms-
soner. Such determnaton has been made wth respect to panos and
has been found to represent 55 percent of the reta prce sub|ect to
ad|ustment wth respect to the above-mentoned addtons and e cu-
sons. If the ta s not ncuded n the reta prce the ta s to be
computed at 10 percent of the dscounted reta prce as ad|usted.
Where the ta s ncuded n the reta prce the ta may be computed
at one-eeventh (10/110) of the dscounted reta prce as ad|usted, n
order to provde for e cuson of the ta from the prce on whch t s
based.
In the event the ta base determned n the above-descrbed manner
wth respect to saes by an mporter ony at reta resuts n a prce
whch s ess than the mporter s cost ncudng duty, shppng, and
other charges ncdent to devery of the panos to the mporter, the
ta must be computed upon such cost.
S CTION 3 05. T ON M C NIC L R FRIG R TORS,
UIC -FR Z UNITS, ND S LF-CONT IN D I -
CONDITIONING UNITS
Reguatons 6, Secton 316.70: Refrgerators, Rev. Ru. 123
etc.
INT RN L R NU COD
In determnng the cubca content of net storage space of the
norma temperature refrgerator porton of combnatons of house-
hod type unts for the quck freezng or frozen storage of foods
and househod type refrgerators, the space occuped by equpment
such as evaporators, and the freezer storage or nonrefrgerated
space s e cuded.
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31
Regs. 6, 316.71.
dvce s requested wth respect to the determnaton of the net
storage space of the norma temperature refrgerator porton of
combnatons of househod type unts for the quck freezng or
frozen storage of foods and househod type refrgerators under sec-
ton 316.70 of Reguatons 6.
Secton 3 05 of the Interna Revenue Code provdes n part as
foows:
There sha be Imposed on the foowng artces sod by the manu-
facturer, producer, or Importer a ta equvaent to 10 per centum of the prce
for whch so sod:
(a) Refrgerators and uck-Freeze Unts. ousehod type refrgera-
tors havng, or beng prmary desgned for use wth, a mechanca
refrgeratng unt operated by eectrcty, gas, kerosene, or gasone; househod
type unts for the quck freezng or frozen storage of foods, operated by eec-
trcty, gas, kerosene, or gasone; combnatons of such househod type re-
frgerators and unts.
Secton 316.70 of Reguatons 6 provdes n part as foows:
The term househod type refrgerator Incudes refrgerators for snge or
mutpe cabnet nstaatons, whch (1) are desgned for domestc use, (2)
are arranged to provde refrgerated storage space for the preservaton of
food products or ow temperature space for makng ce cubes and frozen des-
serts, (3) have a net storage space not e ceedng 1 cubc feet, and ( ) have,
or are prmary desgned for use wth, a mechanca refrgerator unt operated
by eectrcty, gas, kerosene, or gasone.
The term househod type unts for the quck freezng or frozen storage of
foods Incudes unts soey for the quck freezng of foods or soey for the
storage of frozen foods and combnaton freezer and storage unts for rura or
urban home use. Unts desgned and constructed soey for commerca, ndus-
tra, or scentfc purposes are not ta abe.

Combnatons of househod type unts for the quck freezng or frozen storage
of foods and househod type refrgerators are ta abe ony f the norma tem-
perature refrgerator porton has a net storage space not e ceedng 1 cubc
feet.
It s hed that n determnng the cubca content of net storage
space of the norma temperature refrgerator porton of combnatons
of househod type unts for the quck freezng or frozen storage of
foods and househod type refrgerators, the space occuped by equp-
ment such as evaporators, and the freezer storage or nonrefrgerated
space s e cuded.
Reguatons 6, Secton 316.71: Refrgeratng Rev. Ru. 300
apparatus.
INT RN L R NU COD
Types of compressors and condensng unts desgned for, or sut-
abe for use as parts of or wth, househod type refrgerators or
quck-freeze unts and accordngy sub|ect to ta under secton
3 05(b) of the Interna Revenue Code.
dvce s requested concernng the types of compressors and con-
densng unts whch are sub|ect to ta under secton 3 05(b) of the
Interna Revenue Code.
Under the provsons of secton 3 05(a) of the Code a ta of 10
percent s mposed on saes by the manufacturer, producer, or mporter
of househod type refrgerators (for snge or mutpe cabnet nsta-
atons) havng, or beng prmary desgned for use wth, a mechanca
refrgeratng unt operated by eectrcty, gas, kerosene, or gasone;
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Regs. , 31 .2 .
32
househod type unts for the quck freezng or frozen storage of foods,
operated by eectrcty, gas, kerosene, or gasone; combnatons of
such househod type refrgerators and unts. Pursuant to the prov-
sons of secton 3 05(b) of the Code the ta aso appes to saes by
the manufacturer, producer, or mporter of cabnets, compressors,
condensers, condensng unts, evaporators, e panson unts, absorbers,
and contros for, or sutabe for use as parts of or wth, househod
type refrgerators or quck-freeze unts of the knd descrbed n secton
3 05(a) of the Code, e cept when sod as component parts of compete
refrgerators, refrgeratng or coong apparatus, or quck-freeze
unts.
It s the genera poston of the Interna Revenue Servce that the
types of compressors and condensng unts sub|ect to ta under secton
3 05(b) of the Code, are hermetc motor-compressors and sef-con-
taned type hermetc condensng unts under three-fourths horse-
power nomna ratng, sutabe for use at the evaporator temperatures
used n househod type refrgerators and househod type quck-freeze
unts, and ncorporatng motors wth ow startng torque character-
stcs. These standards governng ta abty of the unts nvoved
sha appy e cept where a unt s specfcay desgned for use other
than n connecton wth househod type refrgerators or househod
type quck-freeze unts.
For purposes of ths Rung evaporator temperatures sha be
defned as under 15 F., and ow torque sha be defned as motors
havng ocked-rotor torque conformng substantay to type I, secton
MG1-7.7 of Standards for Fractona orsepower Motors, pub-
shed by The Natona ectrca Manufacturers ssocaton, pub-
caton No. MG2-1951 or subsequent revsons thereof.
Where a compressor or condensng unt s wthn the ta abe spec-
fcatons, but may be specfcay desgned for a nonta abe use, the
manufacturer thereof may secure a Rung from the Servce concern-
ng the ta abty of the ndvdua unt.
SU C PT R C G N R L DMINISTR TI PRO ISIONS
S CTION 3 2. T -FR S L S
Reguatons , Secton 31 .2 : empt saes Rev. Ru. 133
for governmenta use.
INT RN L R NU COD
The sae of gasone by the manufacturer or producer thereof to
empoyees and offcers of a State, or potca subdvson thereof, who
receve rembursement from such State or potca subdvson for
the actua cost of the gasone purchased for use n ther own vehces
used n the performance of ther offca dutes, s a sae for the e -
cusve use of a State or potca subdvson thereof wthn the mean-
ng of secton 3 2(3) of the Interna Revenue Code. Such saes are
e empt from the ta on gasone mposed by secton 3 12 of the Code
provded they are supported by a propery e ecuted e empton cer-
tfcate as requred by secton 31 .2 of Reguatons .
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33
Regs. 6, 5 316.20 .
owever, f the empoyees and offcers are pad on a per dem or per
me bass, the sae of gasone to them s not consdered to be a sae
for the e cusve use of a State, or potca subdvson thereof, wthn
the meanng of secton 3 2(3) of the Code.
S CTION 3 3. CR DITS ND R FUNDS
Reguatons 6, Secton 316.20 : Credts and Rev. Ru. 2G5
refunds.
INT RN L R NU COD
Rebuders of ta abe Ford automobe parts or accessores may
take as a credt for ta pad on new Ford parts used In the re-
budng of such parts or accessores an amount equa to 3. per-
cent of the seng prce of such parts by the Ford Motor Company.
dvce s requested concernng the method of computng the credt
aowabe under secton 3 3(a) of the Interna Revenue Code for
ta pad on new parts purchased from the Ford Motor Company and
used n the rebudng of Ford automobe parts or accessores ta abe
under secton 3 03(c) of the Code.
Pursuant to the provsons of secton 3 3(a) of the Code a credt
may be aowed to a rebuder n the amount of ta whch has been
pad on new automobe parts purchased and used by hm n the re-
budng of automobe parts or accessores wth respect to whch ta
has been reported or pad, or whch have been sod free of ta by vrtue
of the provsons of secton 3 2 of the Code reatng to ta -free saes.
Secton 316.20 of Reguatons 6 requres a rebuder to substantate
such a credt by a statement showng (1) the name and address of
the person who pad to the Unted States the ta of whch credt s
camed, (2) the date of payment, (3) the amount of such ta , and
( ) that the artce was used as prescrbed by aw. e s aso re-
qured to state that he has n hs possesson evdence to support the
statement.
It has been determned that the amount of ta pad wth respect to
new parts sod by the Ford Motor Company to rebuders represents
an amount equa to 3. percent of the prce for whch the artces
are sod by such company. ecause of the dffcutes nvoved n
obtanng the nformaton requred by the above mentoned tems (1),
(2), and (3) of secton 316.20 of Reguatons 6 to support credts
for ta pad on new Ford parts used n the rebudng of ta abe
Ford automobe parts or accessores t s hed that, n eu of estabsh-
ng the amount of ta pad on new parts used n rebudng Ford auto-
mobe parts or accessores n the manner prescrbed by the regua-
tons, rebuders may take as a credt 3. percent of the seng prce
of such new parts sod to them by the Ford Motor Company.
Where a rebuder of Ford parts or accessores does not use the per-
centage factor set forth above he must compy wth the requrements
of secton 316.20 of Reguatons 6 wth respect to any credt camed
on new Ford ta -pad parts used n the rebudng of ta abe Ford
automobe parts or accessores.
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Regs. 2, 130.61. 3
Reguatons 6, Secton 316.20 : Credts and
refunds.
INT RN L R NU COD
Reguatons 6 amended. (See T. D. 6029, p. 0 .
S CTION 3 . US Y M NUF CTUR R, PRODUC R,
OR IMPORT R
Reguatons 6, Secton 316.7: Ta on use by
manufacturer, producer, or mporter.
INT RN L R NU COD
Reguatons 6 amended. (See T. D. 6029, p. 0 .
C PT R 30. TR NSPORT TION ND
COMMUNIC TION
SU C PT R C.-TR NSPORT TION OF P RSONS
S CTION 3 69. T ON TR NSPORT TION
OF P RSONS, TC.
Reguatons 2, Secton 130.51: Scope of ta .
INT RN L R NU COD
Ta abty of amount pad for rde on a mnature or subgauge
raway. (See Rev. Ru. 223, p. 329.)
Reguatons 2, Secton 130.61: Transporta- Rev. Ru. 200
ton and factes furnshed to the Unted
States, to States, or potca subdvsons
thereof.
INT RN L R NU COD
Payments for transportaton of students of a schoo operated by a
State, Terrtory of the Unted States, or potca subdvson thereof,
or the Dstrct of Coumba, whch are made by the schoo from funds
coected ony from the partcpatng students for the purpose of de-
frayng ther ndvdua e penses, consttute payments for trans-
portaton furnshed to the ndvdua students and not for transpor-
taton furnshed to the State, etc., wthn the meanng of the e emp-
ton provded by secton 3 69(f)(1) of the Interna Revenue Code,
snce such payments are not made from funds beongng to the schoo.
ccordngy, such payments are sub|ect to the ta on the transporta-
ton of persons. Carfcaton of M. T. 2 , C. . 19 -2, 176.
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35 Regs. 113, 1 3.1.
SU C PT R . TR NSPORT TION OF PROP RTY
S CTION 3 75. TR NSPORT TION OF P OP RTY
Reguatons 113, Secton 1 3.1: Meanng of ev. u. 2 5
terms.
INT RN L R NU COD
The ta on the transportaton of property mposed by secton
75 of the Interna Revenue Code appes to amounts pad by a
shpper to a transfer and storage company for unoadng, segregat-
ng, reoadng and other accessora servces furnshed n connecton
wth portons of poo car shpments whch the company devers to
consgnees n ts cartage area. The ta does not appy to amounts
pad by the shpper to the transfer and storage company for acces-
sora servces furnshed by the company n connecton wth portons
of poo car shpments whch are devered by other carrers, provded
the charges for such servces are shown as separate tems on bs
rendered to the shpper by the transfer and storage company.
dvce s requested concernng the appcaton of the ta on the
transportaton of property mposed by secton 3 75 of the Interna
Revenue Code to amounts pad by a shpper to a transfer and storage
company for unoadng, segregatng, and other accessora servces
furnshed n connecton wth the dstrbuton of poo car shpments.
In the nstant case, merchandse s shpped by ra n m ed poo
cars to a transfer and storage company for dstrbuton. The transfer
and storage company removes the merchandse from the cars to a
oadng dock, segregates t accordng to the utmate consgnees, and
makes store-door deveres of merchandse specfed for consgnees
ocated n ts cartage area. The transfer and storage company
stencs the names of the consgnees on the merchandse whch s
specfed by the shpper to be devered by other carrers, and oads
t on the trucks of other carrers. fat charge per hundredweght s
made by the transfer and storage company for handng the poo car
shpments, and an addtona charge s made for deveres whch t
makes to consgnees n ts cartage area.
Secton 3 75(a) of the Code mposes a ta wth certan e ceptons
not here appcabe, upon amounts pad wthn or wthout the Unted
States to a person engaged n the busness of the transportaton, for
hre, of property by ra, motor vehce, water, or ar from one pont
n the Unted States to another.
Secton 1 3.1(d) of eguatons 113 provdes that the term trans-
portaton means the movement of property by a person engaged n
the busness of transportng property for hre, ncudng nterstate,
ntrastate, and ntracty or other oca movements. In genera, t
ncudes accessora servces furnshed n connecton wth a trans-
ortaton movement such as oadng, unoadng, handng, and sm-
ar servces.
It s hed that amounts pad to a carrer for accessora servces
furnshed n connecton wth ta abe transportaton are sub|ect to
the ta on the transportaton of property. owever, where such
servces are performed for a shpper or consgnee by a person who does
not transport the property, the amounts pad to sucn person by the
shpper or consgnee are not ta abe, even though the person who
performs such servces may be a carrer.
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Regs. 113, 1 3.13.
36
ccordngy, amounts pad by a shpper to a transfer and storage
company for unoadng, segregatng, reoadng, and other accessora
servces furnshed n connecton wth portons of poo car shpments
whch the company devers to consgnees n ts cartage area are sub-
|ect to the ta . owever, amounts pad by a shpper to the transfer
and storage company for such servces furnshed by the company n
connecton wth portons of poo car shpments devered by other
carrers are not sub|ect to the ta , provded the charges for such
servces are shown as a separate tem on bs rendered to the shpper
by the company. If the charges are bed n a ump sum, the tota
amcunt so bed s sub|ect to the ta .
Rkottatons 113, Secton 1 3.13: ppcaton Rev. u. 2
of ta .
INT RN L R NU COD
mounts pad or aowed to a person engaged n the busness of
transportng property for hre for transportng property purchased
for hs own use are sub|ect to ta under secton 3 75 of the Interna
Revenue Code.
dvce s requested concernng the appcaton of the ta on the
transportaton of property mposed by secton 3 75 of the Interna
Revenue Code to the transportaton by a carrer of property purchased
y t for ts own use.
In the nstant case M Company, whch s engaged n the busness of
transportng property for hre, transports to ts warehouse certan
suppes whch t purchases for use n the conduct of ts busness. The
person from whom the suppes are purchased pays M Company for
the transportaton thereof or aows the company a credt aganst the
purchase prce of the suppes.
Secton 3 75 of the Interna Revenue Code provdes n part as
foows:
(a) Ta . There sha be mposed upon the amount pad wthn or wthout
the Unted States for the transportaton of property 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 ..mount so pad Such ta sha appy ony to amounts pad to
a person engaged n the busness of transportng property for hre, ncudng
amounts pad to a freght forwarder, e press company, or smar person, but not
ncudng amounts pad by a freght forwarder, e press company, or smar
person for transportaton wth respect to whch a ta has prevousy been pad
under ths secton .
Secton 1 3.13 of Reguatons 113 provdes n part as foows:
The ta appes to any payment, not specfcay e empted, for the trans-
portaton of property, made to a person engaged n the busness of transportng
property for hre, ncudng a payment made by one such person to another but
not ncudng an amount pad by a carrer, a freght forwarder, e press company,
or smar person for transportaton wth respect to whch a ta s payabe to
such erson.
It has been the poston of the Interna Revenue Servce that the ta
on the transportaton of property does not appy to amounts pad or
aowed to a person engaged n the busness of transportng property
for hre for transportng property purchased for hs own use. Upon
reconsderaton t s now hed that snce amounts pad or aowed to a
carrer for such transportaton are not specfcay e empted from the
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37
Regs. 113, 1 3.16.
ta and n vew of the above-quoted provsons of aw and reguatons
the amounts so pad or aowed are propery sub|ect to ta .
ccordngy, n the nstant case M Company, a carrer, shoud co-
ect the ta wth respect to any amount pad or aowed to t for the
transportaton by t of property purchased for use n the conduct of
ts busness.
ecause of the poston heretofore mantaned, the nstant rung,
under the authorty of secton 3791 (b) of the Code, w not be apped
retroactvey but w be effectve as of anuary 1, 195 .
Reguatons 113, Secton 1 3.1G: cavated Rev. Ru. 2 9
matera.
INT RN L R NU COD
The tar on the transportaton of property mposed by secton
3 75 of the Interna evenue Code appes to amounts pad for the
transportaton of matera e cavated wthn the boundares of
the ta payer s premses and transported to a pant ocated on the
premses for processng Into sand and grave.
dvce s requested whether the ta on transportaton of property
mposed by secton 3 75 of the Interna Revenue Code appes to the
amounts pad for the transportaton of matera e cavated wthn the
boundares of the ta payer s premses and transported to a pant
ocated on the premses for processng nto sand and grave.
In ths case, the ta payer s engaged n the busness of producng
sand and grave from matera e cavated from and owned by hm.
To produce the sand and grave, t s necessary to process the e cavated
matera. Ths s done at a ceanng and separatng pant ocated
on the ta payer s premses. The matera s transported from the
pont of e cavaton to the processng pant by ndependent truckers
who are hred on an houry bass.
Secton 3 75 of the Code provdes that the ta mposed by that
secton sha not appy to the transportaton of earth, rock, or other
matera e cavated wthn the boundares of, and n the course of,
a constructon pro|ect and transported to any pace wthn, or ad-
|acent to, the boundares of such pro|ect. To come wthn the
e empton t s necessary that two condtons be met, namey, (1) that
the property be earth, rock, or other matera e cavated wthn the
boundares of, and n the course of, a constructon pro|ect, and (2)
that the transportaton of the e cavated matera be wthn the
boundares of the constructon pro|ect or to a pace ad|acent thereto.
See secton 1 3.16 of Reguatons 113.
The ta payer here nvoved woud meet the above enumerated con-
dtons f the matera was e cavated n the course of a constructon
pro|ect. owever, the facts dscose that the matera s e cavated
n connecton wth the ta payer s busness of producng sand and
grave and not n the course of a constructon pro|ect.
ccordngy, t s hed that the processng of the e cavated mate-
ra s not a constructon pro|ect wthn the meanng of secton 3 75
of the Code. Therefore, amounts pad to ndependent truckers for
the transportaton of the matera to the processng pant are sub|ect
to the ta mposed by that secton.
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Regs. 113, 1 3.2 .
3
Reguatons 113, Secton 1 3.2 : States, Rev. Ru. 250
Terrtores, etc.
INT RN L R NU COD
ppcaton of the ta on the transportaton of property Imposed
by secton 3 75 of the Interna Revenue Code to charges for trans-
portaton of a caroad shpment (1) where t s consgned to a com-
merca frm and a porton of the shpment Is unoaded enroute
for the government of a State, or potca subdvson thereof, and.
(2) where It s consgned to the government of a State, or potca
subdvson thereof, and a porton s unoaded enroute for a com-
merca frm.
dvce s requested whether the ta on the transportaton of prop-
erty mposed by secton 3 75 of the Interna Revenue Code appes
to the tota charges pad for transportaton of a caroad shpment
consgned to a commerca frm where a porton of the shpment s
unoaded at a stopoff pont n transt for a State, or potca subd-
vson thereof. dvce s aso requested wth respect to the ta
consequences where a porton of a caroad shpment consgned to a
State, or potca subdvson thereof, s unoaded at a stopoff n
transt for a commerca frm.
Secton 3 75(a) of the Code mposes a ta equa to 3 per centum
of the amount pad for the transportaton of property from one pont
n the Unted States to another. Secton 3 75(b) provdes an e emp-
ton from ta of amounts pad for transportaton of property to or
from a State, Terrtory, or potca subdvson thereof, or the Ds-
trct of Coumba.
It s hed that where a caroad shpment s consgned to a commerca
frm on a through caroad rate wth stopoff nstructons on the b of
adng for a parta unoadng for the government of a State, or
potca subdvson thereof, the e empton appes to the amount
pad for the transportaton of that porton of the shpment whch s
devered to the State or potca subdvson, ncudng any addtona
amount pad for the stopoff prvege.
It s aso hed that where a caroad shpment s consgned to a State,
or potca subdvson thereof, on a through caroad rate wth stopoff
nstructons on the b of adng cang for parta unoadng to a
commerca frm the e empton smary appes to the amount pad for
the transportaton of that porton of the shpment whch s devered
to the State or potca subdvson. owever, the e empton does
not appy to the amount pad for the transportaton of that porton
of the shpment whch s devered to the commerca frm, ncudng
any addtona amount pad for the stopoff prvege.
Wth respect to the above-mentoned shpments t s understood
that the charges for the transportaton of those portons of the shp-
ments whch are devered to a State, or potca subdvson thereof,
as a rue are not shown separatey on the shppng papers. Where the
charges are not shown separatey the ta s coectbe by the carrer
on the tota transportaton charges. owever, where the shppng
papers ndcate the porton of the caroad that s beng devered to
the State, or potca subdvson thereof, the carrer may aocate
the charges on the bass of the weghts of the respectve portons and
coect the ta on the none empt porton ony.
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39 Regs. I, 29.3 01(a)(1)- .
_ If the carrer n ether case coects the ta on the tota transporta-
ton charges, the payor may fe a cam for refund on Form 3 wth
the proper dstrct drector of nterna revenue and attach thereto
the orgna recept ssued by the carrer showng payment of the ta
on the caroad shpment nvoved and documentary evdence estab-
shng the charges aocabe to the shpment devered to the State
or potca subdvson thereof.
C PT R 3 . MISC LL N OUS PRO ISIONS
S CTION 3797.-D FINITIONS
Reguatons 111, Secton 29.3797- : Partner-
Reguatons 111 amended. (See T. D. 6037, p. 213.)
S CTION 3 01(a). MITIG TION OF FF CT OF LIMI-
T TION ND OT R PRO ISIONS IN INCOM T
C S S: D FINITIONS
INCOM T INT RN L R NU COD D CISION OF COURT
1. Income Ta Mtgaton of ffect of Lmtaton and Other
Provsons Doube owance of Deducton or Credt.
For the years 19 1 through 19 5 pettoner, a bankng corporaton
organzed under Federa aw, utzed the accrua method of account-
ng for ncome ta purposes and deducted ta es eved by the Com-
monweath of Pennsyvana on the vaue of ts shares for the year
for whch the ta was computed, not for the foowng year when the
ta was actuay pad. Pursuant to Treasury rung, adoptng a
decson of the Pennsyvana Supreme Court to the effect that such
State ta es were deductbe, regardess of the method of account-
ng, ony when pad, respondent n 19 and 19 5 dsaowed the
camed accrued eves but aowed as a deducton the ta actuay
pad n those years. The effect was to create sma defcences for
19 and 19 5, whch pettoner pad. Thereafter, pettoner fed a
refund cam for 19 3 based upon aowance of such ta es accrued
n 19 2, but pad n 19 3, whch cam was aowed and pad. Re-
spondent made another ad|ustment to the 19 2 return and deter-
mned a defcency for that year resutng from a dsaowance of the
ta accrued for 19 2, but pad n and ater aowed for 19 3 as a con-
sequence of ta payer s refund cam. ed: Respondent may make
an ad|ustment pursuant to secton 3 01 by dsaowng the Pennsy-
vana ta on shares deducted on pettoner s return for 19 2 (and
aso aowed as a deducton for 19 3) wthout aowng a deducton
for such ta pad n 19 2 but accrued In 19 1 and deducted on pet-
toner s return for 19 1.
2. Decson ffrmed.
Decson of the Unted States Ta Court, 1 T. C. 99 (1952)
shps.
INT RN L R NU COD
Ct. D. 1762
affrmed.
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Regs. I, 29.3 01(a)(1)- . 0
Unted States Coubt or ppeas fob the Thrd Crcut
The Frst natona ank of Phadepha, pettoner, v. Commssoner of Interna
Revenue, respondent
205 Fed. (2d) 2
Petton for revew of decson of The Ta Court of tbe Unted States
efore Goodrch, McLaughn, and aodner, Crcut udges
May 2 , 1953
opnon
y McLaughn, Crcut udge. Ths s an appea from a decson of the Ta
Court, 1 T. C. No. 115 ( ugust 29, 1952), uphodng respondent s determnaton
of a defcency for the year 19 2 n the amount of 13,292.76.
The facts are not n dspute and are as foows: Pettoner s a bankng assoca-
ton organzed under Federa aw. t a tmes here matera t has utzed the
accrua method of accountng n reportng ts Federa ncome ta returns. For
the ta years 19 1 through 19 5 pettoner deducted ta es eved by the Com-
monweath of Pennsyvana on the vaue of ts shares.1 The deductons, author-
zed by secton 23(d) of the Interna Revenue Code, were, ostensby because of
pettoner s use of the accrua method, camed for the year for whch the ta
was computed, not for the foowng year when the ta was actuay pad.
Pursuant to a Treasury rung respondent, n audtng pettoner s returns for
19 and 19 5, recomputed the deductons arsng from tbe Pennsyvana ta
payments, dsaowng the camed accrued eves but aowng as a deducton
the ta actuay pad n those years. The effect was to create sma defcences
for 19 and 19 5, whch pettoner pad. Thereafter, and wthn the 3-year
statute of mtatons of secton 275(a) of the Code, pettoner fed a refund
cam for the year 19 3 based on a deducton n the amount of 7, 52. 2 repre-
sentng the 19 2 State ta whch had been camed as a deducton for 19 2
(because accrued then), but whch had not been pad unt 19 3. Ths cam
was aowed and pad.
The events whch ed to the present tgaton foowed those above outned.
The Commssoner, actng under secton 3 01 of the Code, made another ad|ust-
ment, ths tme to the 19 2 return, and determned a defcency for that year n
the amount of 13,292.76 resutng from a dsaowance as a deducton of the
7, 52. 2 accrued for 19 2, but pad n and ater aowed for 19 3 as a conse-
quence of ta payers refund cam. Secton 3 01 permts ad|ustments to be made,
both by the ta payer and by the Commssoner, n certan cases where tbe statute
of mtatons woud normay be a bar, as t woud be Insofar as the 19 2 return
s concerned. One such stuaton detaed n secton 3 01(b) s When a determ-
naton under the ncome ta aws a ows a deducton or credt whch
was erroneousy aowed to the ta payer for another ta abe year . It s
further provded that s uch ad|ustment sha be made ony f there Is adopted
n the determnaton a poston by the ta payer wth respect to whom the
determnaton s made whch poston Is Inconsstent wth the errone-
ous aowance , a condton whch has been met.
Pettoner s chef arguments, both n the Ta Court and on ths appea, are
that (1) secton 3 01 docs not permt the ad|ustment and (2) f secton 3 01 s
appcabe, ta payer Is entted to a deducton of , 7. 6, the State ta
accrued n 19 1 and pad n 19 2 (and whch pettoner used as a deducton n
19 1). It s cear that nectse of the runnng of the statute of mtatons the
ony permssbe ad|ustments to the 19 2 return are those whch come wthn
secton 3 01.
1 Unt 19 5 ths ta was eved on the sharehoders, athough the bank was drected
to coect It on ther behaf and pay It to the State Treasurer. The act of May 23. 19 5.
Pubc Law 9U . gave the bank the opton of proceedng under ths method or of payng the
ta drecty. The change was appcabe to the caendar year 19 .
G. C. M. 21329, 1939-2 C. . 179, whch, foowng a decson of the Pennsyvana
Supreme Court, Commonweath v. Schuyk Trust Co., 15 Pa. 29, 173 . 309 (19.1 1.
reversed on other grounds, 296 U. S. 113, stated that snce ths Pennsyvana ta Is a ta on
the sharehoder, athough pad by the bank. It Is deductbe by tbe atter ony n tbe year
It s actuay pad regardess of the bank s method of accountng.
Determnaton under the Income ta aws s defned In sec. 3 01(a)(1) as rncudos
a fna dsposton by the Commssoner of a cam for refund. cam for refund
Is there deemed fna when the Commssoner aows refund or credt as to the Items wth
respect to whch the cam was aowed.
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1 Regs. I, 29.3 01(a)(1)- .
Premnary, we must dspose of an argument whch pervades pettoner s
ntre case, that t s beng nequtaby treated because no deducton on account
|f a State ta payment s aowed t for the year 19 2. Ths crcumstance, of
urse, arses from the fact that the 19 1 State ta was accrued and aowed as
deducton for 19 1, whe the 19 2 State ta has been aowed as a deducton
for 19 3 as a resut of pettoner s own cam. The State ta for 19 3 as we
s for succeedng years has been aowed as a deducton n the year n whch
pad. So, whe t s true that pettoner s aowed no such deducton for 19 2,
very ta payment made to the State for a the years n queston has been s-
owed as a deducton.
Respondent makes the pont that were the pettoner to be aowed a deducton
Tor 19 2 based on ts actua payment n that year of the 19 1 Pennsyvana ta t
oud be recevng a doube deducton, the 19 1 ta payment havng been aowed
s a deducton for 19 1. Pettoner s answer, n effect, s that n 1921 when the
predecessor of secton 23(d) was frst enacted the Pennsyvana ta ng statute
.vth whch we are concerned had been n effect many years and that had t
mown that t woud ater be requred to deduct such ta payments n the year
vhen actuay pad rather than n the year they were accrued t woud have
educted the 1920 Pennsyvana ta n 1921, the year of payment, rather than
:he 1921 ta whch hnd accrued on December 31, 1921. Thus, t s ntmated, t
;houd now be gven the opportunty of reganng the 1 year s deducton whch
ut for ts use of the accrua method t woud never have ost. Ths suggeston
s wthout mert. In the frst pace, because of the many varabes too obvous to
.varrant dscusson, aowng a doube deducton for the 19 1 Pennsyvana ta
voud not be the equvaent of aowng a deducton for the 1920 ta . Second,
:he statute of mtatons has ong ago barred ad|ustments to pettoner s 1921
a return. Moreover, an ad|ustment of pettoner s 1921 return woud necessary
equre reeomputatons of a ts returns from that year through 19 2. If the
statute of mtatons has any purpose t s to prevent such practces. Rothenses
7. ectrc Storage attery Co., 329 U. S. 296.
It s urged by pettoner that secton 3 01 s nappcabe to the present state of
acts because merey correctng the method of accountng for 19 3 does not mean
:hat a deducton was aowed n that year whch was aso aowed for 19 2 and
hat t s pure concdence that the amount pad n 19 3 s dentca to the
unount accrued for 19 2. Pettoner mscomprehends the nature of the Treas-
ry rung, supra, note 2. Ths rung does not purport to change ta payers
nethod of accountng t states that regardess of such method these Pennsy-
rana ta payments may be camed as a deducton by a bank n the year of actua
payment ony. The reason, of course, s that pror to the 19 5 amendment the
|ank coud act ony as a coecton agent for ts sharehoders, . e., there was
othng to accrue so far as ncome ta deductons were concerned. The asserton
hat t s ony a concdence that the amount of the 19 2 accrua and the 19 3
payment s dentca has no sound foundaton. It s apparenty made n support
)f the argument that snce the 19 3 payment mght have been a dfferent fgure
rom the 19 2 accrua t cannot be sad that the atter, beng merey a smar
tem was erroneousy aowed. Nether secton 3 01 nor the case of MacDonatd
7. Commssoner, 17 T. C. 93 (1951), reed on by pettoner, requres that the
|mount erroneousy camed as a deducton n 1 year must be Identca wth the
unount determned for another year t s the tem of deducton or credt whch
nust be the same. Whether the 19 2 Pennsyvana ta s camed as an ac-
rued or cash tem of deducton does not change ts dentty. It was propery
nade the bass of an ad|ustment under secton 3 01.
Fnay, t s urged that f secton 3 01 s found appcabe pettoner must,
n the recomputaton of ts 19 2 return, be aowed a deducton for the 19 1
ennsyvana ta whch t pad n 19 2. Ths theory s premsed on readng
;ertan words of secton 3 01(d) out of conte t. That subsecton deas wth the
scertanment of the amount of ad|ustment and reates to ad|ustments made n
favor of the ta payer as we as the Commssoner. The pertnent part thereof
states:
Sec. 23 (a) (3), Revenue ct of 1921 : 2 Stat. 25 .
It woud seem that such dfferences as e st are caused by the varance between
ta payer s cacuatons at the tme the accrua entry Is made and the tme the ta Is pad,
r between ta payer s cacuatons and those of the State Treasurer. If pettoner s argu-
ment were sound a ta payer coud defeat the appcaton of sec. 3 01 by mscacuatng
the accrua fgure but ater makng the proper payment. For the years 10 1 and 19 2 the
ccrua fgure and the payment fgure were Identca. In 19 3 there was a dfference of 1
:ent, whe In 19 and 19 5 the varances were 311. 2 and C3. 7, respectvey. In the
Fears 19 1- 5 the ta pad vared from 9,230.55 to 7, 52. 2.
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3 0 .
2
There sha then be ascertaned the Increase or decrease In the ta pre-
vousy determned whch resuts soey from the correct e cuson, ncuson,
aowance, dsaowance, recognton, or nonrecognton, of the tem. Incu-
son, deducton, credt, gan or oss, whch was the sub|ect of the error.
The amount so ascertaned (together wth any amounts wrongfuy coected,
as addtons to the ta or nterest, as a resut of such error) sha be the
amount of the ad|ustment under ths secton.
Pettoner reads t thus:
the ncrease n the ta prevousy determned whch
resuts soey from the correct aowance of the
deducton whch was the sub|ect of the error. ( m-
phass supped.)
s stated earer, ths case comes wthn that part of secton 3 01(b) whch
permts an ad|ustment to be made when there s a determnaton whch a|ows
a deducton or credt whch was erroneousy aowed to the ta payer for another
year , . e., the 19 2 Pennsyvana ta . The remedy s an ncrease
n the ta prevousy determned whch resuts soey from the correct
dsaowance of the tem whch was the sub|ect
of the error agan the 19 2 Pennsyvana ta , pad n 19 3 and a-
owed as a deducton n that year, but erroneousy camed as a deducton for
19 2. ( mphass supped.) When secton 3 01 s so apped there s no room
for pettoner s contenton that t shoud be aowed the 19 1 Pennsyvana ta
evy as a deducton for 19 2.
To state ths case another way, t was not the aowance as a deducton of the
19 1 ta In pettoner s 19 1 return but the aowance of the 19 2 ta n 19 2
whch was the sub|ect of the error n respect of whch pettoner s poston, be-
cause of ts aowed refund cam for the year 19 3, s nconsstent. Ths error
has been set rght by the correct dsaowance of that tem (the 19 2 ta as a
deducton In that year s return) and has resuted n an ncrease n the ta pre-
vousy determned for 19 2. The Ta Court correcty hed that, secton 3 01
beng nappcabe to the 19 1 Pennsyvana ta , pettoner s precuded by the
statute of mtatons from havng that tem consdered n recomputng ts 19 2
return.
Pettoner s remanng ponts have been e amned and found to be wthout
mert.
The |udgment w be affrmed.
S CTION 3 0 . TIM FOR P RFORMING C RT IN
CTS POSTPON D Y R SON OF W R
Rev. Ru. 207
INT RN L R NU COD
The personne of Unted Natons orean Reconstructon gency
(UN R ) who are n the combat zone, as defned n ecutve Order
10195, C. . 1951-1, 6, durng the perod desgnated by the Presdent
by ecutve order as the perod of combatant actvtes and who are
servng under the Unted Natons Command pursuant to certan agree-
ments netween the Unted Natons Command and UN R , are nd-
vduas servng n support of the rmed Forces of the Unted States
wthn the meanng of secton 3 0 (f) of the Interna Revenue Code.
Sec. S 01 (e) specfcay prohbts an ad|ustment to be made as to any Item whch
was not the sub|ect of the error.
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P RT II. DMINISTR TI M TT RS
T. D. C03
TITL 26 INT RN L R NU . C PT R I
TITL 27 INTO IC TING LI UORS. C PT R I
Change of nomencature
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
In rues and reguatons heretofore prescrbed by the ureau of
Interna Revenue and currenty appcabe n the admnstraton of
the nterna revenue aws, and n returns, notces, mmeographs, n-
structons, crcuars, or other forms or pubcatons of whatever nature
heretofore prescrbed, furnshed, or used n or by the ureau of
Interna Revenue and currenty n use,
(a) reference to the ureau of Interna Revenue sha be deemed
to refer to the Interna Revenue Servce,
(b) reference to a dstrct commssoner or an assstant dstrct
commssoner sha be deemed to refer to a regona commssoner
or an assstant regona commssoner, respectvey,
(o) reference to a coector of nterna revenue or a drector of
nterna revenue sha be deemed to refer to a dstrct drector of
nterna revenue,
(d) reference to a dstrct supervsor or an assstant dstrct
commssoner, coho and Tobacco Ta , sha be deemed to refer
to an assstant regona commssoner, coho and Tobacco Ta ,
(e) reference to nvestgator n charge, or head, coho and
Tobacco Ta Dvson n the offce of tbe drector, sha be deemed
to refer to supervsor n charge, coho and Tobacco Ta ,
(/) reference to a deputy commssoner for the ureau of
Interna Revenue, as the offce e sted pror to ugust 11, 1952,
or to a head of a dvson n the Washngton eadquarters Offce,
sha be deemed to refer to a drector at the Natona Offce, and
(g) reference to a coecton dstrct sha be deemed to refer
to an nterna revenue dstrct.
ecause the soe purpose of ths Treasury Decson s to conform the
documents specfed heren to varous orders, ncudng Treasury De-
partment Order No. 150-26, t s hereby found that t s unnecessary
to ssue ths Treasury Decson wth notce and pubc procedure under
secton (a) of the dmnstratve Procedure ct, approved une 11,
19 6, or sub|ect to the effectve date mtatons of secton (c) of sad
act.
2 070 5 29
( 3)
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Ths Treasury Decson sha be effectve upon ts fng for pubca-
ton n the Federa Regster.
(Ths Treasury Decson s ssued under the authorty contaned n
sees. 3176 and 3791 of the Interna Revenue Code (53 Stat. 375, 76;
26 U. S. C. 3176, 3791).)
O. Gordon Dek,
ctng Commssoner of Interna Revenue.
pproved ugust 21,1953.
. Chapman Rose,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster ugust 20,11)53, : 9 a. m.)
T. D. 60 3
TITL 26 INT RN L R NU . C PT R I
TITL 27 INTO IC TING LI UORS. C Ff R I
mendments of Treasury Decsons 5000 and 5901
Treasury Department,
Offce of the Commssoner of Interna Revenue,
Washngton 5, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Other
Concerned:
Treasury Decson 5900 C. . 1952-1, 237 , approved May 13,1952
17 F. R. 6 , and Treasury Decson 5901 C. . 1952-1, 23 , ap-
proved May 15,1952 17 F. R. 561 , are hereby amended by strkng
reference to a deputy coector sha be deemed to refer to an nterna
revenue agent from subdvson (b) of the frst paragraph of each
and nsertng n eu thereof the foowng: reference to a deputy
coector sha be deemed to refer to an nterna revenue agent, e cept
that after September 30, 1953, reference to a deputy coector sha
be deemed to refer to a coecton offcer .
ecause the soe purpose of ths Treasury Decson s to conform
Treasury Decsons 5900 and 5901, and the documents amended by
such Treasury Decsons, to the revson of the ttes of certan em-
poyees of the Interna Revenue Servce, t s hereby found that t s
unnecessary to ssue ths Treasury Decson wth notce and pubc
procedure under secton (a) of the dmnstratve Procedure ct,
approved une 11,19 6, or sub|ect to the effectve date mtatons of
secton (c) of that act.
Ths Treasury Decson sha be effectve upon ts fng for pubca-
ton n the Federa Regster.
(Ths Treasury Decson s ssued under authorty of sectons 3176
and 3791, Interna Revenue Code (53 Stat. 375, 67; 26 U. S. C. 3176,
3791).)
ustn F. Wnke,
ctng Commssoner of Interna Revenue.
pproved October 6, 1953.
M. . Fosom,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster October 9,1953, : 50 a. m.)
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5
Rev. Ru. 150
nforcement of Federa statutes reatng to frearms, Ict quor
traffc, etc.
The accompanyng notce (Form 1712 to a state, county, and
cty prosecutors and aw enforcement offcers s for the purpose of
brngng to ther attenton the Federa aws pertanng to frearms
and the ct quor traffc whch the coho and Tobacco Ta
Dvson s charged wth enforcng.
It s the desre of ths offce that every effort be made to afford
assstance to aw enforcement offcers, upon request, as prompty as
crcumstances permt. Supervsors n Charge, coho and Tobacco
Ta , shoud arrange for ther Group Leaders and Investgators to
advse them each tme there s a change n oca prosecutve and
enforcement offcas n the area under ther supervson n order that
the new offcas may be furnshed wth copes of the notce on Form
1712.
ny unusua deveopments resutng from ths cooperatve enforce-
ment program shoud be referred to n the Weeky Report of n-
forcement ctvtes under the headng, Genera nforcement.
Correspondence reatve to ths Revenue Rung shoud refer to
the number thereof and to the symbos O: T: F.
T . S. TR SURY D P RTM NT
Offce of
COMMISSION R OF INT RN L R NU
Washngton 25, D. 0.
pr 2 ,1953
To State, County, and Cty Prosecutors and Law nforcement
Offcers:
The purpose of ths notce s to brng to your attenton certan Fed-
era aws whch can be utzed effectvey as an ad to aw enforcement
n the suppresson of crme. These aws are:
1. The Federa Frearms ct (U. S. Code, Tte 15, Sectons 901
et seq.)
Ths aw deas e cusvey wth the transportaton, shpment, or
recept of frearms or ammunton n nterstate or foregn commerce.
The statute prohbts, among other acts:
a. person from shppng, transportng, or recevng a frearm
or ammunton n nterstate or foregn commerce f he has been
convcted of a crme of voence, such as murder, mansaughter,
rape, mayhem, kdnappng, robbery, burgary, housebreakng;
assaut wth ntent to k, commt rape, or rob; assaut wth a
dangerous weapon; or assaut wth ntent to commt any offense
punshabe by mprsonment for more than one year, or f he has
been ndcted for such a crme or s a fugtve from |ustce.
b. person or concern from shppng or transportng know-
ngy n nterstate or foregn commerce frearms or ammunton
to the type of ndvdua referred to above.
Form 1712
U. S. TR S Y D PT.
Int. Rev. Sbbvce
(Revsed prU 1953)
Orgnay Issued as I -Mmeograph No. 1T3, dated pr 2 , 1033.
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6
c. ny person from transportng or shppng, or causng to be
transported or shpped n nterstate or foregn commerce any
stoen frearm or ammunton, knowng, or havng reasonabe
cause to beeve, same to have been stoen.
d. ny person from recevng, conceang, storng, barterng,
seng, or dsposng of any frearm or ammunton or pedgng or
acceptng as securty for a oan any frearm or ammunton mov-
ng n or whch s a part of nterstate or foregn commerce, and
whch whe so movng or consttutng such part has been stoen,
knowng, or havng reasonabe cause to beeve the same to have
been stoen.
e. ny person from shppng, transportng, or knowngy re-
cevng n nterstate or foregn commerce any frearm from whch
the manufacturer s sera number has been removed, obterated,
or atered.
The purpose of ths aw s to prevent crmnas from obtanng fre-
arms and ammunton.
The term frearm means any weapon, by whatever name known,
whch s desgned to e pe a pro|ecte or pro|ectes by the acton of an
e posve and a frearm muffer or frearm sencer, or any part or parts
of such weapon.
The term ammunton sha ncude ony psto or revover
ammunton. It sha not ncude shotgun shes, metac ammun-
ton sutabe for use ony n rfes, or any .22 caber rmfre
ammunton.
The term nterstate or foregn commerce means commerce be-
tween any State,Terrtory, or possesson (but not ncudng the Cana
Zone), or the Dstrct of Coumba, and any pace outsde thereof;
or between ponts wthn the same State, Terrtory, or possesson (but
not ncudng the Cana Zone), or the Dstrct of Coumba, but
through any pace outsde thereof; or wthn any Terrtory or
possesson or the Dstrct of Coumba.
The aw provdes a crmna penaty, upon convcton, of a fne
of not more than 2,000 or mprsonment for not more than fve
years or both.
The ct provdes for the sezure and forfeture of any frearm or
ammunton n respect of whch any voaton of the ct has been
commtted.
very frearm found n possesson of the persons referred to repre-
sents a potenta voaton of the Federa Frearms ct, and the
egaty of the possesson of such weapon shoud be thoroughy
nvestgated.
2. The Natona Frearms ct of cne 26, 193 (U. S. Code,
Tte 2G, Sectons 2720-273 ; 3260-3266)
The purpose of the Natona Frearms ct s to prevent strcty
gangster weapons, such as machne guns and sawed-off shotguns, from
gettng nto the hands of the crmna eement by the mposton of
a prohbtve transfer ta . The ct provdes for regstraton of
such frearms and mposes a ta upon the makng or transfer of
frearms of the foowng types:
a. shotgun or rfe havng a barre of ess than 1 nches n
ength; provded, however, that any such rfe s e cepted from
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the aw f ts caber s .22 or smaer and f ts barre s 16 nches
or more n ength;
b. ny other weapon, e cept a psto or revover, from whch
a shot s dscharged by an e posve f such weapon s capabe
of beng conceaed on the person; provded, however, that
a psto or revover attached to, or wth, accompanyng shouder
stock has been hed to come wthn purvew of the statute;
c machne gun. The term machne gun means any
weapon whch shoots, or s desgned to shoot, automatcay or
semautomatcay, more than one shot, wthout manua reoad-
ng, by a snge functon of the trgger.
d. muffer or sencer for any frearm whether or not the
frearm tsef s covered by the ct.
ny frearm of a type ncuded bv the ct whch has been made
or transferred wthout payment of the approprate ta by the maker
or transferor, or whch has not been regstered n accordance wth
the provsons of the ct, sub|ects the voator, upon convcton, to
a fne of not more than 2,000 or mprsonment for not more than
fve years or both.
ny frearm as defned heretofore whch has at any tme been made
or transferred egay s sub|ect to sezure and forfeture under
the nterna revenue aws.
The aw does not appy to the transfer of such frearms to the Unted
States Government, any State, Terrtory, or possesson of the Unted
States, or to any potca subdvson thereof, or to the Dstrct of
Coumba, or to sherffs, chefs of poce, commssoners of poce,
superntendents, or other chef of cers of state poce unts, ncudng
state hghway patros, and drectors of pubc safety, or to Federa aw
enforcement agences, or to the transfer of an unservceabe frearm
transferred as a curo or ornament, e cept that the person transferrng
such fre arm must fe an appcaton for e empton from payment of
the transfer ta .
3. ct of ugust 9,1939 (U. S. Code, Tte 9, Sectons 7 1-7 )
Ths ct makes t ega to use any vesse, vehce, or arcraft to
transport, carry, concea, convey, possess, or transfer any weapon
defned as a frearm under the Natona Frearms ct, whch has not
been regstered or on whch the makng or transfer ta due has not
been pad as requred by the Natona Frearms ct or wth respect to
whch there has been commtted any other voaton of sad ct, and
sub|ects the vesse, vehce, or arcraft to sezure and forfeture under
the customs aws.
. Lquor Ta dmnstraton ct ( pproved une 20, 193G)
(U. S. Code, Tte 26, Secton 3173(c))
Secton 3173(c) (Possesson of Devces for mttng Gas, Smoke,
etc.; posves and FreaTms) provdes as foows:
(1) Whoever, when voatng any aw of the Unted States, or
of any Terrtory or possesson of the Unted States, or of the
Dstrct of Coumba, n regard to the manufacture, ta aton, or
transportaton of or traffc n dsted sprts, wnes, or fermented
mat quors, or when adng n any such voaton, has n hs
possesson or n hs contro any devce capabe of causng emsson
of smoke, gas, or fumes, and whch may be used for the purpose
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of hnderng, deayng, or preventng pursut or capture, any e -
posve, or any frearm (as defned n sec. 2733), e cept a machne
gun, or a shotgun or rfe havng a barre of ess than eghteen
nches n ength, sha be fned not more than 5,000 or be m-
prsoned for not more than 10 years, or both, and a persons
engaged n any such voaton or n adng n any such voaton
sha be hed to be n possesson or contro of such devce, frearm,
or e posve.
(2) Whoever, when voatng any such aw, has n hs posses-
son or n hs contro a machne gun, or any shotgun or rfe havn r
a barre of ess than eghteen nches n ength, sha be punshed
by mprsonment for not more than twenty years; and a persons
engaged n any such voaton or n adng n any such voaton
sha be hed to be n possesson and contro of such machne gun,
shotgun, or rfe.
(3) very such frearm or devce for emttng gas, smoke, or
fumes, and every such e posve, machne gun, shotgun, or rfe,
n the possesson or contro of any person when voatng any such
aw, sha be sezed and sha be forfeted and dsposed of n the
manner provded by secton 2730.
( ) s used n ths subsecton the term machne gun means
any weapon whch shoots, or s desgned to shoot, automatcay
or semautomateay, more than one shot, wthout manua re-
oadng, by a snge functon of the trgger.
5. Sectons of the Interna Revenue Code Reatng to the
Ict Traffc n Lquors
arous sectons of the Interna Revenue Code prohbt the manu-
facture, possesson, transportaton, and sae of nonta pad quors.
very gaon of 100 proof nonta pad quor manufactured defrauds
the Government of 10.50 ta under the present rate.
s an effectve ad to aw enforcement n genera and for the pro-
tecton of the country s revenue the cooperaton of a prosecutve and
aw enforcement offcers s socted.
In many nstances ctzens of good repute possess frearms as defned
n the Natona Frearms ct, prncpay war trophes, such as
machne guns and machne pstos, and have faed to regster them
wth the Commssoner of Interna Revenue, beng unaware of ths
requrement by aw. In nstances of ths knd, as we as n a others
where there s an apparent voaton of one or more of the aws referred
to, t w be greaty apprecated f contact s made wth the oca
acoho and tobacco ta offce of the Interna Revenue Servce n order
that an Investgator may be assgned for the purpose of determnng
the proper acton to be taken.
Mutua cooperaton n ths regard w resut n better aw enforce-
ment.
Rev. Ru. 153
Procedure reatng to tobacco nvoces, Form 77
1. egnnng wth the fng of ther uy 1953 returns or reports.
Forms 62, 62- , 72-Parts 1 and 2, and 775, manufacturers of tobacco,
Orgnay Issued as IR Mmeograph 2 dated uy 2 , 1953.
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9
snuff, cgars, and cgarettes, and deaers n eaf tobacco w no onger
submt, wth such monthy returns and reports, tobacco nvoces,
orm 77 , coverng tobacco materas receved and shpped.
2. Form 77 wbe prepared n the usua manner n connecton wth
each shpment or remova of tobacco materas, and the orgna
(whte) nvoce forwarded to the consgnee, n the case of a domestc
shpment, or to the customs offcers at the port, n the case of an e -
port shpment. cept the dupcate (yeow) nvoce retaned by
customs offcers n the case of tobacco mported, and the orgna n-
voce retaned by customs offcers n the case of tobacco e ported,
manufacturers and deaers sha retan the orgna nvoce coverng
each ot of tobacco receved and the dupcate nvoce coverng each
ot of tobacco shpped. In the case of recept of tobacco from farmers,
the dupcate nvoces n such cases sha be submtted, on or before
the 10th day of each month, to: ureau of grcutura conomcs,
Department of grcuture, Washngton 25, D. C, ttenton: Fed
Crops Dvson.
3. The orgna and dupcate nvoces retaned by manufacturers
and deaers sha be kept separatey by months, n the order of dates
of recept and shpment of the tobacco, to agree wth the entres n
ther revenue records. The tobacco nvoces so retaned by manufac-
turers and deaers sha be kept for a perod of 2 caendar years
after the cose of the year n whch the tobacco covered by the nvoces
was receved or shpped, and such nvoces sha be avaabe at a
tmes for nspecton by any nterna revenue offcer upon request of
such offcer.
. Correspondence reatng to ths Revenue Rung shoud refer
to the number and date thereof and to the symbos O: T: T.
Rev. Ru. 212
panson of the program of pubshng Revenue Rungs an-
nounced n Rev. Ru. 2, C. . 1953-1, , to ncude rungs ad-
dressed to ta payers or ther representatves.
Secton 1. Purpose.
Revenue Rung 2, C. . 1953-1, , estabshed a system for
ncreased pubcaton n the Interna Revenue uetn of commun-
catons to fed offces nvovng substantve ta aw, procedures affect-
ng ta payers rghts or dutes, or ndustry reguaton. The purpose
of ths Revenue Rung s to e pand the pubcaton of rungs pro-
gram to ncude rungs addressed to ta payers or ther representatves.
ccordngy, effectve mmedatey, a such rungs, nstructons, and
other communcatons w be consdered from the standpont of
pubcaton, whether addressed to fed offcers, ta payers, ta payers
representatves, trade assocatons, or others.
Sec. 2. Pubcaton pproach.
Under ths e panded program, t s the pocy to pubsh n the
Interna Revenue uetn a rungs, as we as procedures drecty
affectng ta payers7 basc rghts or dutes, whch may serve as prece-
dents or gudes to e amnng offcers and other personne of the Inter-
na Revenue Servce, as we as to the genera pubc.
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Sec. 3. Pubcaton Standards and Procedures.
Generay, the standards, procedures and form of pubcaton an-
nounced n ev. u. 2, supra, for controng the consderaton of
communcatons to fed offces for purposes of pubcaton w be
appcabe under the terms of ths evenue Rung. Thus, every
communcaton deang wth substantve ta aw, procedures affectng
ta payers rghts or dutes, or ndustry reguaton, w be deemed
to be of a character potentay pubshabe and w be fuy consd-
ered for pubcaton purposes, uness t ceary fas wthn any of the
e ceptons enumerated n paragraph of such Revenue Rung. ow-
ever, every communcaton whch has been referred to the Offce of
the Chef Counse for revew, or s based on a memorandum from the
Chef Counse n the same case, w automatcay be consdered to
be of a potentay pubshabe character and w be channeed nto
proper pubcaton procedures for consderaton, even though t may
fa wthn one of such e ceptons. Communcatons reatng soey
to matters of nterna management are e cepted.
Sec. . ffect on Other Documents.
Ths Revenue Rung does not revoke Rev. Ru. 2, supra, but merey
modfes and suppements t as ndcated above and e tends the e stng
pubcaton standards and procedures to a rungs and ke
communcatons.
Rev. Ru. 266
Pocy respectng reopenng of agreed ssues, and rasng of
new ssues, n ncome and profts ta cases on appea from e amnng
offcers fndngs.
1. We are confronted wth a serousy congested stuaton n the
ppeate Dvson and n the Ta Court. We have gven consderabe
thought to ths probem and the purpose of ths Revenue Rung s to
outne some of the means by whch ths congeston may be reeved
and the number of unagreed cases and ssues may be reduced n the
future.
2. The obvous begnnng pont s to ncrease the number of agree-
ments obtaned by the e amnng offcers and the group supervsors.
Steps to acheve ths aready have been taken by ncreasng the de-
gree of fnaty accorded such agreements, thereby makng them more
attractve to ta payers and ther representatves. Further progress
can be made by mpressng upon group supervsors and upon re-
vewers n the udt Dvson that an agreed ssue shoud not be re-
opened and nether shoud a new ssue be rased uness the ground
for such acton s a substanta one and the potenta effect upon the
ta abty s matera. The foregong appes aso to the reopenng
of agreed ssues and the rasng of new ssues by the ppeate Dvson.
t a eves, there shoud be a cear understandng of the pocy aganst
rasng ssues for tradng purposes ony, as we as the prohbton
aganst nusance-vaue settements.
3. fed n whch effort shoud be e pended s that of obtanng
parta agreements. In any case n whch no agreement can be se-
Orgnay Issued as IR-Mmeograph 29 . dated October 9, 1953.
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( 3310.
cured wth respect to one or more ssues or years, we shoud en-
courage agreement wth respect to the other ssues or years. These
parta agreements may be reached wth the e amnng offcer or the
group supervsor n the udt Dvson, or n the ppeate Dvson.
In each nstance where t s approprate, an opportunty to wave the
restrctons on assessment and coecton shoud be provded so as to
avod accumuaton of nterest cost to the ta payer. owever, the
e ecuton of such a waver shoud not be consdered a prerequste to
a parta agreement of the type dscussed n ths Revenue Rung.
. In each case n whch a parta agreement s reached n the udt
Dvson, the revenue agent s report shoud ceary and competey set
forth the agreement so that the ppeate Dvson need not recon-
sder propery determned ssues. The dffcutes encountered n ths
regard pror to the reorganzaton may be avoded by ncorporatng
n the agent s report the decsons reached at the concuson of the
udt Dvson s consderaton of the case. so n any nstance n
whch the ta payer s protest ndcates that a parta agreement s not
set forth correcty n the agent s report, ths dfference shoud be con-
sdered by the udt Dvson and approprate acton taken pror to
transmtta of the case to the ppeate Dvson.
5. The provsons of ths Revenue Rung reatng to parta agree-
ments sha not appy n any case n whch crmna prosecuton s
under consderaton or s pendng, or n any other nstance (for e -
ampe, f assessment or coecton of the ta s n |eopardy) where n
the opnon of the drector or of the ssstant Regona Commssoner,
ppeate, the nterests of the Government w be pre|udced.
6. In the appcaton of the poces dscussed n the foregong para-
graphs, the broad ob|ectve shoud be to acheve a greater degree
of fnaty n a arger number of cases at the earest possbe admns-
tratve stage.
S CTION 3310. R TURNS ND P YM NT OF T
Rev. Ru. 25
INT RN L R NU COD
Form 720, uartery Federa cse Ta Return-Statement to be
furnshed by ta payer whose records do not suppy a porton of the
Informaton caed for on the return.
Secton 1. Purpose.
The purpose of ths Revenue Rung s to provde rues to be fo-
owed n connecton wth the preparaton of Form 720, uartery
Federa cse Ta Return.
Sec. 2. Descrpton of Form 720.
Form 720 repaces a number of monthy returns formery pre-
scrbed for reportng many e cse ta es. It w be fed by ta payers
for the quarter endng September 30, 1953, and subsequent quarters.
One of the mportant features of ths new form s the request (n
coumns 2, 3, and ) for certan nformaton on ta abe saes, servces,
Orgnay ssued as IR-MmeograpU 2S9, dated September 30, 1053.
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( 3310.
52
or charges, and on e emptons or ad|ustments, whch was not re-
qured on prevous return forms, but whch s desgned to ad n the
e amnaton of ta returns.
Sec. 3. Preparaton of Returns.
.01 Treasury Department reguatons requre ta payers to man-
tan records adequate to permt a determnaton of the ta due. ow-
ever, notwthstandng the requrements of the reguatons, many ta -
payers never have geared ther accountng to these requrements.
ccordngy, the nstructons accompanyng Form 720 reatng to
the requrements for competng coumns 2, 3, or on the form are
modfed to the e tent provded n the foowng paragraphs.
.02 The Interna Revenue Servce w accept returns on Form 720
n whch the ta payer competes the nformaton caed for n tems
1 through 5 and shows the amount of ta n coumn 6 of the appro-
prate schedue on the form. Ta payers shoud, however, compete
such other portons of the form as may be feasbe, and shoud sup-
py such addtona data as they can based upon e stng records of
purchases, saes, producton, and nventores.
.03 Ta payers who do not suppy the data caed for on Form 720
shoud attach to the form as fed for ether the quarter endng Sep-
tember 30, 1953, or for the quarter endng December 31,1953, a bref
statement e panng the faure to suppy the necessary data and
descrbng the system empoyed by the ta payer to assure the proper
determnaton of e cse ta abty. Where the ta payer s a mem-
ber of an organzaton whch submts to the Interna Revenue Servce
a statement of the accountng procedures used by ther members, the
ta payer may attach a copy of such statement or refer to such state-
ment, n eu of submttng a separate statement, f the ta payer s
procedures are n accordance wth that descrbed by the organzaton.
.0 The ta payer need furnsh the foregong statement ony once,
uness a further e panaton s requested or uness a change n hs
record-keepng procedures affects hs abty to f n the return or
determne the ta . Such statements w be used n connecton wth
audt consderatons to be gven to such returns and for such reports
as may be requested by the Natona Offce as to compance.
Sec. . Perod to Whch Ths Pocy Is ppcabe.
It s ntended that ths pocy w appy to returns coverng a
quarters through une 30, 195 . Instructons reatng to returns for
quarters endng after une 30,195 , w be ssued pror to uy 1,195 .
Sec. 5. Inqures.
Ta payers are nvted to consut wth dstrct drectors of nterna
revenue about any probem reatng to the requrements for fng
n Form 720.
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53
3607.
S CTION 3657. P YM NT Y UNIT D ST T S NOT S
ND C RTIFIC T S OF IND T DN SS
D. C. 922
INT RN L R M COD
Unted States or merca. Treabubt Savngs Notes. Skbes
1953. Departmeot Crcunr No. 922. Fsca Servce. ureau of the 1 uLc Debt
Treasury Department,
Offce of the Secretary,
Washngton, May 11,1953.
Subpart
. Offerng of Notes.
. Descrpton of Notes.
C. Purchase of Notes.
D. Presentaton In Payment of Ta es.
. Cash Redempton at or efore Maturty.
F. Payment or Ressue to Other Than Inscrbed Owner.
G. Genera provsons.
SU P RT : OFF RING OF NOT S
Secton 33 .1. The Secretary of the Treasury, pursuant to the au-
thorty of the Second Lberty ond ct, as amended, offers for sae to
the peope of the Unted States, at par and accrued nterest as provded
n secton 33 .12 hereof, an ssue of notes of the Unted States desg-
nated Treasury Savngs Notes, Seres , whch notes, f nscrbed n
the name of a Federa ta payer, w be recevabe as herenafter pro-
vded at par and accrued nterest n payment of ncome, estate, and
gft ta es mposed by the Interna Revenue Code, or aws amendatory
or suppementary thereto. The notes may aso be redeemed for cash
at par and accrued nterest, wth certan e ceptons appcabe to bank-
ng nsttutons, as provded n secton 33 .16 hereof.
Sec. 33 .2. Wthdrawa of Seres Notes. The sae of Treasury
Savngs Notes, Seres , offered under Department Crcuar No. 9
C. . 1951-2, 221 , dated May 10, 1951, s hereby termnated at the
cose of busness May 1 ,1953.
Sec. 33 .3. Duraton of Offer. The sae of notes of Seres
offered by ths crcuar w begn on May 15, 1953, and w contnue
unt termnated by the Secretary of the Treasury.
Sec. 33 . . Defntons. (a) The word month as used heren
means the perod from and ncudng the 15th day of any 1 caendar
month to but not ncudng the 15th day of the ne t succeedng month.
(b) The words ssue date mean the date as of whch a note s
ssued and w aways be the 15th day of a caendar month.
(c) The words nterest accrua date or accrua date mean the
date upon whch a month s nterest accrues on a note, the frst accrua
date beng the 15th day of the caendar month ne t foowng the
ssue date.
SU P RT : D SCRIPTION OF NOT S
Sec. 33 .5. Genera. Treasury Savngs Notes, Seres , w n
each nstance be dated as of the 15th day of a caendar month. The
ssue date w be determned by the day of the month on whch pay-
ment at par and accrued nterest, f any, s receved and credted by an
agency authorzed to ssue the notes. For e ampe, payment receved
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3G57.
5
nnd credted on any day durng the perod from and ncudng May 15,
1953, to and ncudng une 1 ,1953, woud resut n the ssue of notes
dated May 15,1953. They w mature 2 years from that date and may
not be caed by the Secretary of the Treasury for redempton before
maturty. notes bearng ssue dates wthn any 1 caendar year
sha consttute a separate seres ndcated by the etter foowed
by the year of maturty. t the tme of ssue the ssung agency w
nscrbe on the face of each note the name and address of the owner,
w enter the ssue date, and w mprnt ts datng stamp (wth cur-
rent date). The notes w be ssued n denomnatons of 100. 500,
1,000, 5,000, 10,000, 100,000, 500,000, and 1,000,000. change
of authorzed denomnatons from hgher to ower, but not from ower
to hgher, may be arranged at any agency that ssues Treasury Savngs
Notes, Seres .
Sec. 33 .0. cceptance for Ta es on Cash Redempton. If n-
scrbed n the name of an ndvdua, corporaton, or other entty pay-
ng ncome, estate, or gft ta es mposed under the Interna Revenue
Code, or aws amendatory or suppementary thereto, the notes w be
recevabe, sub|ect to the provsons of secton 33 .15 of ths crcuar,
at par and accrued nterest, n payment of such ncome, estate, or gft
ta es assessed aganst the owner or hs estate. If not presented n
payment of ta es, or f not nscrbed n the name of a ta payer abe
to the above-descrbed ta es, and sub|ect to the provsons of secton
33 .16 of ths crcuar, the notes w be payabe at maturty, or at the
owner s opton and request they w be redeemabe before maturty
at par and accrued nterest.
Sec. 33 .7. Interest. Interest on each 1,000 prncpa amount of
Treasury Savngs Notes, Seres , w accrue monthy on the 15th
caendar day of each month after the ssue date on a graduated scae,
as foows:
ach month
Frst to s th months, Incusve f 1. S)
Seventh to twefth months, Incusve 2.10
Thrteenth to eghteenth months, ncusve 2.20
Nneteenth to twenty-fourth months, ncusve 2.30
The tabe1 appended to ths crcuar shows for notes of each denomna-
ton, for each consecutve month after ssue date to maturty, (a) the
amount of nterest accrua, (6) the prncpa amount of the note wth
accrued nterest (cumuatve) added, and (c) the appro mate n-
vestment yeds. Sub|ect to the provsons of sectons 33 .15 and
33 .16 hereof, when Treasury Savngs Notes, Seres , are to be pad
on an nterest accrua date, the payment w ncude nterest accrung:
on that date; otherwse, nterest w be pad ony to the nterest accrua
date ne t precedng the date of payment. Interest w be pad ony
wth the prncpa amount, and w not accrue beyond the maturty
date of the note.
Sec. 33 . . Forms of Inscrpton. Treasury Savngs Notes, Seres
, may be nscrbed n the name of an ndvdua, corporaton, unn-
corporated assocaton or socety, or a fducary (ncudng trustees
tu.der a duy estabshed trust where the notes woud not be hed as
securty for the performance of a duty or obgaton), whether or not
the nscrbed owner s sub|ect to ta aton under the nterna Revenue
Code, or aws amendatory or suppementary thereto. They may aso
be nscrbed n the name of a town, cty, county, or State or other
governmenta body, and n the name of a partnershp, but notes n the
1 The tobo Is omtted from ths pubcaton of the Crcuar.
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55
3657.
name of a partnershp are not acceptabe n payment of ta es, snce
the partnershp s not a ta payng entty under the Interna Revenue
Code. The notes w not be nscrbed n the names of two or more
persons as |ont owners or coowners; or n the name of a pubc offcer,
whether or not named as trustee, where the notes woud n effect be
hed as securty for the performance of a duty or obgaton.
Sec. 33 .9. Restrctons on Transfer. cept as otherwse spe-
cfcay provded heren, the notes may not be transferred, ressued,
hypothecated, or pedged as securty, may not be pad to any person
other than the owner, and may not be accepted n payment of federa
ncome, estate, or gft ta es assessed aganst any person other than the
owner. The notes w not be acceptabe to secure deposts of pubc
moneys.
Sec. 33 .10. Ta aton. Income derved from the notes sha be
sub|ect to a ta es now or hereafter mposed under the Interna
Revenue Code or aws amendatory or suppementary thereto. The
notes sha be sub|ect to estate, nhertance, gft, or other e cse ta es,
whether Federa or State, but sha be e empt from a ta aton now
or hereafter mposed on the prncpa or nterest thereof by any State,
or any of the possessons of the Unted States, or by any oca ta ng
authorty.
SU P RT C: PURC S OF NOT S
Sec. 33 .11. Offca gences. In addton to the Treasury De-
partment, the Federa Reserve banks and ther branches are hereby
desgnated agences for the ssue and redempton of Treasury Savngs
Notes, Seres . The Secretary of the Treasury, from tme to tme,
n hs dscreton, may desgnate other agences for the ssue of the
notes, or for acceptng appcatons therefor, or for makng payments
on account of the redempton thereof.
Sec. 33 .12. ppcatons and Payment. ppcatons w be
receved by the Federa Reserve banks and branches and by the Treas-
urer of the Unted States, Washngton, D. C. ankng nsttutons
generay may submt appcatons for the account of customers but
ony the Federa Reserve banks, ther branches, and the Treasury
Department are authorzed to act as offca agences. The use of an
offca appcaton form s desrabe but not necessary. Such forms
may be obtaned upon request from any Federa Reserve bank or
branch or the Treasurer of the Unted States. very appcaton
must be accompaned by payment n fu, at par and accrued nterest,
f any. The amount of accrued nterest payabe by the purchaser
w be computed at the rate at whch nterest accrues on the notes
1. 0 per month per 1,000 par amount) for the actua number of
ays from but not ncudng the ssue date to and ncudng the date
funds are credted to the account of the Treasurer of the Unted
States. For e ampe, f funds are credted on the 20th day of anuary
the ssue date w be anuary 15, and 5 days accrued nterest must be
pad by the purchaser. If coecton s deayed so that credt s not
gven unt February 15, the ssue date w be February 15, and no
accrued nterest w be coectbe. One day s accrued nterest for a
31-day perod s 0.05 06 per 1,000, for a 30-day perod 0.06 per
1,000, for a 29-day perod 0.00207 per 1,000, and for a 2 -day pe-
rod 0.06 29 per 1,000. ny form of e change, ncudng persona
checks, w be accepted, sub|ect to coecton, and shoud be drawn to
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3G57.
56
the order of the Federa Reserve bank or the Treasurer of the Unted
States, as payee, as the case may be. ny depostary quafed pursuant
to the provsons of Treasury Department Crcuar No. 92, Revsed, as
amended, w be permtted to make payment by credt for notes ap-
ped for on behaf of tsef or ts customers up to any amount for
whch t sha be quafed n e cess of e stng deposts.
Sec. 33 .13. Reservatons. The Secretary of the Treasury reserves
the rght to re|ect any appcaton n whoe or n part, and to refuse
to ssue or permt to be ssued hereunder any notes n any case or n
any cass or casses of cases f he deems such acton to be n the pubc
nterest, and hs acton n any such respect sha be fna. If an app-
caton s re|ected, n whoe or n part, any payment receved therefor
w be refunded.
Sec. 33 .1 . Devery op Notes. Upon acceptance of a fu-pad
appcaton, notes w be duy nscrbed and, uness devered n per-
son, w be devered, at the rsk and e pense of the Unted States
at the address gven by the purchaser, by ma, but ony wthn the
Unted States, ts Terrtores and Isand Possessons, and the Cana
Zone. No deveres esewheTe w be made.
SU P RT D : PR S NT TION IN P YM NT OF T S
Sec. 33 .15. t any tme after 2 months from the ssue date, durng
such tme and under such rues and reguatons as the Commssoner of
Interna Revenue, wth the approva of the Secretary of the Treasury,
may prescrbe, notes ssued hereunder n the name of a Federa ta -
payer, may be presented by such ta payer, hs agent, or hs estate for
credt aganst any ncome (current and back, persona and corpora-
ton ta es, and e cess-profts ta es) or any estate or gft ta es (current
and back) mposed by the Interna Revenue Code, or aws amendatory
or suppementary thereto, assessed aganst the nscrbed owner or
hs estate. For e ampe, a note dated anuary 15 may be presented
for credt aganst ta es due March 15. The notes w be recevabe by
the drector of nterna revenue at par and accrued nterest to the day
(but no accrua beyond maturty) when the ta es are due, f such day
fas on the 15th day of a caendar month, whether the notes are
receved on or before that day. If the ta es are due on any other day
of the month than the 15th, accrued nterest w be credted to the
accrua date ne t precedng the day when the ta es are due. Notes
are recevabe ony n payment of ta es equa to or e ceedng the
entre vaue of the notes, ncudng accrued nterest, The notes must
be forwarded to the drector at the rsk and e pense of the owner
and, for hs protecton, shoud be forwarded by regstered ma, f
not presented n person.
SU P RT : C S R D MPTION T OR FOR M TURITY
Sec. 33 .16. Genera. ny Treasury Savngs Note, Seres , not
presented n payment of ta es w be pad at maturty, or, at the
opton and request of the owner, and wthout advance notce, w be
redeemed before maturty, at any tme after months from the ssue
date. For e ampe, a note dated anuary 15 may be redeemed for
cash on or after May 15. If redempton pror to maturty s requested
on an nterest accrua date the redempton w ncude nterest
accrung on that date, otherwse redempton w be at par and accrued
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57
3657.
nterest to the nterest accrua date ne t precedng the redempton
date, e cept n the case of a note nscrbed n the name of a bank that
accepts demand deposts, n whch case payment, whether at or before
maturty, w be made ony at par, wth a refund of any accrued
nterest whch may have been pad at the tme of purchase of the note.
If a note s acqured by a bankng nsttuton through forfeture of a
oan, payment w be made at par and the accrued nterest payabe
as of the date of acquston.
Sec. 33 .17. ecuton of Request for Payment. The owner n
whose name the note s nscrbed must appear before one of the offcers
authorzed by the Secretary of the Treasury to wtness and certfy
requests for payment, estabsh hs dentty, and n the presence of
such offcer sgn and compete the request for payment appearng on
the back of the note. fter the request for payment has been e ecuted,
the wtnessng offcer shoud e ecute the certfcate provded for hs use.
Sec. 33 .1 . Offcers uthorzed to Certfy Requests for Pay-
ment. offcers authorzed to certfy request for payment of Unted
States Savngs onds, as set forth n Treasury Department Crcuar
No. 530, Seventh Revson, as amended, are hereby authorzed to
certfy requests for cash redempton of Treasury savngs notes ssued
under ths crcuar. Such offcers ncude, among others, Unted
States postmasters| certan other post offce offcas, offcer s of a banks
and trust companes ncorporated n the Unted States or ts terr-
tores, ncudng offcers at branches thereof, and commssoned and
warrant offcers of the rmed Forces of the Unted States.
Sec. 33 .19. Presentaton and Surrender. Notes bearng prop-
ery e ecuted requests for payment must be presented and surrendered
to any Federa Reserve bank or branch or to the Treasurer of the
Unted States, Washngton 25, D. C, at the e pense and rsk of the
owner. For the owner s protecton, notes shoud be forwarded by
regstered ma f not presented n person.
Sec. 33 .20. Parta Redempton. Parta cash redempton of a
note, correspondng to an authorzed denomnaton, may be made n
the same manner as fu cash redempton, approprate changes beng
made n the request for payment. In case of parta redempton of a
note, the remander w be ressued n the same name and wth the
same ssue date as the note surrendered.
Sec. 33 .21. Payment. Payment of any note, ether at maturty or
on redempton before maturty, w be made by any Federa Reserve
bank or branch or the Treasurer of the Unted States, foowng cear-
ance wth the agency of ssue, whch w be obtaned by the agency
to whch the note s surrendered. Payment w be made by check
drawn to the order of the owner, and maed to the address gven n
hs request for payment, or by credt n any account mantaned by a
bankng nsttuton wth the Federa Reserve bank of ts dstrct.
SU P RT F: P YM NT OR R ISSU TO OT R T N INSCRI D OWN R
Sec. 33 .22. Presentaton and Surrender. note may be pad
or ressued n accordance wth any of the provsons of ths subpart
ony upon the presentaton and surrender of the note at the rsk and
e pense of the owner to the ssung agency, accompaned by an appro-
prate request for the partcuar transacton.
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3657.
5S
Sec. 33 .23. uthorzed Transfers. (a) etween husband and
wfe. note nscrbed n the name of a marred man may be ressued
n the name of hs wfe, and a note nscrbed n the name of a marred
woman may be ressued n the name of her husband.
(b) etween affated corporatons. note nscrbed n the name
of a parent corporaton, whch s hereby denned as a corporaton
ownng more than 50 percent of the stock, wth votng power, of
another corporaton, may be ressued n the name of a subsdary, and
a note regstered n the name of a subsdary may be ressued n the
.name of the parent corporaton.
Sec. 33 .2 . uthorzed Pedge. note may be pedged as co-
atera for a oan from a bankng nsttuton, and f tte thereto s
acqured by the nsttuton because of defaut n the payment of the
oan, the notes w be redeemed at par and accrued nterest to the nter-
est accrua date ne t precedng the date of such acquston, uness ac-
qured on an nterest accrua date, n whch case redempton w be
made at par and accrued nterest to that date. Proof of the date of
acquston must be furnshed, and payment must be requested by the
pedgee under a power of attorney gven by the pedgor n whose name
the note s nscrbed. The note w not be transferred to the pedgee.
Sec. 33 .25. Payment to Representatves of Deceased or Incom-
petent Owners and Payment or Ressue to ers or Legatees of
Deceased Owners. In case of the death or dsabty of an ndvdua
owner, f the notes are not to be presented n payment of ta es, pay-
ment w be made to the duy consttuted representatve of hs estate,
or they may be ressued to one or more of hs hers or egatees upon
satsfactory proof of ther rght; but no ressue w be made n the
names of two or more persons |onty or as coowners.
Sec. 33 .26. Payment or Ressue to Successors of Corporatons,
Unncorporated ssocatons or Partnershps. If a corporaton or
unncorporated body n whose name notes are nscrbed s dssoved,
consodated, merged or otherwse changes ts organzaton, the notes
may be pad to, or ressued n the name of, those persons or organza-
tons awfuy entted to the assets of such corporaton or body by
Sec. 33 .27. Payment to Representatves of ankrupt or Inso-
vent Owners. If an owner of notes s decared bankrupt or nsovent,
payment, but not ressue, w be made to the duy quafed trustee,
recever, or smar representatve f the notes are submtted wth sats-
factory proof of hs appontment and quafcaton.
Sec. 33 .2 . Payment as a Resut of udca Proceedngs. Pay-
ment, but not ressue, w be made as a resut of |udca proceedngs
n a court of competent |ursdcton, f the notes are submtted wth
proper proof of such proceedngs and ther fnaty.
Sec. 33 .29. Instructons and Informaton. efore e ecutng
the request for payment or submttng the notes under the provsons
of ths subpart, nstructons shoud be obtaned from a Federa Re-
serve bank or branch or from the Treasury Department, Dvson of
Loans and Currency, Washngton 25, D. C.
SU P RT G: G N R L PRO ISIONS
Sec. 33 .30. Reguatons. cept as provded n ths crcuar, the
notes ssued hereunder w be sub|ect to the genera reguatons ot the
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59
3657.
Treasury Department, now or hereafter prescrbed, governng bonds
and notes of the Unted States; the reguatons currenty n force are
contaned n Department Crcuar No. 300, as amended.
Sec. 33 .31. Loss, Theft oh Destructon. In case of the oss, theft
or destructon of a savngs note mmedate notce (whch shoud n-
cude a fu descrpton of the note) shoud be gven the agency
whch ssued the note and nstructons shoud be requested as to the
procedure necessary to secure a dupcate.
Sec. 33 .32. Fsca gents. Federa eserve banks and ther
branches, as fsca agents of the Unted States, are authorzed to per-
form such servces or acts as may be approprate and necessary under
the provsons of ths crcuar and under any nstructons gven by
the Secretary of the Treasury, and they may ssue nterm recepts
pendng devery of the defntve notes.
Sec. 33 .33. mendments. The Secretary of the Treasury may at
any tme or from tme to tme suppement or amend the terms of ths
crcuar, or of any amendments or suppements thereto, and may at
any tme or from tme to tme prescrbe amendatory rues and regua-
tons governng the offerng of the notes, nformaton as to whch w
prompty be furnshed to the Federa eserve banks.
G. M. umphrey,
Secretary of the Treasury.
D. C. 931
INT RN L R NU COD
Unted States of merca. Treas |bt Savngs Notes. Seres 0
1953. Department Crcuar No. 931. Fsca Servce. ureau of the Pubc Debt
Treasury Department,
Offce of the Secretary,
Washngton, October 1,1953.
Subpart:
. Offerng of Notes.
. Descrpton of Notes.
C. Purchase of Notes.
D. Presentaton n Payment of Ta es.
. Cash Redempton at or efore Maturty.
F. Payment or Ressue to Other Than Inscrbed Owner.
G. Genera Provsons.
SU P RT : OFF RING OF NOT S
Secton 335.1. The Secretary of the Treasury, pursuant to the au-
thorty of the Second Lberty ond ct, as amended, offers for sae
to the peope of the Unted States, at par and accrued nterest as pro-
vded n secton 335.11 hereof, an ssue of notes of the Unted States
desgnated Treasury Savngs Notes, Seres C, whch notes, f nscrbed
n the name of a Federa ta payer, w be recevabe as herenafter
provded at par and accrued nterest n payment of ncome, estate, and
gft ta es mposed by the Interna Revenue Code, or aws amendatory
or suppementary thereto. The notes may aso be redeemed for cash
at par and accrued nterest, wth certan e ceptons appcabe to
bankng nsttutons, as provded n secton 335.15 hereof.
2 670 30
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3C57.
60
Sec. 335.2. Duraton of Offer. The sae of notes of Seres C
offered by ths crcuar w begn on October 1,1953, and w contnue
unt termnated by the Secretary of the Treasury.
Sec. 335.3. Defntons. (a) The word month as used heren
means the perod from and ncudng the 15th day of any 1 caendar
month to but not ncudng the 15th day of the ne t succeedng month.
(6) The words ssue date mean the date as of whch a note s
ssued and w aways be the 15th day of a caendar month.
(c) The words nterest accrua date or accrua date mean the
date upon whch a month s nterest accrues on a note, the frst accrua
date beng the 15th day of the caendar month ne t foowng the ssue
dae.
Sec. 335. . Genera. Treasury Savngs Notes, Seres C, w n
each nstance be dated as of the 15th day of a caendar month. The
ssue date w be determned by the day of the month on whch
ayment at par and accrued nterest, f any, s receved and credted
y an agency authorzed to ssue the notes. For e ampe, payment
receved and credted on any day durng the perod from and ncud-
ng October 1, 1953, to and ncudng October 1 , 1953, woud resut
n the ssue of notes dated September 15, 1953. They w mature
2 years from that date and may not be caed by the Secretary of the
Treasury for redempton before maturty. notes bearng ssue
dates wthn any 1 caendar year sha consttute a separate seres
ndcated by the etter C foowed by the year of maturty. t the
tme of ssue the ssung agency w nscrbe on the face of each note
the name and address of the owner, w enter the ssue date and w
mprnt ts datng stamp (wth current date). The notes w be
ssued n denomnatons of 100, 500, 1,000, 5,000, 10,000, 100,000,
500,000, and 1,000,000. change of authorzed denomnatons
from hgher to ower, but not from Tower to hgher, may be arranged
at any agency that ssues Treasury Savngs Notes, Seres C.
Sec. 335.5. cceptance for Ta es or Cash edemfton. If n-
scrbed n the name of an ndvdua, corporaton, or other entty
payng ncome, estate, or gft ta es mposed under the Interna Rev-
enue Code, or aws amendatory or suppementary thereto, the notes
v be recevabe, sub|ect to the provsons of secton 335.1 of ths
crcuar, at par and accrued nterest, n payment of such ncome,
estate, or gft ta es assessed aganst the owner or hs estate. If not
presented n payment of ta es, or f not nscrbed n the name of a
ta payer abe to the above-descrbed ta es, and sub|ect to the pro-
vsons of secton 335.15 of ths crcuar, the notes w be payabe at
maturty, or at the owner s opton and request they w be redeemabe
before maturty at par and accrued nterest.
Sec. 335.6. Interest. Interest on each 1,000 prncpa amount of
Treasury Savngs Notes, Seres C, w accrue monthy on the 15th
caendar day of each month after the ssue date on a graduated scae.
Interest accruas on the notes frst ssued hereunder sha be as foows:
subpart b : descrpton of notes
ach month
Frst to s th months, Incusve
Seventh to twefth months, Incusve
Thrteenth to eghteenth months, ncusve
Nneteenth to twenty-fourth months, Incusve.
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3057.
The Secretary of the Treasury may at any tme termnate the ssuance
of notes hereunder wth nterest accruas as provded above, and may
at any tme, or from tme to tme, authorze the ssuance of addtona
notes hereunder wth such other nterest accruas as he may prescrbe.
The tabe appended to ths crcuar shows for notes of each denom-
naton, for each consecutve month after ssue date to maturty, (a)
the amount of nterest accrua, (b) the prncpa amount of the note
wth accrued nterest (cumuatve) added, and (c) the appro mate
nvestment yeds. Sub|ect to the provsons of sectons 335.1 and
335.15 hereof, when Treasury Savngs Notes, Seres C, are to be pad
on an nterest accrua date, the payment w ncude nterest accrung
on that date; otherwse, nterest w be pad ony to the nterest
accrua date ne t precedng the date of payment. Interest w be
pad ony wth the prncpa amount, and w not accrue beyond the
maturty date of the note.
Sec. 335.7. Forms of Inscrpton. Treasury Savngs Notes, Seres
C, may be nscrbed n the name of an ndvdua, corporaton, un-
ncorporated assocaton or socety, or a fducary (ncudng trustees
under a duy estabshed trust where the notes woud not be hed as
securty for the performance of a duty or obgaton), whether or not
the nscrbed owner s sub|ect to ta aton under the Interna evenue
Code, or aws amendatory or suppementary thereto. They may
aso be nscrbed n the name of a town, cty, county, or State or other
governmenta body, and n the name of a partnershp, but notes n
the name of a partnershp are not acceptabe n payment of ta es,
snce a partnershp s not a ta payng entty under the Interna
evenue Code. The notes w not be nscrbed n the names of two
or more persons as |ont owners or coowners; or n the name of a
pubc offcer, whether or not named as trustee, where the notes woud
n effect be hed as securty for the performance of a duty or obgaton.
Sec. 335. . Restrctons on Transfer. cept as otherwse spe-
cfcay provded heren, the notes may not be transferred, ressued,
hypothecated, or pedged as securty, may not be pad to any person
other than the owner, and may not be accepted n payment of Federa
ncome, estate, or gft ta es assessed aganst any person other than the
owner. The notes w not be acceptabe to secure deposts of pubc
moneys.
Sec. 335.9. Ta aton. Income derved from the notes sha be
sub|ect to a ta es now or hereafter mposed under the Interna
Revenue Code or aws amendatory or suppementary thereto. The
notes sha be sub|ect to estate, nhertance, gft, or other e cse ta es,
whether Federa or State, but sha be e empt from a ta aton now
or hereafter mposed on the prncpa or nterest thereof by any State,
or any of the possessons of the Unted States, or by any oca ta ng
authorty.
SU P RT C: PURC S OF NOT S
Sec. 335.10. Offca cences. In addton to the Treasury
Department, the Federa Reserve banks and ther branches, are hereby
desgnated agences for the ssue and redempton of Treasury Savngs
Notes, Seres C. The Secretary of the Treasury, from tme to tme,
n hs dscreton, may desgnate other agences for the ssue of the
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3657.
G2
notes, or for acceptng appcatons therefor, or for makng payments
on account of the redempton thereof.
Sec. 335.11. ppcatons and Payment. ppcatons w be
receved by the Federa Reserve banks and branches and by the
Treasurer of the Unted States, Washngton, D. C. ankng nst-
tutons generay may submt appcatons for the account of cus-
tomers but ony the Federa Reserve banks, ther branches and the
Treasury Department are authorzed to act as offca agences. The
use of an offca appcaton form s desrabe but not necessary. Such
forms may be obtaned upon request from any Federa Reserve bank
or branch or the Treasurer of the Unted States. very appcaton
must be accompaned by payment n fu, at par and accrued nterest,
f any. The amount of accrued nterest payabe by the purchaser
w be computed at the rate at whch nterest accrues on the notes
( 1.30 per month per 1,000 par amount) for the actua number of
days from but not ncudng the ssue date to and ncudng the date
funds are credted to the account of the Treasurer of the Unted
States. For e ampe, f funds are credted on the 20th day of anuary
the ssue date w be anuary 15. and 5 days accrued nterest must
be pad by the purchaser. If coecton s deayed so that credt s
not gven unt February 15, the ssue date w be February 15,
and no accrued nterest w be coectbe. One day s accrued nterest
for a 31-day perod s 0.0 19 per 1,000, for a 30-day perod 0.0 333
per 1,000, for a 29-day perod 0.0 3 per 1,000, and for a 2 -day
perod 0.0 6 3 per 1,000. ny form of e change, ncudng per-
sona checks, w be accepted, sub|ect to coecton, and shoud be
drawn to the order of the Federa Reserve bank or the Treasurer of
the Unted States, as payee, as the case may be. ny depostary
quafed pursuant to the provsons of Treasury Department Crcuar
No. 92, Revsed, as amended, w be permtted to make payment by
credt for notes apped for on behaf of tsef or ts customers up to
any amount for whch t sha be quafed n e cess of e stng
deposts.
Sec. 335.12. Reservatons. The Secretary of the Treasury reserves
the rght to re|ect any appcaton n whoe or n part, and to refuse
to ssue or permt to be ssued hereunder any notes n any case or n
any cass or casses of cases f he deems such acton to be n the pubc
nterest, and hs acton n any such respect sha be fna. If an ap-
pcaton s re|ected, n whoe or n part, any payment receved therefor
w be refunded.
Sec. 335.13. Devery of Notes. Upon acceptance of a fu-pad
appcaton, notes w be duy nscrbed and, uness devered n per-
son, w be devered, at the rsk and e pense of the Unted States at
(e address gven by the purchaser, by ma, but ony wthn the
Unted States, ts Terrtores and Isand Possessons, and the Cana
Zone. No deveres esewhere w be made.
SU P RT D: PR S NT TION IN P YM NT OF T S
Sec. 335.1 . t any tme after 2 months from the ssue date, durng
such tme and under such rues and reguatons as the Commssoner
of Interna Revenue, wth the approva of the Secretary of the
Treasury, may prescrbe, notes ssued hereunder n the name of a
Federa ta payer, may be presented by such ta payer, hs agent or hs
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5 3G57.
estate for credt aganst any ncome (current and back, persona
and corporaton ta es, and e cess-profts ta es) or any estate or gft
ta es (current and back) mposed by the Interna Revenue Code,
or aws amendatory or suppementary thereto, assessed aganst the
nscrbed owner or hs estate. For e ampe, a note dated anuary 15
may be presented for credt aganst ta es due March 15. The notes
w be recevabe by the dstrct drector of nterna revenue at par
and accrued nterest to the day (but no accrua beyond maturty)
when the ta es are due, f such day fas on the 15th day of a caendar
month, whether the notes are receved on or before that day. If the
ta es are due on any other day of the month than the 15th, accrued
nterest w be credted to the accrua date ne t precedng the day
when the ta es are due. Notes are recevabe ony n payment of
ta es equa to or e ceedng the entre vaue of the notes, ncudng
accrued nterest. The notes may be forwarded to the dstrct drector
at the rsk and e pense of the owner and, for hs protecton, shoud
be forwarded by regstered ma, f not presented n person. The
notes may aso be deposted wth a Federa Reserve bank or branch
and a recept obtaned therefor whch may be forwarded to the dstrct
drector n eu of the notes.
SU P RT : C S R D MPTION T OR FOR M TU ITT
Sr.c. 335.15. Genera. ny Treasury Savngs Note, Seres C, not
presented n payment of ta es w be pad at maturty, or, at the
opton and request of the owner, and wthout advance notce, w be
redeemed before maturty at any tme after months from the ssue
date. For e ampe, a note dated anuary 15 may be redeemed for
cash on or after May 15. If redempton pror to maturty s requested
on an nterest accrua date the redempton w ncude nterest accru-
ng on that date, otherwse redempton w be at par and accrued
nterest to the nterest accrua date ne t precedng the redempton
date, e cept n the case of a note nscrbed n the name of a bank that
accepts demand deposts, n whch case payment, whether at or before
maturty, w be made ony at par, wth a refund of any accrued
nterest whch may have been pad at the tme of purchase of the note.
If a note s acqured by a bankng nsttuton through forfeture of a
oan, payment w be made at par and the accrued nterest payabe as
of the date of acquston.
Sec. 335.16. ecuton of Request for Payment. The owner n
whose name the note s nscrbed must appear before one of the offcers
authorzed by the Secretary of the Treasury to wtness and certfy
requests for payment, estabsh hs dentty, and n the presence of
such offcer sgn and compete the request for payment appearng on
the back of the note. fter the request for payment has been e ecuted,
the wtnessng offcer shoud e ecute the certfcate provded for hs
use.
Sec. 335.17. Offcers uthorzed To Certfy Requests for Pay-
ment. offcers authorzed to certfy requests for payment of
Unted States Savngs onds, as set forth n Treasury Department
Crcuar No. 530, Seventh Revson, as amended, are hereby authorzed
to certfy requests for cash redempton of Treasury savngs notes s-
sued under ths crcuar. Such offcers ncude, among others, Unted
States postmasters, certan other post offce offcas, offcers of a banks
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3057.
6
and trust companes ncorporated n the Unted States or ts Terr-
tores, ncudng offcers at branches thereof, and commssoned and
warrant offcers of the rmed Forces of the Unted States.
Sec. 335.1 . Presentaton and Surrender. Notes bearng prop-
ery e ecuted requests for payment must be presented and surrendered
to any Federa Reserve bank or branch or to the Treasurer of the
Unted States, Washngton 25, D. C, at the e pense and rsk of the
owner. For the owner s protecton, notes shoud be forwarded by
regstered ma, f not presented n person.
Sec. 335.19. Parta Redempton. Parta cash redempton of a
note, correspondng to an authorzed denomnaton, may be made n the
same manner as fu cash redempton, approprate changes beng made
n the request for payment. In case of parta redempton of a note,
the remander w be ressued n the same name and wth the same
ssue date as the note surrendered.
Sec. 335.20. Payment. Payment of any note, ether at maturty or
on redempton before maturty, w be made by any Federa Reserve
bank or branch or the Treasurer of the Unted States, foowng cear-
ance wth the agency of ssue, whch w be obtaned by the agency to
whch the note s surrendered. Payment w be made by check drawn
to the order of the owner, and maed to the address gven n hs request
for payment, or by credt n any account mantaned by a bankng
nsttuton wth the Federa Reserve bank of ts dstrct
SU P RT F: P YM NT OR R ISSU TO OT R T N INSCRI D OWN R
Sec. 335.21. Presentaton and Surrender. note may be pad or
ressued n accordance wth any of the provsons of ths subpart ony
upon the presentaton and surrender of the note at the rsk and e pense
of the owner to the ssung agency, accompaned by an approprate
request for the partcuar transacton.
Sec. 335.22. uthorzed Transfers. (a) etween hu/band and
wfe. note nscrbed n the name of a marred man may be ressued
n the name of hs wfe, and a note nscrbed n the name of a marred
woman may be ressued n the name of her husband.
(b) etween affated corporatons. note nscrbed n the name
of a parent corporaton, whch s hereby defned as a corporaton own-
ng more than 50 percent of the stock, wth votng power, of another
corporaton, may be ressued n the name of a subsdary, and a note
regstered n the name of a subsdary may be ressued n the name of
the parent corporaton.
Sec. 335.23. uthorzed Pedge. note may be pedged as co-
atera for a oan from a bankng nsttuton, and f tte thereto s
acqured by the nsttuton because of defaut n the payment of the
oan, the notes w be redeemed at par and accrued nterest to the n-
terest accrua date ne t precedng the date of such acquston, uness
acqured on an nterest accrua date, n whch case redempton w be
made at par and accrued nterest to that date. Proof of the date of
acquston must be furnshed, and payment must be requested by the
pedgee under a power of attorney gven by the pedgor n whose name
the note s nscrbed. The note wf not be transferred to the pedgee.
Sec. 335.2 . Payment to Representatves of Deceased or In-
competent Owners and Payment or Ressue to ers or Legatees
of Deceased Owners. In case of the death or dsabty of an n-
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65
3G57.
dvdua owner, f the notes are not to be presented n payment of
ta es, payment w be made to the duy consttuted representatve of
hs estate, or they may be pad or ressued to one or more of hs hers
or egatees upon satsfactory proof of ther rght; but no ressue w
be made n the names of two or more persons |onty or as coowners.
Sec. 335.25. Payment or Ressue to Successors of Corporatons,
Unncorporated ssocatons or Partnershps. If a corporaton or
unncorporated body n whose name notes are nscrbed s dssoved,
consodated, merged or otherwse changes ts organzaton, the notes
may be pad to, or ressued n the name of, those persons or organza-
tons awfuy entted to the assets of such corporaton or body by
reason of such change n organzaton.
Sec 335.26. Payment to Representatves of ankrupt or In-
sovent Owners. If an owner of notes s decared bankrupt or n-
sovent, payment, but not ressue, w be made to the duy quafed
trustee, recever or smar representatve f the notes are submtted
wth satsfactory proof of hs appontment and quafcaton.
Sec. 335.27. Payment as a Resut of udca Proceedngs.
Payment, but not ressue, w be made as a resut of |udca proceed-
ngs n a court of competent |ursdcton, f the notes are submtted
wth proper proof of such proceedngs and ther fnaty.
Sec. 335.2 . Instructons and Informaton. efore e ecutng
the request for payment or submttng the notes under the provsons
of ths subpart, nstructons shoud be obtaned from a Federa Re-
serve bank or branch or from the Treasury Department, Dvson
cf Loans and Currency, Washngton 25, D. C.
SU P RT G : G N R L PRO ISIONS
Sec. 335.29. Reguatons. cept as provded n ths crcuar, the
ctes ssued hereunder w be sub|ect to the genera reguatons of
the Treasury Department, now or hereafter prescrbed governng
bonds and notes of the Unted States; the reguatons currenty n
force are contaned n Department Crcuar No. 300, as amended.
Sec. 335.30. Loss, Theft, or Destructon. In case of the oss,
theft, or destructon of a savngs note mmedate notce (whch shoud
ncude a fu descrpton of the note) shoud be gven the agency
w hch ssued the note and nstructons shoud be requested as to the
procedure necessary to secure a dupcate.
Sec. 335.31. Fsca gents. Federa Reserve banks and ther
branches, as fsca agents of the Unted States, are authorzed to per-
form such servces or acts as may be approprate and necessary under
the provsons of ths crcuar and under any nstructons gven by
the Secretary of the Treasury, and they may ssue nterm recepts
pendng devery of the defntve notes.
Sec. 335.32. mendments. The Secretary of the Treasury may at
any tme or from tme to tme suppement or amend the terms of
ths crcuar, or of any amendments or suppements thereto, and
nay at any tme or from tme to tme prescrbe amendatory rues
nd reguatons governng the offerng of the notes, nformaton as
:o whch w prompty be furnshed to the Federa Reserve banks.
. M. umphrey,
Secretary of the Treasury.
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3657.
66
T. D.6027
TITL 2 INT RN L R NU . C PT I, SU C PT R , P RT 71.
CC PT NC OF TR SURY O LIG TIONS IN P YM NT OF T S
Treasury Decson 703 C. . -2, 2 (1936) amended
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
In order to provde for the acceptance before maturty of Treasury
certfcates of ndebtedness or Treasury notes n payment of ncome
and profts ta es, and to provde for the acceptance of Treasury cer-
tfcates of ndebtedness, Treasury notes, or Treasury bs n payment
of such ta es before maturty at other than maturty vaue, artce 1
of Treasury Decson 703 C. . -2, 2 (1936) , approved No-
vember 3, 1936, as made appcabe by Treasury Decson 5 C. .
1939-1 (Part 1), 396 , approved February 11, 1939 (26 CFR, Cum.
Supp., p. 76), codfed m 26 CFR, part 3 (193 ed.), as secton
3.56-5, and amended by Treasury Decson 593 C. . 1952-2, 217 ,
approved September 25, 1952 (17 F. R. G 0), (a) s nserted n tte
26, part 71, Code of Federa Reguatons, as secton 71.3 thereof,
the tte of whch part s amended to read as shown above, and (b)
as so nserted s amended to read as foows:
Sec. 71.3. Treasury Certfcates of Indebtedness, Treasury Notes, a d
Treasury s n Payment of Income and Profts Ta es. (a) Treasury
certfcates of ndebtedness, Treasury notes, or Treasury bs of any seres
(not ncudng nterm recepts ssued by Federa Reserve banks n eu of
defntve certfcates, notes, or bs) may be tendered at or before maturty
In payment of ncome or profts ta es payabe under the provsons of the In-
terna Revenue Code, due on the date on whch the certfcates, notes, or bs
mature or a specfed pror date, but ony f such certfcates, notes, or bs,
accordng to the e press terms of ther ssue, are made acceptabe n payment
of such ncome or profts ta es. If the ta es for whch the certfcates, notes,
or bs are tendered n payment become due on the same date as that on whch
such certfcates, notes, or bs mature, they w be accepted at par pus accrued
nterest, f any, payabe wth the prncpa (not represented by coupons at-
tached) n payment of such ta es. If the ta es for whch the certfcates, note ,
or bs are tendered n payment become due on a date pror to that on whch
the certfcates, notes, or bs mature, they w be accepted at the vaue spec-
fed n te terms under whch such certfcates, notes, or bs were ssued.
nterest coupons attached to Treasury certfcates of ndebtedness or Treasury
notes sha be detached by the ta payer before such certfcates or notes are
tendered n payment of ta es.
(b) Recepts gven by a coector, drector, or dstrct drector of Interna
revenue for Treasury certfcates of ndebtedness, Treasury notes, or Treasury
bs receved n payment of ncome or profts ta es as provded n ths secton
sha contan an adequnte descrpton of such certfcates, notes, or bs, and a
statement of the vaue, ncudng accrued Interest, If any, payabe wth the
prncpa (not represented by coupons attached), at whch accepted, and sha
show that the certfcates, notes, or bs are tendered by the ta payer and re-
ceved by the coector, drector, or dstrct drector, sub|ect to no condton,
quafcaton, or reservaton whatsoever, n payment of an amount of ta es no
greater than such vaue. ny certfcate, note, or b offered n payment of In-
come or profts ta es under the provsons of the Interna Revenue Code sub|ect
to any condton, quafcaton, or reservaton, or-for any greater amount than
the vaue at whch acceptabe In payment of ta es, as specfed In the terms under
whch such certfcate, note, or b was ssued, sha not be deemed to be duy
tendered and sha be returned to the ta payer.
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67
3672.
(c) For the purpose of savng ta payers the e pense of transmttng such
Treasury certfcates of ndebtedness, Treasury notes, or Treasury bs to the
offce of the coector, drector, or dstrct drector of Interna revenue n whose
dstrct the ta es are payabe, ta payers desrng to pay ncome or profts ta es
wth such certfcates, notes, or bs acceptabe n payment of ta es may depost
such certfcates, notes, or bs wth a Federa Reserve bank or branch, sub|ect
to the condton that the Federa Reserve bank or branch sha ssue a recept
In the name of the coector, drector, or dstrct drector of nterna revenue,
descrbng the certfcates, notes, or bs by par or doar face amount and statng
on the face of the recept that the certfcates, notes, or bs represented thereby
are hed by the bank or branch for redempton at the vaue specfed n the
terms under whch the certfcates, notes, or bs were ssued, and appcaton
of the proceeds n payment of ncome or profts ta es due on a specfed date by
the ta payer named theren.
ecause ths Treasury Decson e tends to ta payers the prvege
of appyng specfed Treasury certfcates of ndebtedness or Treasury
notes n payment of ncome or profts ta es due pror to the maturty
date of such certfcates or notes and enarges the prvege of appyng
specfed Treasury bs n payment of such ta es, 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 act.
Ths Treasury Decson sha be effectve upon ts fng for pub-
caton n the Federa Regster.
(Ths Treasury Decson s ssued under the authorty contaned n
sees. 3657 and 3791 of the Interna Revenue Code (53 Stat. 7, 67;
26 U.S. C. 3657, 3791).)
ustn F. Wnke,
ctng Commssoner of Interna Revenue.
pproved uy 6,1953.
M. . Fosom,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster uy , 1953, : 57 a. m.)
S CTION 3672. LIDITY G INST MORTG G S,
PL DG S, PURC S RS, ND UDGM NT CR DI-
TORS
Rev. Ru. 225
INT RN L R NU COD
In the State of New Tork a |udgment credtor acqures a en
aganst the persona property of a |udgment debtor as of the tme of
the devery of a wrt of e ecuton to the proper offcer. Conse-
quenty, under secton 3672 of the Interna Revenue Code a notce
of Federa ta en fed subsequent to the devery of the wrt of
e ecuton s Invad as aganst the udgment credtor wth respect to
persona property eved upon and sod under the e ecuton, even
though the sae was made after the fng of such notce.
dvce s requested regardng the prorty of a Federa ta en on
persona property as aganst a |udgment credtor.
In the nstant case a credtor of the ta payer obtaned a |udgment
on February , 1953, and on February 6, 1953, devered a wrt of
e ecuton to the Marsha of the cty of New York. On February 9,
1953, a notce of ta en was fed by the coector of nterna revenue
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3072.)
6S
and on February 1 , 1953, the Marsha eved upon and subsequenty
sod certan persona property of the ta payer. The above-stated facts
dscose that the notce of the Federa ta en was fed after the
ssuance of the wrt of e ecuton by the |udgment credtor but before
the evy was actuay made on the e ecuton.
Snce the en for Federa ta es s statutory n orgn, ts e stence
and vadty must necessary depend upon the provsons of the In-
terna Revenue Code. Secton 3070 of the Code provdes that f s
person abe to pay any ta negects or refuses to pay such ta after
demand, the amount of ta consttutes a en n favor of the Unted
States on a the persona and rea property of the ta denquent.
Under secton 3671 of the Code the en arses at the tme the assess-
ment st s receved by the oca coector (now the dstrct drector)
and contnues unt the abty for the ta ether s sats ed or be-
comes unenforceabe because of apse of tme.
owever, a certan quafcaton s contaned n secton 3G72 of the
Interna Revenue Code whch provdes n part as foows:
(a) Invadty of Len Wthout Notce. Such en sha not be vad as
aganst any mortgagee, pedgee, purchaser, or |udgment credtor unt notce
thereof has been fed by the coector
To be entted to the protecton afforded by ths secton, the one who
cams rghts pror to tnose of the Unted States must fa wthn one
of the enumerated casses, . e., he must be a mortgagee, pedgee, pur-
chaser, or |udgment credtor. e ander Mac enze v. Unted States,
109 Fed. (2d) 5 0. ppcabe State aw w determne hs status.
Unted States v. Record Pubshng Company et a., 60 Fed. Supp. 19 .
|udgment credtor wthn the contempaton of secton 3672(a)
of the Code s a credtor who has obtaned not ony a |udgment aganst
hs debtor but aso (under appcabe State aw) a en aganst the
|udgment debtor s property pror to the fng of notce of the Federa
en. See dward Mer v. ank of merca, N. T. S. ., et a.,
166 Fed. (2d) 15.
Secton 679 of the Cv Practce ct of the State of New York
provdes:
Persona Property ound by ecuton. The goods and chattes of a ude-
ment debtor, not e empt, by e press provson of aw, from evy and sae by
vrtue of an e ecuton, and hs other persona property whch s e pressy de-
cared by aw to be sub|ect to evy by vrtue of an e ecuton, are bound by the
e ecuton, when stuated wthn the |ursdcton of the offcer to whom an
e ecuton aganst property s devered, from the tme of the devery thereof to
the proper offcer to be e ecuted, but not before.
New York cases whch nterpret secton 679 hod that devery of
e ecuton under the condtons prescrbed creates a statutory en n
favor of the |udgment credtor. See In re New Lots Sash and Door
Corporaton, 3 Fed. Supp. 570; Rosevee Frocks, I no. v. Sommers et a/.,
7 N. Y. Supp. (2d) 1; In re anty Far Shoe Corporaton Fed.
Supp. 533; eghts Promenade, Inc., v. oper, 101 N. Y. Supp.
(2d) 65.
Sectons 0 0 and 6 3, respectvey, of the Cv Practce ct, supra,
provde as foows:
Order of Preference mono ecutons. Where two or more e ecuton
aganst property are Issued out of the same or dfferent courts aganst the same
udgment debtor, the one frst devered to an offcer to be e ecuted has prefer-
ence, notwthstandng that a evy s frst made by vrtue of an e ecuton sub-
G
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69
( 3761.
sequenty devered; but If a evy upon and pae of persona property has been
made by vrtue of the |unor e ecuton, before an actua evy by vrtue of the
senor e ecuton, the same property sha not be eved upon or sod by vrtue of
the atter.

Tte of ona Fde Purchasers efore Levy. The tte to persona property,
acqured before the actua evy of an e ecuton, by a purchaser n good fath,
and wthout notce that the e ecuton has been ssued, s not affected by an
e ecuton devered, before the purchase was made, to an offcer to be e ecuted.
ccordngy, t s hed that n the State of New York a |udgment
credtor acqures a en aganst the persona property of a |udgment
debtor as of the tme of the devery of a wrt of e ecuton to the
roper offcer. Consequenty, under secton 3672 of the Interna
evenue Code a notce of Federa ta en fed subsequent to the de-
very of the wrt of e ecuton s nvad as aganst the |udgment
credtor wth respect to persona property eved upon and sod under
the e ecuton, even though the sae was made after the fng of such
notce.
S CTION 3761. COMPROMIS S
ev. u. 251
INT RN L R NU COD
Transfer of functons pertanng to offers n compromse to
udt Dvson.
L functons reatng to offers n compromse presenty vested n
the ppeate Dvson of the Natona Offce are transferred to the
udt Dvson of the Natona Offce, a branch of whch s to be known
as the Compromse ranch, udt Dvson.
2. correspondence addressed to the Natona Offce, reatng to
offers n compromse, e cept communcatons pertanng to those cases
under the |ursdcton of the Chef Counse and the coho and
Tobacco Ta Dvson, shoud be addressed to the udt Dvson for
the attenton of 0: :C. so, where the symbos O: appear n
Rev. u. 117, C. . 1953-1, 9 , and the e hbts attached thereto,
there shoud be substtuted the symbos O: : C.
Rev. Ru. 252
INT RN L R NU COD
Certan accepted offers n compromse may be nspected n the
dstrct drectors offces.
1. The authorty to permt pubc nspecton of certan accepted
offers n compromse, pursuant to the provsons and authorty of
ecutve Order No. 103 6 and Treasury Decson 5927, both dated
ugust 20, 1952, C. . 1952-2. 29 and 299, and IR-Mm. 26 dated
ugust 27, 1952, C. . 1952-2, 299, has been deegated to the dstrct
drectors of nterna revenue. Pubc nspecton of accepted offers n
compromse comng wthn the scope of ths rung w no onger be
authorzed n the Natona Offce.
2. Dstrct drectors w permt pubc nspecton n the manner
ndcated beow n ncome, e cess-profts, decared vaue e cess-profts,
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3792.1
70
capta stock, estate and gft ta cases nvovng offers n compromse
whch are accepted by the dstrct drector pursuant to the provsons
of ev. u. 117, C. . 1953-1, 9 .
3. The pubc nspecton n the dstrct drector s offce of accepted
offers sha conform to the provsons of ecutve Order 103 6,
Treasury Decson 5927, and paragraphs 1 and 2 of I -Mm. 26, supra.
The nspecton may be accompshed by makng avaabe for pubc
nspecton n the dstrct drectors offce, or n an offce desgnated by
hm, a copy of the abstract and statement n each compromse case
comng wthn the scope of paragraph 2 above. Offers w be con-
sdered accepted as of the date of the etter notfyng the proponent
of the acceptance.
. I -Mm. 26, supra, and ev. u. 117, supra, and a other nstruc-
tons whch are nconsstent wth the provsons of ths rung, are
hereby modfed or superseded accordngy.
S CTION 3772. SUITS FO FUND
ev. u. 139
INT RN L R NU COD
drector of nterna revenue apponted to succeed a coector of
nterna revenue pursuant to eorganzaton Pan No. 1 of 1952, C. .
1952-1, 227, whch pan paced drectors n postons comparabe to
those prevousy occuped by coectors, cannot be substtuted as a
party defendant n a sut brought aganst a coector for recovery of
ta es aeged to have been erroneousy assessed or coected. (See
uus I. Smetanka v. Indana Stee Co., 257 U. S. 1, Ct. D. 17, C. .
5, 251.)
S CTION 3792. P NS S OF D T CTION ND
PUNIS M NT OF F UDS
ev. u. 1 0
INT RN L U NU COD
New Form 211 prescrbed for use by nformants n appyng for
reward under secton 37D2 of the Interna Revenue Code.
1. ttenton s nvted to the e stence of a new Form 211, Pubc
oucher for eward for Orgna Informaton, approved March 10,
1952, for use by nformants n appyng for reward. The use of Form
211 appes to orgna nformaton furnshed to nterna revenue oft-
cers eadng to detecton of voaton of the nterna revenue aws and
to the recovery of nterna revenue ta es, penates, fnes,, and for-
fetures. Ths form, whch s desgned for drect schedung by the
udget and Fnance Dvson of the ureau n Washngton to the
Chef Dsbursng Offcer for payment, supersedes the od Form 211
whch had been desgned for submsson to the Cams Dvson of the
Genera ccountng Offce for settement pror to payment.
Orgnay ssued ns IR Crcuar No. 127, dated pr 7, 1953.
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71
3792.
2. The new Form 211 shoud not be confused wth Forms 16 and
16 - whch are desgned for use n contractng wth nformers, the
frst for temporary empoyment on a per dem bass, and the second for
the purchase of nformaton and payment of a ump sum therefor,
both types of contracts concernng voatons of the nterna revenue
quor aws.
3. ny correspondence regardng the provsons of ths Revenue
Rung shoud refer to ts number and to the symbos C: : F.
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P RT III. MISC LL N OUS
. . 5 0 PU LIC L W 125, IG TT-T I D CONGR SS
C PT R 202, FIRST S SSION
n ct To e tend unt December 31, 1953, the perod wth
respect to whch the e cess-profts ta sha be effectve.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That sectons 30 (a),
30(c), and 32(b) of the Interna Revenue Code are amended, effec-
tve wth respect to ta abe years endng after une 30, 1953, by
strkng une 30, 1953, and uy 1, 1953, wherever such dates
appear, and nsertng n eu thereof December 31, 1953, and
anuary 1, 195 , respectvey.
pproved uy 16,1953.
. R. 5 05. PU LIC L W 17 , IG TY-T IUD CONGR SS
C PT R 30 , FIRST S SSION
n ct Mnkng appropratons for the egsatve branch and the
|udcary branch for the fsca year endng une 30, 195 , and for
other purposes.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That the foow-
ng sums are approprated, out of any money n the Treasury not
otherwse approprated, for the egsatve branch and the |udcary
branch for the fsca year endng une 30, 195 , namey:

OUS OF R PR S NT TI S
Saares, Meage, and penses of Membk.
For compensaton of Members of the ouse of Representatves, Deegates from
Terrtores, and the Resdent Commssoner from Puerto Rco, 5, 92,500.
For meage and e pense aowance of Members of the ouse of Representa-
tves, Deegates from Terrtores, and the Resdent Commssoner from Puerto
Rco, as authorzed by aw, 1,273,500. The provso under ths head n Pubc
Law 71, ghty-second Congress, s amended to read as foows: Provded,
That n the case of ta abe years begnnng after December 31, 1953, the pace
of resdence of a Member of Congress (ncudng any Deegate and Resdent
Commssoner) wthn the State, Congressona Dstrct, Terrtory, or posses-
son whch he represents n Congress sha be consdered hs home for the
purposes of secton 23(a)(1)( ) of the Interna Revenue Code, but amounts
e pended by such Member wthn each ta abe year for vng e penses sha
not be deductbe for ncome ta purposes In e cess of 3,000.

Sec. 302. Ths ct may be cted as the Legsatve- udcary p-
propraton ct, 195 .
pproved ugust 1, 1953.
( 73)
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7
. It. 5303. PU LIC L W 10C, IG TY-T IRD CONGR SS
C PT R 320, FIRST S SSION
n ct To amend sectons 1006 and 1607 of the Interna Revenue
Code n order to permt unempoyment nsurance coverage under
State unempoyment compensaton aws for seamen empoyed on
certan vesses operated by the Unted States.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That secton 1C06
of the Interna Revenue Code s hereby amended by addng at the
end thereof the foowng new subsectons:
(g) The permsson granted by subsecton (f) of ths secton sha appy n
the same manner and under the same condtons (ncudng the obgaton to
compy wth a requrements of State unempoyment compensaton aws) to
genera agents of the Secretary of Commerce wth respect to servce performed
on or after uy 1,1053, by offcers and members of the crew on or n connecton
wth mercan vesses (1) owned by or bareboat chartered to the Unted States,
and (2) whose busness s conducted by such genera agents. s to any such
vesse, the State permtted to requre contrbutons on account of such servce
sha be the State to whch the genera agent woud make contrbutons f the
vesse were operated for hs own account. Such genera agents are desgnated,
for ths purpose, nstrumentates of the Unted States not whoy owned by t
and sha not be e empt from the ta mposed by secton 1600. The permsson
granted by ths subsecton s sub|ect to the same condtons and mtatons as
are mposed n subsecton (f) of ths secton, e cept that cause (2) of the second
sentence of subsecton (b) of ths secton sha appy.
(h) ny State may. as to servce performed on or after uy 1, 1953, and on
account of whch contrbutons are made pursuant to subsecton (g) of ths
secton, (1) requre contrbutons from persons performng such servce under
ts unempoyment compensaton aw or temporary dsabty nsurance aw
admnstered n connecton therewth, and (2) requre genera agents of the
Secretary of Commerce to make contrbutons under such temporary dsabty
nsurance aw and to make such deductons from wages or remuneraton as are
requred by such unempoyment compensaton or temporary dsabty nsurance
aw.
() ach genera agent of the Secretary of Commerce makng contrbutons
pursuant to subsecton (g) or (h) of ths secton sha, for the purposes of suen
subsectons, be consdered a ega entty n hs capacty as an nstrumentaty of
the Unted States, separate and dstnct from hs dentty as a person empoyng
ndvduas on hs own account.
Sec. 2. Secton 1607 of the Interna Revenue Code s hereby
amended by addng at the end thereof the foowng new subsecton:
(o) Notwthstandng the provsons of subsecton (c) (6) of ths secton,
servce performed on or after uy 1, 1053, by offcers nnd members of the crew
of a vesse whch woud otherwse be ncuded as empoyment under subsecton
(c) of ths secton sha not be e cuded by reason of the fact that t s per-
formed on or n connecton wth an mercan vesse (1) owned by or bareboat
chartered to the Unted States and (2) whose busness s conducted by a genera
agent of the Secretary of Commerce. For the purposes of ths subchapter,
each such genera agent sha be consdered a ega entty In hs capacty as such
genera agent, separate and dstnct from bs dentty as a person empoyng
ndvduas on hs own account, and the offcers and members of the crew of
such an mercan vesse whose busness Is conducted by a genera agent of
the Secretary of Ccmmerce sha be deemed to be performng servces for such
genera agent rather than the Unted States. ach such geuera agent who n
hs capacty as such s an empoyer wthn the meanng of subsecton (a) of ths
secton sha be sub|ect to a the requrements mposed upon an empoyer under
ths subchapter wth respect to servce whch consttutes empoyment by reason
of ths subsecton.
Sec. 3. Nothng n the amendments made by ths act sha be con-
strued as consttutng offcers and members of the crew of mercan
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Msc.
vesses (1) owned by or bareboat chartered to the Unted States and
(2) whose busness s conducted by genera agents of the Secretary
of Commerce empoyees of such genera agents e cept for the purposes
of State unempoyment compensaton and temporary dsabty nsur-
ance aws and the Federa Unempoyment Ta ct.
Sec. . Ths act sha take effect as of uy 1,1953.
pproved ugust 5,1953.
. R. 5131. PU LIC L W 212, IG TY T IRD CONGR SS
C PT R 3 5, FIRST S SSION
n ct To provde for the |ursdcton of the Unted States over
the submerged uuds of the outer Contnenta Shef, and to author-
ze the Secretary of the Interor to ease such ands for certan
purposes.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That ths ct may
be cted as the Outer Contnenta Shef Lands ct .

Sec. . Laws ppcabe to Outer Contnenta Shef. (a) (1)
The Consttuton and aws and cv and potca |ursdcton of the
Unted States are hereby e tended to the subso and seabed of the
outer Contnenta Shef and to a artfca sands and f ed struc-
tures whch may be erected thereon for the purpose of e porng for,
deveopng, removng, and transportng resources therefrom, to the
same e tent as f the outer Contnenta shef were an area of e cu-
sve Federa |ursdcton ocated wthn a State: Provded, however,
That mnera eases on the outer Contnenta Shef sha be man-
taned or ssued ony under the provsons of ths ct.

pproved ugust 7,1953.
. R 152. PU LIC L W 213, IG TY-T IRD CONGR SS
C PT R 3 6, FIRST S SSION
n ct To e tend the tme for e empton from ncome ta es for
certan members of the rmed Forces, and for other purposes.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That secton
22(b) (13) of the Interna Revenue Code (reatng to e cuson from
gross ncome of compensaton of certan members of the rmed
Forces) s hereby amended by strkng out anuary 1,195 where-
ever t appears theren and nsertng n eu thereof anuary 1,1955 .
Sec. 2. Secton 1621(a) (1) of the Interna Revenue Code (reatng
to defnton of the term wages ) s hereby amended by strkng out
anuary 1,195 and nsertng n eu thereof anuary 1,1955 .
Sec. 3. (a) That the thrd sentence of secton 25(b) (3) of the In-
terna Revenue ( ode, reatng to the defnton of dependent, s
fcnended to read as foows: For the purposes of determnng whether
any of the foregong reatonshps e st (1) a egay adopted chd of
a person or (2) a chd for whch petton for adopton was fed by a
2 670 6 s
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76
person n the approprate court and dened because of menta nca-
pacty of survvng natura parent to agree to such adopton, sha be
consdered a chd of such person by bood.
(b) The provsons of subsecton (a) sha be appcabe to ta abe
years begnnng after December 31,19 5.
pproved ugust 7,1953.
. It. 5256. PU LIC L W 219, IG TY-T IRD CONGR SS
C PT R 52, FIRST S SSION
n ct To amend the Interna Revenue Code wth respect to the
retrement of udges of The Ta Court of the Unted States.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That part I of sub-
chapter of chapter 5 of the Interna Revenue Code (reatng to
organzaton and |ursdcton of The Ta Court of the Unted States)
s hereby amended by nsertng after secton 1105 the foowng new
secton:
S C. 1106. R TIR M NT.
(a) Defntons. For the purposes of ths secton
(1) The term Ta Court means The Ta Court of the Unted States.
(2) The term Cv Servce Commsson means the Unted States Cv
Servce Commsson.
(3) The term |udge means the chef udge or a |udge of The Ta Court;
but such term does not ncude an; Indvdua performng |udca dutes
pursuant to subsecton (c).
( ) The term Cv Servce Retrement ct means the Cv Servce
Retrement ct of May 29, 1930, as amended.
(5) In any determnaton of ength of servce as |udge there sha be
ncuded a perods (whether or not consecutve) durng whch an ndvdua
served as udge or as a member of the oard.
(b) Retrement.
(1) ny |udge who has served as udge for eghteen years or more may
retre at any tme.
(2) ny udge who has served as udge for ten years or more and has
attaned the age of seventy sha retre not ater than the cose of the thrd
month begnnng after whchever of the foowng months s the atest:
( ) The month n whch he attaned age seventy;
( ) The month n whch he competed ten years of servce as |udge; or
(C) The month n whch ts secton s enacted.
Secton 2(a) of the Cv Servce Retrement ct (reatng to automatc
separaton from the servce) sha not appy n respect to |udges.
(c) Recauno of Retred udges. ny ndvdua who Is recevng retred
pay under subsecton (d) may be caed upon by the chef |udge of The Ta Court
to perform such |udca dutes wth The Ta Court as may be requested of hm
for any perod or perods specfed by the chef |udge; e cept that n the case of
any such ndvdua
(1) the aggregate of such perods n any one caendar year sha not (wth-
out hs consent) e ceed nnety caendar days; and
(2) he sha be reeved of performng such dutes durng any perod n
whch ness or dsabty precudes the performance of such dutes.
ny act, or faure to act, by an ndvdua performng |udca dutes pursuant
to ths subsecton sha have the same force and effect as f t were the act
(or faure to act) of a udge of The Ta Court; but any such ndvdua sha
not be counted as a udge of The Ta Court for the purposes of secton 1102(a).
ny Indvdua who s performng |udca dutes pursuant to ths subsecton sha
be pad the same aowances for trave and other e penses as a |udge.
(d) Retred Pat. ny ndvdua who after the date of the enactment of ths
secton
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(1) ceases to be a |udge by reason of paragraph (2) of subsecton (b),
or ceases to be a |udge after havng served as |udge for eghteen years or
more; and
(2) eects under subsecton (e) to receve retred pay under ths subsecton,
sha receve retred pay at a rate whch bears the same rato to the rate of the
saary payabe to hm as udge at the tme he ceases to be a |udge as rhe number
of years he has served as |udge bears to twenty-four; e cept that the rate of
such retred pay sha be not ess than one-haf of the rate of such saary and
not more than the rate of such saary. Such retred pay sha begn to accrue on
the day foowng the day on whch hs saary as |udge ceases to accrue, and
sha contnue to accrue durng the remander of hs fe. Retred pay under
ths subsecton sha be pad n the same manner as the saary of a |udge. In
computng the rate of the retred pay under ths subsecton for any ndvdua
who s entted thereto, that porton of the aggregate number of years he has
served as a |udge whch s a fractona part of one year sha be emnated If
r s ess than s months, or sha be counted as a fu year f It Is s months
or more.
(e) ecton to Receve Retred Pat. ny |udge may eect to receve
retred pay under subsecton (d). Such an eecton
(1) may be made ony whe an ndvdua s a |udge (e cept that n the
case of an ndvdua who fas to be reapponted as |udge at the e praton
of a term of offce. It may be made at any tme before the day after the day
on whch hs successor takes offce) ;
(2) once made, sha be rrevocabe;
(3) n the case of any |udge other than the cbef |udge, sha be made by
fng notce thereof n wrtng wth the chef |udge; and
( ) n the case of the chef |udge, sha be made by fng notce thereof
In wrtng wth the Cv Servce Commsson.
The chef |udfe sha transmt to the Cv Servce Commsson a copy of each
notce fed wth hm under ths subsecton.
(f) Indvduas Recevng Retred Pat To e vaabe for Reca.
ny ndvdua who has eected to receve retred pay under subsecton (d) who
thereafter
(1) accepts cv offce or empoyment under the Government of the Unted
States (other than the performance of |udca dutes pursuant to subsecton
(c)) ; or
(2) performs (or supervses or drects the performance of) ega or
accountng servces n the fed of Federa ta aton or n the fed of the
renegotaton of Federa contracts for hs cent, hs empoyer, or any of
hs empoyer s cents,
sha forfet a rghts to retred pay under subsecton (d) for a perods begn-
nng on or after the frst day on whch he accepts such offce or empoyment or
engages n any actvty descrbed n paragraph (2). ny ndvdua who has
eected to receve retred pay under subsecton (d) who thereafter durng any
caendar year fas to perform |udca dutes requred of hm by subsecton (c)
sha forfet a rghts to retred pay under subsecton (d) for the one-year perod
whch begns on the frst day on whch he so fas to perform such dutes.
(g) Coordnaton Wth Cv Servce Retrement.
(1) Genera rue. cept as otherwse provded n ths subsecton, the
provsons of the Cv Servce Retrement ct (ncudng the provsons
reatng to the deducton and wthhodng of amounts from basc pay, saary,
and compensaton) sha appy In respect of servce as a |udge (together wth
other servce as an offcer or empoyee to whom such ct appes) as f ths
secton had not been enacted.
(2) ffect of eectng retred pat. In the case of any ndvdua who
has fed an eecton to receve retred pay under subsecton (d) and who
has not fed a waver under paragraph (3) of ths subsecton
( ) he sha not be entted to ftny annuty under secton 1, 2, 3 ,
6, or 7 of the Cv Servce Retrement ct for any perod begnnng
on or after the day on whch be fes such eecton;
( ) no amount sha be returned to hm under secton 7(a) of such
ct;
(C) subsectons (b) and (c) of secton 1 of such ct, and subsecton
(c) of secton 12 of such ct, sha appy n respect of such Indvdua
as f te were retrng or had retred under secton 1 of such ct on
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7
the date on whch hs retred pay under subsecton (d) of ths secton
began to accrue; e cept that () the amount of any annuty payabe
to a survvor of such ndvdua under subsecton (b) or (c) of such
secton or under subsecton (c) of such secton 12 sha be based on
a fe annuty for such ndvdua computed as provded In subsecton
(a) of such secton , and () f such ndvdua makes the eecton
provded by subsecton (b) or (c) of such secton , hs retred pay
nnder subsecton (d) of ths secton sha be reduced by the amount by
whch a fe annuty computed as provded In subsecton (a) of such
secton woud be reduced;
(D) n computng the aggregate amount of the annuty pad for
purposes of secton 12(g) of such ct, any retred pay whch has ac-
crued under subsecton (d) of ths secton (ncudng any such retred
pay forfeted under subsecton (f)) sha be ncuded as f t were an
annuty payabe to hm under such ct: and
( ) no deducton for the purposes of the cv-servce retrement and
dsabty fund sha be made from the retred pay payabe to hm
under subsecton (d) of ths secton, or from any other saary, pay. or
compensaton payabe to hm, for any perod after the date on whch
suc retred pay began to accrue.
(3) Wavkk of cvr. servce benefts.
( ) ny ndvdua who has eected to receve retred pay under sub-
secton (d) of ths secton may (at any tme thereafter durng the
perod prescrbe by subsecton (e) (1)) wave a benefts nnder the
Cv Servce Retrement ct. Such a waver (I) once made, sha be r-
revocabe, and () sha be made In the same manner as s provded
for an eecton by such ndvdua under subsecton (e). The chef
|udge sha transmt to the Cv Servce Commsson a copy of each
notce of waver fed wth hm under ths paragraph.
( ) In the case of any ndvdua who has made a waver under
ths paragraph
(I) no annuty sha be payabe to any person under the Cv
Servce Retrement ct wth respect to any servce performed by
such ndvdua (whether performed before or after such waver
s fed and whether performed as .fudge or otherwse):
() no deducton sha be made from any saary, pay, or com-
pensaton of such ndvdua for the purposes of the cv-serv-
ce retrement and dsabty fund for any perod begnnng after the
day on whch such waver s fed;
() e cept as provded n cause (v), no refund sha be made
nnder the Cv Servce Retrement ct of any amount credted to
the account of such ndvdua or of any nterest on any amount
so credted;
(Iv) addtona sums vountary deposted by such Indvdua un-
der the second paragraph of secton 10 of the Cv Servce Retre-
ment ct sha be prompty refunded, together wth nterest on snch
addtona sums at 3 per centum per annum (compounded on De-
cember 31 of each year) to the day of such fng; and
(v) subsectons (e) and (g) of secton 12 of the Cv Servce
Retrement ct sha not appy.
( ) mpoyees compensaton. The fourth and s th paragraphs of sec-
ton 6 of the Cv Servce Retrement ct sha appy In respect of retred
pay accrung nnder subsecton (d) of ths secton as If such retred pay
were an annuty payabe under such ct.
pproved ugust 7, 1953.
. R. 51 a PU LIC L W 221, IG TY-T IRD CONGR SS
C PT R 35 , FIRST S SSION
n ct To contnue unt the cose of une 30,105 , the suspenson
of dutes and Import ta es on meta scrap, and for other purposes.
e t enacted by the Senate and ouse of Representatves of the
nted States of merca n Congress assembed, That the frst sen-
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fence of secton 2 of the ct of September 30, 1950 (Pubc Law 69,
ghty-frst Congress) C . 1950-2, 253 , s hereby amended by
strkng out une 30, 1953 and nsertng n eu thereof une 30,
195 : Provded, That ths ct sha not appy to ead scrap or znc
scrap (other than znc scrap purchased under a wrtten contract
entered nto before uy 1,1953).
Sec. 2. The amendments made by ths ct sha not be construed to
affect n any way the appcaton of Pubc Law 1 , ghty-second
Congress C. . 1951-1,1 , to copper scrap.
pproved ugust 7,1953.
. R. 5257. PU LIC L W 23 , IG TY-T IRD CONGR SS
C PT R 392, FIRST S SSION
n ct To e tend to the Trust Terrtory of the Pacfc Isands
certan provsons of the Interna Revenue Code reatng to nar-
cotcs.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That secton 25G3
of the Interna Revenue Code (reatng to Terrtora e tent of aw) s
amended by nsertng the Terrtory of the Pacfc Isands, mmed-
atey after the nsuar possessons of the Unted States, .
Sec. 2. (a) The headng of secton 256 of the Interna Revenue
Code s amended to read as foows:
S C. 256 . DMINISTR TION IN PU RTO RICO, T TRUST T RRI-
TORY OF T P CIFIC ISL NDS, T C N L ZON , ND T
IRGIN ISL NDS.
(b) Secton 256 (a) of the Interna Revenue Code s amended to
ead as foows:
(a) Puerto Rco and the Trust Terrtory or the Pacfc Isands. In
nerto Rco am the Trust Terrtory of the Pacfc Isands, the admnstraton
f ths subcbapter and port of subchapter of chapter 27, the coecton of
he speca ta mposed by secton 3220 of chapter 27, and the ssuance of the
rder forms specfed n secton 255 sha be performed by the approprate
terna revenue offcers of those governments, and a revenues coected there-
nder n Puerto Rco and the Trust Terrtory of the Pacfc Isands sha accrue
ntact to the genera governments thereof, respectvey. The hghest court of
rgna ursdcton of the Trust Terrtory of the Pacfc Isands sha possess
nd e ercse |ursdcton n a cases arsng n such Terrtory under ths sub-
apter and part of subchapter of chapter 27.
Sec. 3. Secton 255 (h) (1) of the Interna Revenue Code s amended
y strkng out Phppne sands and Phppne Isands and
sertng n eu thereof, respectvey, trust terrtory of the pacfc
ands and Trust Terrtory of the Pacfc Isands .
Sec. . Secton 2565 of the Interna Revenue Code s amended by
3dng at the end thereof the foowng:
Tebhtory.
Subsecton (g).
Sec. 5. Secton 322 of the Interna Revenue Code (reatng to
fntons) s amended by addng at the end thereof the foowng
sw subsecton:
g) Terrtory. s used n ths part and subchapter of chapter 23, (1) the
rd Terrtory sha ncude the Trust Terrtory of the Pacfc Isands, and
) the word Terrtora shaU refect such Incuson.
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Sec. 6. The amendments made by ths ct sha take effect on the
frst day of the thrd month whch begns more than ten days after the
date of enactment of ths ct.
pproved ugust , 1953.
. . 6561. PU LIC L W 2 0, TG TY-T TRD CONGR SS
C PT R 30 , FIRST S SSION
n ct To amend the Interna Revenue Code and the Narcotc
Drugs Import and port ct so as to provde that certan drugs
whch are or may be chemcay syntheszed sha he ncuded
wthn the cassfcaton of narcotc drugs.
e t enacted by the Senate and ouse of Representatves of th
Unted States of merca n Congress assembed,
D FINITION OP N COT1C DRUGS
Secton 1. Secton 322 of the Interna Revenue Code s amended
by addng at the end thereof the foowng new subsecton:
(g) Narcotc Drugs. The words narcotc drugs as used n ths part and
subchapter of chapter 23, sha mean any of the foowng, whether produced
drecty or Indrecty by e tracton from substances of vegetabe orgn, or nde-
pendenty by means of chemca synthess, or by a combnaton of e tracton and
chemca synthess:
(1) Opum, Isonpecane, coca eaves, and opate;
(2) ny compound, manufacture, sat, dervatve, or preparaton of opum,
sonpecane, coca eaves, or opate;
(3) ny substnnce (and any compound, manufacture, sat, dervatve, or
preparaton thereof) whch s chemcay dentca wth any of e sub-
stances referred to n causes (1) and (2).
T C NIC L M NDM NTS
Sec. 2. Secton 2550(a) of the Interna Revenue Code (reatng to
ta on opum and coca eaves) s amended by strkng out opum,
sonpecane, coca eaves, opate, any compound, 6at, dervatve, or
preparaton thereof, and by nsertng n eu thereof narcotc
drugs .
Sec. 3. (a) Secton 255 (b) of the Interna Revenue Code s
amended (1) by strkng out opum, coca eaves, sonpecane, op-
ates, and a sats, dervatves, and preparatons of opum, coca eaves,
sonpecane, and opates, and by nsertng n eu thereof narcotc
drugs , and (2) by strkng out None of the aforesad drugs and
nsertng n eu thereof No narcotc drugs .
(b) Sectons 256 (b), 3220(g), and 3222(c) (1) of the Interna
Revenue Code are each amended by strkng out opum or coca eaves,
ther saes, dervatves, or preparatons and by nsertng n eu
thereof narcotc drugs .
Skc. . Secton 25( 5 of the Interna Revenue Code s amended by
strkng out a that foows Subsecton (d). and by nsertng n eu
thereof the foowng:
Narcotc Drugs.
Subsecton (g).
Sec. 5. Secton 3220 of the Interna Revenue Code (reatng to ta
on narcotcs) s amended by strkng out opum, coca eaves, sonpe-
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cane, or opate, or any compound, manufacture, sat, dervatve, or
preparaton thereof, and by nsertng n eu thereof narcotc
drugs .
Sec. 6. Subchapter of chapter 23 of the Interna Revenue Code
and part of subchapter of chapter 27 of the Interna Revenue
Code are amended by strkng out the drugs mentoned n secton
2550(a) , any of the drugs mentoned n secton 2550(a) , any of
the drugs mentoned n secton 3220 , any of the aforesad drugs ,
and the aforesad drugs , wherever those words appear, and by
nsertng n eu thereof narcotc drugs .
Sec. 7. Sectons 322 (e) and 322 (f) of the Interna Revenue Code
are each amended by strkng out and subchapter of chapter 23 .
Sec. . Paragraph (a) of the frst secton of the Narcotc Drugs
Import and port ct (21 U. S. C, sec. 171(a)) s amended to
read as foows:
(a) The term narcotc drug sha have the meanng ascrbed to the term
narcotc drugs by secton 322 (g) of the Interna Revenue Code; the term
Isonpecane sha have the meanng ascrbed to that term by secton 322 (e)
of such Code; and the term opate sha have the meanng ascrbed to that
term by secton 322 (f) of such Code.
pproved ugust ,1953.
. R. 5 77. PU LIC L W 2 3. IG TY-T IRD CONGR SS
C PT R 397. FIRST S SSION
n ct To amend certan admnstratve provsons of the Tarff
ct of 1930 and reated aws, and for other purposes.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed,
S ORT TITL ND FF CTI D T
Secton 1. Ths ct may be cted as the Customs Smpfcaton ct of 1953
and sha be effectve, e cept as otherwse specay provded for, on and after
the thrteth day foowng the date cf ts enactment,

FR NTPT PRO ISIONS FOR TR L RS
Sec. . Paragraph 179 of the Tarff ct of 1930, as amended (U. S. O., 19 6
edton, tte 19, sec. 1201, par. 179 ), s further amended to read as foows:
Par. 179 . (a) Professona books, Impements, nstruments, and toos of
trade, occupaton, or empoyment, when mported by or for the account of any
person arrvng n the Unted States by whom or for whose account they were
taken abroad.
(b) In the case of any person arrvng In the Unted States who Is not a
returnng resdent thereof
(1) wearng appare, artces of persona adornment, toet artces, and
smar persona effects; a the foregong, If actuay owned by and n the
possesson of such person abroad at the tme of or pror to hs departure
for the Unted States, and f approprate for hs own persona use and
Intended ony for such use and not for any other person nor for sae;
(1) automobes, traers, arcraft, motorcyces, bcyces, baby carrages,
boats, horse-drawn conveyances, horses, and smar means of transportaton,
and the usua equpment accompanyng the foregong; any of the foregong
mported n connecton w th the arrva of such person and to be used n
the Unted States ony for the transportaton of such person, hs famy and
guests, and such ncdenta carrage of artces as may be approprate to
hs persona use of the conveyance; and
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2
(3) not e ceedng 200 In vaue of artces accompanyng such a person
who s n transt to a pace outsde Unted States customs terrtory and
who w take the artces wth hm to such pace.
(c) In the case of any person arrvng In the Unted States who s a
returnng resdent thereof
(1) a persona and househod effects taken abroad by hm or for hs
account and brought back by hm or for hs account; and
(2) artces (ncudng not more than one wne gaon of acohoc bev-
erages and not more than one hundred cgars) acqured abroad as an
ncdent of the |ourney from whch he s returnng, for hs Tsona or
househod use, but not mported for the account of any other person nor
ntended for sae, f decared In accordance wth reguatons of the Secretary
of the Treasury, up to but not e ceedng In aggregate vaue
( ) 200, f such person arrves from a contguous country wh.h
mantans a free zone or free port (see subparagraph (d)), or arrves
frcm any other country after havng remaned beyond the terrtora
mts of the Unted States for a perod of not ess than forty-eght
hours, and n ether case has not camed an e empton under ths
subdvson ( ) wthn the thrty days mmedatey precedng hs
arrva; and
( ) 300 In addton, If such person has remaned beyond the terr-
tora mts of the Unted States for a perod of not ess than tweve
days and has not camed an e empton under ths subdvson t )
wthn the s months mmedatey precedng hs arrva.
(d) In the case of persons arrvng from a contguous country whch man-
tans a free zone or free port, f the Secretary of the Treasury deems t necvswry
In the pubc nterest and to factate enforcement of the requrement that
the e empton sha appy ony to artces acqured as an ncdent of the foregn
|ourney, he sha prescrbe by reguaton or nstructon, the appcaton of wh rh
may be restrcted to one or more ports of entry, that the e empton anhorz d
by subdvson (2) ( ) of subparagraph (c) sha be aowed ony to resdents
who have remaned beyond the terrtora mts of the nted States fur not
ess than a specfed perod, not to e ceed twenty-four hours, and after the
e praton of nnety days after the date of such reguaton or nstructon aow-
ance of the sad e empton sha be sub|ect to the mtatons so prescrbed.
(e) ny, artce Imported to repace a ke artce of comparabe vaue pre-
vousy e empted from duty under subdvson (c) of ths paragraph sha Ive
aowed free entry f the artce prevousy e empted sha have been e ported,
under such supervson as the Secretary may prescrbe, wthn s ty days
after ts mportaton because t was found by the mporter to be unsatsfactory.
(f) artces e empted by ths paragraph from the payment of duty sha
be e empt aso from the payment of any nterna-revenue ta Imposed upon
or by reason of mportaton.
(g) If any ewery or smar artces of persona adornment havng a vane
of 300 or more whch have been e empted from duty under subdvson (1)
of subparagraph (b) or any artce whch has been e empted from duty under
subdvson (2)( ) of subparagraph (c) s sod wthn three years after the
date of mportaton, or If any artce whch has been e empted from duty under
subdvson (2) of subparagraph (b) s sod wthn one year after the date - f
mportaton, wthout pror payment to the Unted States of the duty whch wuud
have been payabe at the tme of entry f the artce had been entered wthout
the beneft of ths paragraph, such artce, or ts vaue (to be recovered from the
mporter), sha be sub|ect to forfeture. sae pursuant to a udca order or
In qudaton of the estate of a decedent sha not be sub|ect to the provson
of ths subparagraph.
(h) The Secretary of the Treasury sha prescrbe methods and reguatons
for carryng out the provsons of ths paragraph. No e empton provded for
In ths paragraph sha be apped to any artce whch s not decared n accord-
ance wth such reguatons.

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SUPPLI S ND UIPM NT FOR SS LS ND IRCR FT
Sec. 11. (a) Subsectons (a) and (b) of secton 309 of the Tarff ct of 1930,
as amended (U. S. 0., 19 6 edton, tte 19, sec. 1309 (a) and (b)), reatng to
artces for certan vesses and arcraft, are further amended to read as foows:
(a) empton from Dutes and Ta es. rtces of foregn or domestc
orgn may be wthdrawn, under such reguatons as the Secretary of the Treasury
may prescrbe, from any customs bonded warehouse, from contnuous customs
custody esewhere than n a bonded warehouse, or from a foregn-trude zone free
of duty and nterna-revenue ta , or from any nterna-revenue bonded warehouse,
from any brewery, or from any wnery premses or bonded premses for the
storage of wne, free of nterna-revenue ta
(1) for suppes (not ncudng equpment) of ( ) vesses or arcraft
operated by the Unted States, ( ) vesses of the Unted States empoyed
n the fsheres or n the whang busness, or actuay engaged n fore gn
trade or trade between the tantc and Pacfc ports of the Unted States or
between the Unted States and any of ts possessons, or (C) arcraft
regstered n the Unted States and actuay engaged n foregn trade or
trade between the Unted States and any of ts possessons; or
(2) for suppes (ncudng equpment) or repar of ( ) vesses of war
of any foregn naton, or ( ) foregn vesses empoyed n the fsheres or
n the whang busness, or actuay engaged n foregn trade or trade be-
tween the Unted States and any of ts possessons, where such trade by
foregn vesses s permtted; or
(3) for suppes (ncudng equpment), ground equpment, mantenance,
or repar of arcraft regstered n any foregn country and actuay engaged
In foregn trade or trade between the Unted States and any of ts posses-
sons, where trade by foregn arcraft s permtted. Wth respect to artces
for ground equpment, the e empton hereunder sha appy ony to dutes
and to ta es mposed upon or by reason of mportaton.
(b) Drawback. rtces wthdrawn from bonded warehouses, bonded
manufacturng warehouses, contnuous customs custody esewhere than n a
bonded warehouse, or from a foregn-trade zone, and artces of domestc manu-
facture or producton, aden as suppes upon any such vesse or arcraft of
the Unted States or aden as suppes (ncudng equpment) upon, or used n
the mantenance or repar of, any such foregn vesse or arcraft, sha be con-
sdered to be e ported wthn the meanng of the drawback provsons of ths ct.
(b) Secton 317 (b) of the Tarff ct of 1930, as amended (U. S. C, 19 6 ed-
ton, tte 19, sec. 1317(b)), s amended to read as foows:
(b) The shpment or devery of any merchandse for use as suppes (ncud-
ng equpment) upon, or n the mantenance or repar of any vesse or arcraft
descrbed n subdvson (2) or (3) of secton 309 (a) of ths ct, or for use
as ground equpment for any such arcraft, sha be deemed an e portaton
wthn the meanng of the customs and nterna-revenue aws appcabe to the
e portaton of such merchandse wthout the payment of duty or nterna-
revenue ta . Wth respect to merchandse for use as ground equpment, such
shpment or devery sha not be deemed an e portaton wthn the meanng
of the nterna-revenue aws reatng to ta es other than those mposed upon
or by reason of mportaton.
(c) Secton 3115 of the Revsed Statutes, as amended (U. S. 0., 19 6 edton,
tte 19, see. 25 ), s further amended by
(1) strkng out the comma at the end of paragraph (2) and nsertng
n eu thereof ; or and nsertng after paragraph (2) the foowng new
paragraph:
(3) That such equpments, or parts thereof, or materas, or abor, were
used as dunnage for cargo, or for the packng or shorng thereof, or n the
erecton of temporary bukheads or other smar devces for the contro
of buk cargo, or n the preparaton (wthout permanent repar or aterna-
ton) of tanks for the carrage of qud cargo; ; and
(2) strkng out such equpments the ast pace t appears n such sec-
ton and nsertng n eu thereof such equpments or parts thereof or
materas .

pproved ugust ,1953.
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. R. 6 02. PU LIC L W 27 , IO TY-T IRD CONGR SS
C PT R , FIRST S SSION
n ct To provde for abatement of eopardy assessments when
eopardy does not e st.
e t enacted by the Senate and ouse of Representatves of ths
Unted States of merca n Congress assembed, That (a) secton 273
of the Interna Revenue Code (reatng to the abatement of |eopardy
assessments of ncome ta es) s hereby amended by addng at the end
thereof the foowng new subsecton:
(a) batement f eopardy Does Not st. The Secretary may abate the
|eopardy assessment If he fnds that eopardy does not e st. Such abatement
may not he made after a decson of The Tu Court of the Unted States n re-
rpect of the defcency has been rendered or, If no petton s fed wth The Ta
Court of the Unted States, after the e praton of the perod for fng sum
petton. The perod of mtaton on the makng of assessments and the begnnng
of dstrant or n proceedng n court for coecton, n respect of any defcency,
sha he determned as f the |eopardy assessment so abated bad not been made,
e cept that the runnng of such perod sha n any event be suspended for the
perod from the date of such |eopardy assessment unt the e praton of the
tenth day after the day on whch such |eopardy assessment s abated.
(b) Sectons 72 and 1013 (reatng to the abatement of |eopardy as-
sessments of estate and gft ta es, respectvey) are hereby amended
by addng at the end of each of such sectons the foowng new sub-
secton :
( ) batement f eopardy Does Not st. The Secretary may abate the
|eopardy assessment f be fnds that |eopardy does not e st. Such abatement
may not be made after a decson of The Ta Court of the Unted States n re-
spect of the defcency has been rendered, or, f no petton Is ted wth The Ta
Court of the Unted States, after the e praton of the perod for fng such
petton. The perod of mtaton on the makng of assessments and the be-
gnnng of dstrant or a proceedng In court for coecton, n respect of any de-
fcency, sha be determned as f the eopardy assessment so abated bad not
been made, e cept that the runnng of such perod sha n any event be sus-
pended for the perod from the date of such |eopardy assessment unt the e -
praton of the tenth day after the day on whch such eopardy assessment s
abated.
(c) The amendments made by ths ct sha be appcabe to |eop-
ardy assessments made or n e stence on the date of enactment of ths
ct or whch are thereafter made.
pproved ugust 1 ,1953.
. R. 9 0. rURLTC T. W 2 .1. IOIITT-T IRD CONGIt SS
C PT R 50 , FIRST S SSION
n ct To amend secton 32T 0(1)( ) of the Interna Revenue
Code to provde that a person entted to drawback wth respect to
certan nonberernge products may eect to receve such drawbacks on
a monthy Instead of a quartery bass.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That the ast two
sentences of secton 3250(1) (5) of the Interna Revenue Code are here-
by amended to read as foows: Such drawback sha be due and pay-
abe quartery upon fng of a proper cam wth the Secretary; e cept
that, where any person entted to such drawback sha eect n wrtng
to fe monthy cams therefor, such drawback sha be due and pay-
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abe monthy upon fng of a proper cam wth the Secretary: Pro-
vded, however, That the Secretary may requre persons eectng to
fe monthy drawback cams to fe wth hm a bond or other securty
n such amount and wth such condtons as he sha by reguatons
prescrbe. ny such eecton may be revoked upon fng of notce
thereof wth the Secretary. No cam under ths subsecton sha be
aowed uness fed wth the Secretary wthn the three months ne t
succeedng the quarter n whch the dsted sprts covered by the
cam were used as provded n ths subsecton.
Sec. 2. The amendment made by the frst secton of ths ct sha
appy ony wth respect to cams for drawback wth respect to ds-
ted sprts whch, on or after the frst day of the frst quarter after
the quarter n whch ths ct s enacted, are used n the manufacture
or producton of nonbeverage products.
pproved ugust 15,1953.
. R. 6 26. PU LIC L W 2 7, IG TY-T IRD CONGU SS
C PT R 512, FIRST S SSION
n ct To amend the Interna Revenue Code to e tend the tme
durng whch certan provsons reatng to Income and estate ta es
sha appy, and for other purposes.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That (a) Short
Tte. Ths ct, dvded nto ttes and sectons accordng to the
foowng tabe of contents, may be cted as the Technca Changes
ct of 1953 :
T L OF CONT NTS
Tte I tenson Provsons
Sec. 101. ecton as to recognton of gan n certan corporate qudatons.
Sec. 102. tenson of tme to make eecton n respect of e cessve deprecaton
aowed for perods before 1952.
Sec. 103. tenson of tme for makng eecton wth respect to war-oss recov-
eres.
Sec. 10 . tenson of perod of abatement of ncome ta es of members of rmed
Forces upon death.
Sec. 105. tenson of temporary provsons reatng to fe Insurance companes.
Sec. 106. tenson of perod for e empton from addtona estate ta of mem-
bers of rmed Forces upon death.
Tte II Msceaneous
Sec. 201. enue of actons for voatons of ct of October 19, 19 9.
Sec. 202. Deducton of certan u.pad e penses and Interest.
Sec. 203. ass of certan property transferred n trust.
Sec. 20 . arned ncome from sources wthout the Unted States.
Sec. 205. Net operatng oss carry-overs.
Sec. 206. mortzaton deducton for gran storage factes.
Sec. 207. cuson of certan transfers takng eTect at death.
Sec. 20 . Faure to renqush a power n certan dsabty cases.
Sec. 200. Reversonary nterests n case of fe nsurance.
Sec. 210. Marta deducton n certan cases where decedent ded befora pr 3,
19 .
Sec. 211. Mtgaton of effect of statute of mtatons.
(b) ct mendatory op Interna Revenue Code. cept as
otherwse e pressy provded, wherever n ths ct an amendment or
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6
repea s e pressed n terms of an amendment to or repea of a chapter,
subchapter, tte, suppement, secton, subsecton, subdvson, para-
graph, subparagraph, or cause, the reference sha be consdered to be
made to a provson of the Interna Revenue Code.
(c) Meanng of Terms Used. cept as otherwse e pressy pro-
vded, terms used n ths ct sha have the same meanng as when
used n the Interna Revenue Code:
TITL I T NSION PRO ISIONS
S C. 101. L CTION S TO R COGNITION OF G IN IN C RT IN
CORPOR T LI UID TIONS.
(a) mendment of Secton 112(b) (7). Secton 112(b) (7) (rentnc to recog-
nton of gan n certan corporate qudatons) s hereby amended by strkng
out 1961 or 1052 n subparagraph ( ) () and nsertng n eu thereof .)51,
1052, or 1053 .
(b) ffectve Date. The amendment made by subsecton (a) sha appy
wth respect to ta abe years endng after December 31, 1052.
S C. 102. T NSION OF TIM TO M L CTION IN R SP CT OF
C SSI D PR CI TION LLOW D FOR P IODS FO
1952.
(a) mendment ot Secton 113(d). So much of secton 113(d) (reatng to
eecton n respect of deprecaton, etc., aowed before 1052) hs foows the frst
sentence thereof Is hereby amended to read as foows: Such an eecton sha
be made In such manner as the Secretary may by reguatons prescrbe and sha
be rrevocabe when made, e cept that an eecton made on or before December
31, 1052, may be revoked at any tme before anuary 1, 1055. revocaton of
an eecton sha be made n such manner as the Secretary may by reguatons
prescrbe, and no eecton may be made by any person after he has so revoked
an eecton. The eecton sha appy n respect of a property hed by the
person makng the eecton at any tme on or before December 31, 1052, and n
respect of a perods snce February 2 ,1013, and before antmry 1,1052, durng
whch such person hed such property or for whch ad|ustments must be made
under subsecton (b) (2). n eecton or a revocaton of an eecton by a trans-
feror, donor, or grantor made after the date of the trnnsfer, gft, or grant of
property sha not affect the bass of such property n the hands of the transferee,
donee, or grantee. No eecton may be made under ths subsecton after December
1,195 .
(b) ffectve Date. The amendment made by subsecton (a) sha be effec-
tve as If ncuded n the amendment made by secton 2 of Pubc Law 539,
ghty-Second Congress, at the tme of ts enactment
S C. 103. T NSION OF TIM FOR M ING L CTION WIT R -
SP CT TO W R-LOSS R CO RI S.
Secton 127(c) (5) (reatng to eecton wth respect to war-oss recoveres) s
hereby amended by strkng out December 31,1952 and nsertng n eu thereof
December 31,1953 .
S C 10 . T NSION OF P RIOD OF T M NT OF INCOM T S
OF M M RS OF RM D FORC S UPON D T .
Secton 15 (reatng to ncome ta es of members of rmed Forces on death)
Is hereby amended by strkng out anuary 1,195 and Insertng n eu thereof
anuary 1,1955 .
S C. 105. T NSION OF T MPOR RY PRO ISIONS R L TING TO
LIF INSUR NC COMP NI S.
(a) Ta worn 1953. Sectons 201(a)(1) (reatng to mposton of ta on fe
nsurance companes), 203 (reatng to 1951 and 1952 ad|usted norma-ta net
Income of fe nsurance companes), and 33(a)(1)( ) (reatng to e cess
profts net Income of fe Insurance companes) are each hereby amended by
strkng out 1051 and 1952 wherever appearng theren and Insertng In eu
thereof 1953 .
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(b) ffectve Date. The amendments made by subsecton (a) sha appy
ony to ta abe years begnnng n 1053. The appcaton of the amendment to
secton 201(f) (reatng to dsaowance of doube deductons) made by secton
336(c)(2) of the Revenue ct of 1951 Is hereby e tended to ta abe years
begnnng after December 31, 1952.
S C. 106. T NSION OF P RIOD FOR MPTION FROM DDI-
TION L ST T T OF M M RS OF RM D FORC S UPON
D T .
Secton 939(b) (reatng to the ta treatment of estates of certan members
of the rmed Forces) s hereby amended by strkng out anuary 1,195 and
Insertng n eu thereof anuary 1, 1955 , and by strkng out anuary 1,
195 and nsertng n eu thereof anuary 1, 3955 .
TITL II MISC LL N OUS
S C. 201. NU OF CTIONS FOR IOL TIONS OF CT OF OCTO R
19, 19 9.
(a) mendment of ct. Secton 2 of the ct entted n ct to assst States
In coectng saes and use ta es on cgarettes , approved October 19, 19 9 (15
U. S. C, sec. 376), s hereby amended by strkng out forward to and nsertng
In eu thereof te wth .
(b) ffectve Date. The amendment made by subsecton (a) sha appy
ony n respect of memoranda or copes of nvoces coverng shpments made dur-
ng the caendar month n whch ths ct s enacted and subsequent caendar
months.
S C. 202. D DUCTION OF C RT IN UNP ID P NS S ND IN-
T R ST.
(a) mendment of Secton 2 (c). Paragraph (1) of secton 2 (c) (reatng
to dsaowance of certan deductons for e penses ncurred and nterest accrued)
s hereby amended to read as foows:
(1) If wthn the perod consstng of the ta abe year of the ta payer
and two and one-haf months after the cose thereof ( ) such e penses or
nterest are not pad, and ( ) the amount thereof s not ncudbe n the
gross ncome of the person to whom the payment s to be made; and .
(b) ffectve Date.
(1) cept as otherwse provded n paragraph (2), the amendment made
by subsecton (a) sha appy ony wth respect to ta abe years begnnng
after December 31, 1950.
(2) t the eecton of a ta payer (herenafter n ths paragraph referred
to as the payor ) made wthn one year after the date of the enactment of
ths ct, the amendment made by subsecton (a) sha aso appy wth respect
to such ta abe years of the payor begnnng after December 31, 19 5, and
before anuary 1, 1951, as are specfed by the payor n makng such eecton.
Such eecton for any ta abe year sha not be vad as to any amount uness,
at or before the tme when such eecton s fed
( ) the person (herenafter n ths paragraph referred to as the
payee ) to whom such amount was payabe ncuded such amount n
gross ncome for hs ta abe year for whch such amount was ncudbe
n gross ncome, or
( ) the payee fes a wrtten consent to the assessment and coecton
of any defcency and nterest resutng from the payee s faure to ncude
such amount n gross ncome for such ta abe year, or
(C) the payor pays an amount equa to the defcency and nterest
whch woud be payabe by the payee pursuant to subparagraph ( ) f he
fed such consent. ( ny amount pad under ths subparagraph sha be
assessed, notwthstandng any aw or rue of aw to the contrary, as an
addton to the ta of the payor for the year for whch the eecton s
fed.)
The perods of mtaton provded In sectons 275 and 276 of the Interna
Revenue Code on the makng of an assessment and the begnnng of dstrant
or a proceedng n court for coecton sha, wth respect to any defcency
and nterest thereon resutng from any consent fed pursuant to subpara-
graph ( ), ncude one year mmedatey foowng the date such consent s
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fed, and such assessment and coecton may be made notwthstandng any
provson of aw or any rue of aw whch otherwse woud prevent such
assessment and coecton. If an eecton by a payor shoud be fed for a
ta abe year of the payor for whch aowance of credt or refund of an over-
payment s barred (at the tme of such fng) by any aw or rae of aw, any
consent fed by the payee n respect of any amount whch represents e penses
ncurred or nterest accrued by the payor for such year sha be vod. If a
consent requres the ncuson n the gross ncome of the payee for any
ta abe year of an amount whch was erroneousy ncuded n the gross
Income of the payee for another ta abe year and, on the date the consent s
fed, correcton of the effect of the error s prevented by the operaton of any
provson of the nterna-revenue ows other than secton 3761 of the In-
terna Revenue Code (reatng to compromses), then the effect of the error
sha be corrected n accordance wth secton 3 01 of the Interna Revenue
Code as f the consent were a determnaton under such secton 3 01 n whch
there s adopted a poston mantaned by the Secretary of the Treasury.
The Secretary of the Treasury sha prescrbe such reguatons as may be
necessary to carry out the provsons of ths paragraph.
S C. 203. SIS OF C RT IN PROP RTY TR NSF RR D IN TRUST.
(a) mendment of Secton 113(a)(5). The second sentence of secton
113(a)(5) (reatng to the bass of property transmtted at death) s hereby
amended by nsertng mmedatey after the word revoke the trust the foow-
ng: or to make any change n the en|oyment thereof through the e ercse of
a power to ater, amend, or termnate the trust .
(b) ffectve Date. The amendment made by subsecton (a) sha appy
(1) ony n the case of property transferred by grantors dyng after December
1, 1051, and (2) ony wth respect to ta abe years endng after December 31,
1951.
S C. 20 . RN D INCOM FROM SOURC S WIT OUT T UNIT D
ST T S.
(a) mendment of Secton 116(a)(2). Secton 116(a)(2) (reatng to
e cuson from gross ncome of earned ncome from sources wthout the Unted
States) s hereby amended by addng at the end thereof the foowng new
sentences:
If the 1 -month perod Incudes the entre ta abe year, the amount e cuded
under ths paragraph for such ta abe year sha not e ceed 20,000. If the 1 -
month perod does not ncude the entre ta abe year, the amount e cuded
under ths paragraph for such ta abe year sha not e ceed an amount whch
bears the same rato to 20,000 as the number of days n the part of the ta abe
year wthn the 1 -month perod bears to the tota number of days n such year.
(b) Wthhodng of Ta on Wages of Ctzens Outsde the Unted
St tes. So much of secton 1621(a) ( ) (reatng to the defnton cf wages)
as precedes subparagraph ( ) thereof s hereby amended to read as foows:
( ) ( ) for servces for an empoyer (other than the Unted States or
any agency thereof) () performed by a ctzen of the Unted States f. at
the tme of the payment of such remuneraton, t Is reasonabe to beeve
that such remuneraton w be e cuded from gross ncome under secton
116(a), or () performed In a foregn country by such a ctzen f, at the
tme of the payment of such remuneraton, the empoyer s requred by
the aw of any foregn country to wthhod ncome ta upon such re-
muneraton, or .
(c) ffectve Date The amendment made by subsecton (a) sha appy
wth respect to ta abe years endng after December 31,1952, but ony to amount s
receved after such date. In the case of any ta abe year begnnng n 1952 nnd
endng In 1953 the e cuson of amounts receved after December 31, 1952. sha
not e ceed an amount whch s the same proporton of 20,000 as the number of
days n such ta abe year after December 31, 1952, s of 365 days. The amend-
ments made by subsectons (a) and (b) sha not affect the abty of any
empoyer to deduct and wthhod the ta Imposed by secton 1622 tn the case
of any remuneraton pad before the frst day of the frst month begnnng mure
than ten days after the date of the enactment of ths ct
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S C. 205. N T OP R TING LOSS C RRY-O RS.
(a) mendment of Secton 122(b)(2).
(1) Secton 122(b) (2) (reatng to net operatng oss carry-over) s here-
by amended by addng after subparagraphs (D) the foowng new sub-
paragraphs :
( ) Loss For Ta abe Tears of Corporatons egnnng n 19 7 and-
ndng n 19 . If a corporaton (other than a corporaton whch
commenced busness after December 31, 19 5) has a net operatng oss
for a ta abe year begnnng n 19 7 and endng n 19 , subparagraph
(C) sha appy as f the ta abe year began after December 31, 19 7;
e cept that the net operatng oss carry-over for the thrd succeedng
ta abe year sha not e ceed that amount whch bears the same rato
to the net operatng oss as the number of days n the ta abe year
after December 31,19 7, bears to the tota number of days n the ta abe
year.
(F) Loss n Case of Corporatons Whose Frst Ta abe Year egan
n 19 9 and nded n 1950. If the frst ta abe year of a corporaton
began n 19 9 and ended n 1950, and f the corporaton had a net
operatng oss for such frst ta abe year, there sha be a net operatng
oss carry-over for the fourth and ffth succeedng ta abe years. The
amount of such carry-over sha be determned n accordance wth the
frst sentence of subparagraph ( ) ; e cept that
() such carry-over for the fourth succeedng ta abe year sha
not e ceed so much of such net operatng oss as s aocabe to 1950,
and
() such carry-over for the ffth succeedng ta abe year sha
not e ceed the amount by whch the carry-over for the fourth
succeedng ta abe year (as mted by cause () of ths sentence)
e ceeds the net Income for the fourth succeedng ta abe year com-
puted as provded n causes () and () of the frst sentence of
subparagraph ( ).
For the purposes of the precedng sentence, the porton of the net operat-
ng oss whch s aocabe to 1950 sha be an amount whch bears the
same rato to such oss as the number of days In the ta abe year after
December 31, 19 9, bears to the tota number of days n the ta abe
year.
(2) Subparagraph ( ) of secton 122(b) (2) s hereby amended by strk-
ng out subparagraph (D), and nsertng n eu thereof subparagraphs
(D) and ( ), .
(3) The amendment made by paragraph (2), and subparagraph ( ) of
secton 122(b) (2) of the Interna Revenue Code as added by paragraph (1),
sha appy wth respect to ta abe years endng after December 31, 19 7.
Subparagraph (F) of secton 122 (b) (2) of the Interna Revenue Code as
added by paragraph (1) sha appy wth respect to ta abe years endng
after December 31, 19 9.
(b) Successor Rauoad Corporatons.
(1) Subsecton (c) of the frst secton of the ct of uy 15,19 7 (01 Stat.
32 ), reatng to aowance to successor raroad corporatons of benefts of
certan carry-overs of predecessor corporatons, s hereby amended to read as
foows:
(c) For the purposes of ths secton, f the perod, begnnng on the frst day
of the ta abe year of the predecessor corporaton n whch the acquston oc-
curred and endng on the ast day of the ta abe year of the successor corporaton
n whch the acquston occurred, s not more thnn tweve months, then
(1) f such net operatng oss or unused e cess profts credt was for
a ta abe year begnnng before anuary 1, 19 , the number of succeedng
ta abe years to whch such net operatng oss or unused e cess profts
credt s a carry-over sha be three (nstead of two, as respectvey provded
n secton 122(b) (2) ( ) and secton 710(c) (3) ( ) of such code) ; and
(2) f such net operatng oss was for a ta abe year begnnng after
December 31, 19 7, and before anuary 1, 1950, the number of succeedng
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ta abe years to whch such net operatng oss s a carry-over sha be four
(nstead of three, as provded n secton 122(b) (2) (C) of such code) ;
and such reguatons sha prescrbe (as neary as possbe n the manner re-
spectvey prescrbed n sectons 122(b) (2) and 710(c) (3) ( ) of such code wth
respect to a net operatng oss or an unused e cess profts credt, as the case
may be, for such ta abe year) the amount to be carred over to the ast of such
succeedng ta abe years.
(2) The amendment made by paragraph (1) sha be effectve as f n-
cuded n such ct of uy 15, 19 7, at the tme of ts enactment.
S C. 206. MORTIZ TION D DUCTION FOR GR IN STOR G F CILI-
TI S.
(a) owance or Deducton. Suppement of subchapter C of chapter 1
s hereby amended by nsertng after secton 12 the foowng new secton:
S C. 12 . MORTIZ TION D DUCTION FOR GR IN STOR G F -
CILIT1 S.
(a) owance or Deducton.
(1) Orgna owneb. ny person who constructs, reconstructs, or erects
a gran storage facty (as defned n subsecton (d)) sha, at hs eecton,
be entted to a deducton wth respect to the amortzaton of the ad|usted
bss (for determnng gan) of such facty based on a perod of s ty
months. The s ty-month perod sha begn as to any such facty, at the
eecton of the ta payer, wth the month foowng the month n whch the
facty was competed, or wth the succeedng ta abe year.
(2) Subsequent owners. ny person who acqures a gran storage
facty from a ta payer who
( ) eected under subsecton (b) to take the amortzaton deducton
provded by ths subsecton wth respect to such facty, and
( ) dd not dscontnue the amortzaton deducton pursuant to
subsecton (c).
hn, at hs eecton, be entted to a deducton wth respect to the ad|usted
bass (determned under subsecton (e) (2)) of such facty based on the
perod, f any, remanng (at the tme of acquston) n the s ty-month
perod eected under subsecton (b) by the person who constructed, recon-
structed, or erected such facty.
(3) mount of deducton. The amortzaton deducton provded n
paragraphs (1) and (2) sha be an amount, wth respect to each month of
the amortzaton perod wthn the ta abe year, equa to the ad|usted bass
of the facty at the end of such month, dvded by the number of months
(ncudng the month for whch the deducton s computed) remanng n
the perod. Such ad|usted bass at the end of the month sha be computed
wthout regard to the amortzaton deducton for such month. The amortza-
ton deducton above provded wth respect to any month sha be n eu of
the deducton wth respect to such facty for such month provded by secton
23(1) (reatng to e hauston, wear and tear, and obsoescence).
(b) ecton of mortzaton. The eecton of the ta payer under sub-
secton (a) (1) to take the amortzaton deducton and to begn the s ty-month
perod wth the month foowng the month n whch the facty was competed
sha be made ony by a statement to that effect n the return for the ta abe
year n whch the facty was competed. The eecton of the ta payer under
subsecton (a) (1) to take the amortzaton deducton and to begn such perod
wth the ta abe year succeedng such year sha be made ony by a statement to
that effect n the return for such succeedng ta abe year. The eecton of the
ta payer under subsecton (a)(2) to take the amortzaton deducton sha be
made ony by a statement to that effect n the return for the ta abe year n
whch the facty was acqured. Notwthstandng the precedng three sentences,
the eecton of the ta payer under subsecton (a) (1) or (2) may be made, under
such reguatons as the Secretary may prescrbe, before the tme prescrbed n
the appcabe sentence.
(c) Termnaton of mortzaton Deducton. ta payer whch has eected
under subsecton (b) to take the amortzaton deducton provded n subsecton
(a) may, at any tme after makng such eecton, dscontnue the amortzaton
deducton wth respect to the remander of the amortzaton perod, such ds-
contnuance to begn as of the begnnng of any month specfed by the ta payer
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n a notce n wrtng fed wth the Secretary before the begnnng of snch month.
The deducton provded under secton 23(1) sha be aowed, begnnng wth
the frst month as to whch the amortzaton, deducton s not appcabe, and the
ta payer sha not be entted to any further amortzaton deducton wth respect
to such facty.
(d) Defnton of Gran Storage Facty. For the purposes of ths sec-
ton, the term gran storage facty means
(1) any corn crb, gran bn, or gran eevator, or any smar structure
sutabe prmary for the storage of gran, whch crb, bn, eevator, or
structure Is ntended by the ta payer at the tme of hs eecton to be used
for the storage of gran produced by hm (or, f the eecton Is made by a
partnershp, produced by the members thereof) ; and
(2) any pubc gran warehouse permanenty equpped for recevng,
eevatng, condtonng, and oadng out gran,
the constructon, reconstructon, or erecton of whch was competed after
December 31, 1952, and on or before December 31, 1956. If any structure de-
scrbed n cause (1) or (2) of the precedng sentence s atered or remodeed
so ns to ncrease ts capacty for the storage of gran, or f any structure s con-
verted, through ateraton or remodeng, nto a structure so descrbed, and f
such ateraton or remodeng was competed after December 31, 1952, and on
or before December 31, 1956, such ateraton or remodeng sha be treated as
the constructon of a gran storage facty. The term gran storage facty
sha ncude ony property of a character whch s sub|ect to the aowance for
deprecaton provded n secton 23(1). The term gran storage facty sha
not ncude any facty any part of whch s an emergency facty wthn the
meanng of secton 12 .
(e) Determnaton of d|usted ass.
(1) Orgna owners. For the purpose of subsecton (a) (1)
( ) n determnng the ad|usted bass of any gran storage facty,
the constructon, reconstructon, or erecton of whch was begun before
anuary 1, 1953, there sha be Incuded ony so much of the amount of
the ad|usted bass (computed wthout regard to ths subsecton) as s
propery attrbutabe to such constructon, reconstructon, or erecton
after December 31, 1952, and
( ) n determnng the ad|usted bass of any facty whch s a
gran storage facty wthn the meanng of the second sentence of
subsecton (d), there sha be ncuded ony so much of the amount
otherwse ncuded In such bass as Is propery attrbutabe to the atera-
ton or remodeng.
If any e stng gran storage facty as defned n the frst sentence of
subsecton (d) s atered or remodeed as provded n the second sentence
of subsecton (d), the e pendtures for such remodeng or ateraton shn
not be apped In ad|ustment of the bass of such e stng facty but a
separate bass sha be computed n respect of such facty as If the part
atered or remodeed were a new and separate gran storage facty.
(2) Subsequent owners. For the purpose of subsecton (a)(2), the
ad|usted bass of any gran storage facty sha be whchever of the foow-
ng amounts s the smaer: ( ) The bass (unad|usted) of such facty for
the purposes of ths secton n the hands of the transferor, donor, or grantor,
ad|usted as If such facty n the hands of the ta payer had a substtute bass
wthn the meanng of secton 113(b) (2) ( ), or ( ) so much of the ad-
|usted bass (for determnng gan) of the facty n the hands of the
ta payer (as computed wthout regard to ths subsecton) as s propery
attrbutabe to constructon, reconstructon, or erecton after December 31,
1952.
(f) Deprecaton Deducton. If the ad|usted bass of the gran storage
facty (computed wthout regard to subsecton (e)) e ceeds the ad|usted
bass computed under subsecton (e), the deducton provded by secton 23(1)
sha, despte the provsons of subsecton (a) (3) of ths secton, be aowed wth
respect to such gran storage facty as If the ad|usted bass for the purpose of
such deducton were an amount equa to the amount of such e cess.
(g) Lfe Tenant and Remanderman. In the case of property hed by one
person for fe wth remander to another person, the amortzaton deducton
provded In subsecton (a) sha be computed as f the fe tenant were the
absoute owner of the property and sha be aowed to the fe tenant
2 670 5 32
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92
(b) Technca mendments.
(1) Secton 23(t) s hereby amended to read as foows:
u(t) mortzaton Deducton. The deducton for amortzaton provde-1
n sectons 12 ,12 , and 12 .
(2) Secton 172 Is hereby amended by strkng out of emergency
factes .
(3) Secton 190 Is hereby amended by nsertng after emergency factes
the foowng: or gran storage factes .
(c) ffectve Date. The amendments made by subsectons (a) and (b) sha
appy ony wth respect to ta abe years endng after the date of the enact-
ment of ths ct
S C. 207. CLUSION OF C RT IN TR NSF RS T ING FF CT T
D T .
(a) Decedents Dyng fter February 10, 1939. Paragraph (1) of secton
11(c) (reatng to the Incuson of certan nterests In the decedent s groe-s
estate) s hereby amended by Insertng after subparagraph (C) the foowng:
Subparagraph ( ) sha not appy to a transfer made before March . Ct;
nor sha subparagraph ( ) appy to a transfer made after March 3. 1931,
and before une 7, 19 2. uness the property transferred woud have been
ncudbe n the decedent s gross estate hy reason of the amendatory
anguage of the |ont resouton of March 3, 1931 ( 6 Stat. 1516).
(b) Decedents Dyng efore February 11, 1939. For the purposes of secton
302(c) of the Revenue ct of 1926. as amended, an Interest of a decedent sha
not be ncuded n hs gross estate as Intended to take effect In possesson or
en|oyment at or after hs death uness t woud have been Incudbe as such a
transfer under secton 11(cT(2) of the Interna Revenue Code, as amended by
secton 7 of Pubc Law 37 , ghty-frst Congress, approved October 25, 19 9
(63 Stat. 91), had such secton 11(c) (2), as so amended, apped to the estate
of such decedent. No refund or credt of any overpayment resutng from the
appcaton of ths subsecton sha be aowed or mode If prevented hy the
operaton of the statute of mtatons or by any other aw or rue of aw;
e cept that f the determnaton of the Federa estate ta abty n respect of
the estate of any decedent dyng efore February 11, 1939, was pendng on
anuary 17, 19 9, n the Ta Court of the Unted States or n any other court of
competent ursdcton, or f a decson of the Ta Court of the Unted States
or such other court determnng such estate ta abty dd not become fna
unt on or after anuary 17, 19 9, then refund or credt of any overpayment
resutng from the appcaton of ths subsecton may, nevertheess, be made or
aowed f cam therefor s fed wthn one year from the date of the enactment
of ths ct, notwthstandng secton 319(a) of the Revenue ct of 1926 or any
other aw or rue of aw whch woud otherwse prevent the aowance of such
refund or credt.
(c) Interest. No Interest sha be aowed or pad on any overpayment
resutng from the appcaton of ths secton wth respect to any payment made
before the date of the enactment of ths ct.
(d) ffectve Date. The amendment made by subsecton (a) sha appy
ony wth respect to estates of decedents dyng after February 10, 1939. Sob-
secton (b) sha appy ony wth respect to estates of decedents dyng before
February 11, 1939.
S C. 20 . F ILUR TO R LIN UIS POW R IN C RT IN DIS IL-
ITY C S S.
(a) mendment of Secton 11(d). Secton 11(d) (reatng to revocabe
transfers) Is hereby amended by nsertng after paragraph (3) thereof the
foowng new paragraph:
( ) ffect of dsabty n certan cases. For the purposes of ths
subsecton, n the case of a decedent who was (for a contnuous perod
begnnng not ess than three months before December 31, 19 7, and endng
wth hs death) under a menta dsabty to renqush a power, the term
power sha not Incude a power the renqushment of whch on or after
anuary 1, 19 0, and on or before December 31, 19 7, woud, by reason of
secton 1000(e), be deemed not to be a transfer of property for the purpose
of chapter .
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(Msc.
(b) ffectve Date. The amendment made by subsecton (a) sha appy
ony wth respect to estates of decedents dyng after December 31, 1950.
S C. 209. R RSION RY INT R STS IN C S OF LIF INSUR NC .
(a) Decedents Dyng fter anuary 10,19 1, and efore October 22,19 2.
ffectve wth respect to estates of decedents dyng after anuary 10, 19 1, and
before October 22,19 2, the proceeds of fe nsurance recevabe by benefcares
other than the e ecutor sha not be ncuded In the gross estate of a decedent
under secton 11(g) of the Interna Revenue Code uness such proceeds woud
have been ncudbe under secton 0 (c) of the Revenue ct of 19 2 (as amended
by secton 503(a) of the Revenue ct of 1950) had such secton 0 (c), as so
amended, apped to such estate.
(b) Interest. No nterest sha be aowed or pad on any overpayment re-
sutng from the appcaton of subsecton (a) wth respect to any payment made
before the date of the enactment of ths ct
S C. 210. M RIT L D DUCTION IN C RT IN C S S W R D C -
D NT DI D FOR PRIL 3, 19 .
(a) In Genera In the case of an Interest n property passng by w from
the decedent, f the survvng spouse s entted for fe to a the ncome from
teh property, payabe annuay or at more frequent Intervas, wth power n
the survvng spouse to use and consume such porton of the property as the sur-
vvng spouse may need or desre for her (or hs) comfortabe support and man-
tenance, and wth no power n any person other than the survvng spouse to ap-
pont any part of such property, then
(1) the Interest so passng sha, for the purposes of subparagraph ( )
of secton 12(e) (1) of the Interna Revenue Code, be consdered as passng
to the survvng spouse; and
(2) no part of the nterest so passng sha, for the purposes of subpara-
graph ( ) (I) of secton 12 (e) (1) of the Interna Revenue Code, be con-
sdered as passng to any person other than the survvng spouse.
Nothng n ths subsecton sha be construed to permt the same tems to be twce
deducted.
(b) ecton. The provsons of subsecton (a) sha appy ony f the sur-
vvng spouse fes an eecton under ths secton wth the Secretary wthn one
year after the date of the enactment of ths ct under such reguatons as the
Secretary sha prescrbe. If such eecton s so fed, the property sub|ect to such
power sha, notwthstandng any other provson of aw, be consdered for pur-
poses of chapters 3 and of the Interna Revenue Code as property as to whch
the survvng spouse had a genera power of appontment e ercsabe by deed or
w. If the survvng spouse has made an eecton pursuant to ths secton, the
perods of mtaton provded n chapters 3 and of the Interna Revenue Code
on the makng of an assessment and the begnnng of dstrant or a proceedng
In court fur coecton sha, wth respect to any defcency aud nterest thereon
resutng from such eecton, ncude one year mmedatey foowng the date
such eecton s fed, and such assessment and coecton may be made not-
wthstandng any provson of aw or any rue of aw whch otherwse woud
prevent such assessment and coecton.
(c) Interest. No nterest sha be aowed or pad on any overpayment re-
sutng from the appcaton of ths secton.
(d) ffectve Date. Ths secton sha appy ony wth respect to estates of
decedents dyng after December 31, 19 7, and on or before the date of the enact-
ment of the Revenue ct of 19 . If refund or credt of any overpayment resut-
ng 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 operaton
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, neverthe-
ess, be made or aowed f cam therefor s fed wthn one year from the date
of the enactment of ths ct.
S C. 211. MITIG TION OF FF CT OF ST TUT OF LIMIT TIONS.
(a) mendment of Secton 3 01(b) Secton 3 01(b) (reatng to crcum-
stances of ad|ustment) s hereby amended by Insertng after paragraph (5) the
foowng new paragraphs:
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9
(6) Dsaows a deducton or credt whch shoud have been aowed
to, but was not aowed to, the ta payer for another ta abe year, or to a
reated ta payer; but ths paragraph sha appy ony If ( ) the determna-
ton became fna on or after une 1, 1952, and ( ) credt or refund of the
overpayment attrbutabe to the deducton or credt whch shoud have been
aowed to the ta payer or reated ta payer was not barred, by any aw or
rue of aw, at the tme the ta payer frst mantaned before the Secretary
or the Ta Court of the Unted States, n wrtng, that he was entted to
such deducton or credt n the ta abe year for whch t s so dsaowed; or
(7) Requres the e cuson from gross ncome of an tem whch s n-
cudbe n the gross ncome of the ta pnyer for another ta abe year or n
the gross Income of a reated ta payer; but ths paragraph sha appy ony
f ( ) the determnaton became fna on or after une 1, 1952, and ( )
assessment of defcency under secton 272(a) by the Secretary for such
other ta abe year or aganst such reated ta payer was not barred, by any
aw or rue of aw, at the tme the Secretary frst mantaned n a notce
of defcency sent pursuant to secton 272(a) or before the Ta Court of the
Unted States, that such tem shoud be ncuded n the gross ncome of the
ta payer for the ta abe year to whch the determnaton reates .
(b) Technca mendments.
(1) Paragraph (5) of secton 3 01(b) s hereby amended by strkng out
transacton and nsertng n eu thereof transacton; or .
(2) The second sentence of secton 3 1 (b) s hereby amended by strkng
out Such and nsertng n eu thereof cept n cases descrbed n para-
graphs (C) and (7), such .
(c) ffectve Date. The amendments made by subsectons (a) and (b) sha
be effectve as f ncuded n the Interna Revenue Code at the tme of ts enact-
ment. In any case n whch the determnaton referred to n paragraph (6) or
(7) of secton 3 01(b), as amended by subsecton (a) of ths secton, became
fna before the date of the enactment of ths ct, the one-year perod descrbed
n secton 3 01(c) sha be e tended to ncude the one-year perod begnnng
wth the date of the enactment of ths ct.
pproved ugust 15,1953.
Rev. Ru. 213
Dgests of pubc aws enacted durng the frst sesson of the
ghty-thrd Congress whch pertan to Interna revenue matters.
The Interna Revenue Code has been amended by the foowng
pubc aws enacted durng the frst sesson of the ghty-thrd
Congress:
Past Sc.,
Number of pubc aw Dae approved ths uen
125 uv 16, 1953 73
196 ug. 5, 1953 7
213 ug. 7, 1953 75
219 ug. 7, 1953 76
23 - ug. , 1953 79
2 0 ug. , 1953 0
27 ug 1 , 1953.
2 3 ug. 15, 1953
2 7 - ug. 15, 1953 5
Foowng s a st of the Code sectons whch were amended or
added by these pubc aws and a bref e panaton of the amendment
The statements e panng the Code sectons and the amendments are
not ntended as nterpretatons but are ntended merey to ndcate the
genera nature or effect of the provsons nvoved.
22 (b) (13). empton from ta of combat pay of members of the
rmed Forces. Secton 22(b) (13) e empts from ncome ta
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the pay receved, pror to anuary 1,195 , by certan members
of the rmed Forces whe they are servng n a combat zone.
Pubc Law 213 e tends ths e empton for an addtona
year to anuary 1, 1955.
2 (c). Deducton of unpad e penses and nterest. Secton
2 (c) prohbts the aowance of a deducton for nterest and
other e penses ncurred durng the ta abe year of the ta -
payer (payor) and payabe to a cosey reated ta payer
(payee) who reports ncome on the cash recepts bass uness
the e penses are pad durng the payors ta abe year or
wthn 2y2 months thereafter or uness the payee construc-
tvey receves durng the payor s ta abe year the amounts
to be pad. The constructve recept rue s e tended by Pub-
c Law 2 7 to cover the 21 -month perod.
25(b) (3). Defnton of dependent. In dennng those who may
quafy as a dependent of a ta payer, secton 25(b) (3) pro-
vdes that a egay adopted chd of a person sha be con-
sdered a chd of such person by bood. Ths rue s e -
tended by Pubc Law 213 to a chd for whom a petton
for adopton was fed and dened because of menta n-
capacty of the survvng natura parent to agree to the
adopton.
112(b) (7). Recognton of gan n certan 111 month compete
corporate qudatons. Secton 112(b)(7) grants parta
reef to certan sharehoders who receve dstrbutons n
1951 and 1952 n compete qudaton of a corporaton pro-
vded the qudaton occurs wthn a snge caendar month.
Pubc Law 2 7 e tends ths provson to 1953.
113(a) (5). ass of trust property transmtted at death. Sec-
ton 113(a) (5) provdes that the bass of property acqured by
bequest, devse, or nhertance sha be the far market vaue
of such property at the tme of such acquston. Where
property s transferred n trust wth the grantor retanng
the ncome from such property for hs fe wth power to
revoke the trust, the bass of the property to the person takng
t under the terms of the trust s the same as f the property
had passed under a w e ecuted on the day of the grantors
death. The same treatment s e tended by Pubc Law 2 7
to property acqured from a trust n whch the grantor re-
served a fe estate and had the power to make any change n
the en|oyment of the corpus of the trust through the power
to ater, amend, or termnate the trust efore ths amend-
ment, the bass of property transferred wthout consdera-
ton to a trust wth those reservatons was determned, after
death of the grantor, by reference to the rues for gft prop-
erty that s, the bass for gan was the grantor s bass, and
the bass for oss was the ower of the grantor s bass or the
far market vaue at the tme of the transfer by the grantor.
113 (d). ecton n respect of e cessve deprecaton rgnan
ote rue). Secton 113(d) gave ta payers unt the cose
of 1952 to make an rrevocabe eecton wth respect to ad-
|ustments for e cessve deprecaton durng the perod March
1,1 13 through December 31,1951. Pubc Law 2 7 e tends
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96
to December 31,195 , the perod for makng the eecton, and
provdes that a ta payer may, at any tme before anuary 1,
1955, revoke an eecton that he made on or before December
31,1952.
116(a)(2). arned ncome from sources outsde the Unted
States. Ths secton provdes that a ctzen who durng a
perod of 1 consecutve months spends at east 510 fu days
n a foregn country or countres may e cude from gross n-
come the ncome he earns abroad durng that perod. There
was no mtaton on the amount that coud be e cuded from
gross ncome under ths provson; but the amendment made
by Pubc Law 2 7 provdes for a mtaton of 20,000 for an
entre ta abe year.
122(b) (2). Net operatng oss carryovers for corporatons. e-
fore amendment of ths secton, there was a 2-year carryover
perod for ta abe years begnnng before 19 , a 3-year
perod for ta abe years begnnng n 19 and 19 9, and a
6-year perod for ta abe years begnnng after December 31,
19 9. Pubc Law 2 7 amends ths secton to provde n the
case of certan corporatons a 3-year carryover perod for
ta abe years begnnng n 19 7 and endng n 19 and a
5-year perod for ta abe years begnnng n 19 9 and endng
n 1950. n amendment was aso made to the act of uy
15,19 7, to aow a -year carryover perod for ta abe years
begnnng n 19 and 19 9, n the case of certan successor
raroad corporatons.
12 . mortzaton deducton for gran storage factes. Pub-
c Law 2 7 adds ths new secton to the Code to permt ta -
payers to deduct over a perod of 60 months the costs of
constructon or adaptaton of gran storage factes com-
peted after December 31,1952, and on or before December 31,
1956. Reated technca amendments were made to sectons
23(t), 172, and 190.
127(c)(5). ecton wth respect to war-oss recoveres. The
Revenue ct of 1951 added to secton 127(c) the provson
that a ta payer may eect to compute hs ta abty wth re-
spect to war-oss recoveres by measurng the ta benefts
receved from deductng the war osses n pror years. Wth
respect to recoveres made durng ta abe years endng before
October 21, 1951 (the date of enactment of the Revenue ct
of 1951) the eecton must be made on or before December 31,
1952. Pubc Law 2 7 e tends the tme for makng ths
eecton to December 31,1953.
15 . batement of ncome ta es of members of the rmed
Forces. In the case of a member of the rmed Forces who
des after une 2 , 1950, and before anuary 1, 195 , whe
servng n a combat zone, secton 15 provdes that any unpad
ncome ta abty at date of death sha be abated. It
further provdes that any ta pad for the ta abe year n
whch he des and for pror ta abe years endng after the frst
day he served n a combat zone after une 2 , 1950, sha be
credted or refunded. Pubc Law 2 7 e tends these pro-
vsons to anuary 1, 1955.
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97
M C.
201 (a)(1), (f)
203
33(a)(1)( ). Temporary provsons reatng to fe nsur-
ance companes. Pubc Law 2 7 e tends to 1953 the tem-
porary provsons for ta aton of fe nsurance companes
whch have been appcabe to 1951 and 1952. It aso makes
Sermanent the provson n secton 201(f) that doube de-
uctons may not be aowed. Formery, secton 201(f) was
appcabe ony to 1951 and 1952.
273. batement of ncome ta |eopardy assessments. When the
utmate coecton of a ta s n danger, an mmedate |eop-
ardy assessment may be made to get contro of avaabe assets
of a ta payer pendng fna determnaton of hs abty, f
any. No specfc authorty has e sted to revoke such an
assessment where t s subsequenty found that there s no
danger of osng the ta . Pubc Law 27 adds a new sub-
secton (k) whch specfcay authorzes the abatement of
ncome ta |eopardy assessments when t s determned that
|eopardy does not e st.
30 (a), (c)
32(b). tenson of e cess-profts ta . The e cess-profts ta
was orgnay schedued to e pre on une 30, 1953. Pubc
Law 125 e tends the ta for an addtona 6 months to Decem-
ber 31,1953.
11(c). empton of certan reserved-ncome transfers from
estate ta . In the case of decedents dyng on or after anuary
1, 1951, secton 11(c)(1)( ) requred the ncuson n the
decedent s gross estate of a transfers made durng the de-
cedent s fetme where he retaned nterests n the ncome
from the transferred property. Pubc Law 2 7 amends sec-
ton 11 (c) to e empt from the estate ta a transfers of that
type made pror to March ,1931, and a such transfers made
between March 3, 1931, and une 7, 1932, whch woud not
have been ta abe under the provsons of the ont Resou-
ton of March 3,1931.
11(d). Reef from estate ta n certan dsabty cases. Sec-
ton 11(d) requres the ncuson n the decedent s gross es-
tate of any property whch he transferred durng hs fetme
retanng a power to ater, amend, revoke, or termnate the
en|oyment of the property by the benefcary. Secton
1000(e) permtted the reease of such a power (provded t
was one whch ony permtted the grantor to change the bene-
fca en|oyment of the property but not to revest t n hm-
sef) pror to December 31, 19 7, wthout abty for gft
ta . Pubc Law 2 7 amends secton 11(d) to e empt from
estate ta n the case of decedents dyng after December 31,
1950, property sub|ect to a power whch coud have been re-
eased free of gft ta under secton 1000(e) provded the
decedent was under a menta dsabty to renqush the power
for a perod begnnng at east 3 months pror to December
31,19 7, and endng wth hs death.
72. batement of estate ta |eopardy assessments. Pubc Law
27 adds a new subsecton (|) whch specfcay authorzes
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9
the abatement of gft ta |eopardy assessments when t s
determned that |eopardy does not e st.
939(b). empton from addtona estate ta of certan mem-
bers of the rmed Forces. Ths secton e empts from the
addtona estate ta the estates of certan members of the
rmed Forces who de after une 2 , 1950, and before an-
uary 1,195 , as a resut of servng n a combat zone. Pubc
Law 2 7 e tends ths e empton so that the provsons are
appcabe to persons who de before anuary 1, 1955.
1013. batement of gft ta |eopardy assessments. Pubc Law
27 adds a new subsecton (|) whch specfcay authorzes
the abatement of gft ta |eopardy assessments when t s
determned that |eopardy does not e st.
1106. Retrement of |udges of The Ta Court of the Unted
States. Pubc Law 219 adds to the Code a new secton set-
tng forth provsons wth respect to the retrement of |udges
of The Ta Court of the Unted States.
1606, 1607. Unempoyment nsurance coverage for certan mer-
chant seamen. Pubc Law 196 amends these sectons to per-
mt unempoyment nsurance coverage under State unem-
poyment compensaton aws for seamen empoyed on certan
merchant vesses operated by the Unted States-
1621(a)(1). empton from wthhodng ta of combat pay of
members of the rmed Forces. Ths secton n effect e empts
from wthhodng ta the combat pay of a member of the
rmed Forces for servces performed pror to anuary 1,
195 . Pubc Law 213 e tends ths e empton an addtona
year to anuary 1,1955.
1621 (a) ( ). Wthhodng of ta on wages of ctzens outsde the
Unted States. Pror to amendment, secton 1621(a) ( ) e -
cuded from wthhodng remuneraton for servces per-
formed n a foregn country by a Unted States ctzen f
certan condtons were met. In some cases wthhodng was
requred wth regard to remuneraton for servces whch was
e cuded from gross ncome under secton 116(a) (1) or (2)
where the remuneraton was for servces performed outsde
the Unted States but not wthn a foregn country, for e -
ampe, remuneraton for servces performed on the hgh seas.
Pubc Law 2 7 amends secton 1621(a) ( ) to emnate ths
condton and to make secton 1621(a)( ) correspond more
precsey wth secton 116(a).
2563. tenson of certan narcotcs provsons to the Trust Ter-
rtores of the Pacfc Isands. Ths secton sets forth the ter-
rtora e tent of certan narcotcs provsons of the Code.
Pubc Law 23 amends the secton to e tend these provsons
to the Trust Terrtory of the Pacfc Isands. Reated tech-
nca amendments are made to sectons 255 (h) (1), 256 ,2565,
and 322
322 . Defnton of narcotc drugs . Doubt has e sted as to
whether the narcotcs provsons of the Code may be construed
as eng appcabe to narcotc drugs produced synthetcay.
Pubc Law 2 0 adds to secton 322 a new subsecton (g) to
make t cear the term narcotc drugs ncudes drugs syu-
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thetcay produced. Reated technca amendments are
made to sectons 2550(a), 255 (b). 256 (b), 2565, 3220,
3220(g), 3222(c)(1), 322 (e). and 322 (f). The term
narcotc drugs was substtuted for certan words wherever
they appear n subchapter of chapter 23 of the Code and
part of subchapter of chapter 27 of the Code.
3250(1) (5). Drawback on dsted sprts wed for desgnated
nonbeverage purposes. The drawback under ths secton of
ta es on dsted sprts has prevousy been aowed ony on
a quartery bass. Pubc Law 2 3 amends the secton to pro-
vde that a ta payer may eect to receve the refund on a
monthy bass.
3 01 (b). Mtgaton of effect of the statute of mtatons. Sec-
ton 3 01(b) has prevousy set forth fve crcumstances under
whch the effect of the statute of mtatons may be mtgated
to permt an ad|ustment n ncome ta cases. d|ustment
under these fve crcumstances s de endent upon the mante-
nance of an nconsstent poston by the Commssoner or the
ta payer. Pubc Law 2 7 adds two addtona crcum-
stances. n ad|ustment under ether of these two crcum-
stances s not dependent upon the mantenance of an ncon-
sstent poston.
Some other provsons enacted durng the frst sesson of the
ghty-thrd Congress whch dd not actuay amend an Interna
Revenue Code secton but whch have a drect bearng on nterna
revenue matters are as foows:
Secton 207(b), Pubc Law 2 7, e empts from estate ta n the
case of decedents dyng before February 11, 1939, certan trans-
fers prevousy ta abe as transfers ntended to take effect at or
after death. owever, refunds are aowabe n such cases ony
f the cases are st open or became barred on or after anuary
17,19 9.
Secton 209, Pubc Law 2 7, wth reference to Code secton
11(g), makes the 5-percent rue n the case of reversonary n-
terests n fe nsurance appcabe to decedents dyng after anu-
ary O, 19 1, rather than after October 21, 19 2, as prevousy
provded.
Secton 210, Pubc Law 2 7, wth reference to Code secton
12(e)(1), provdes a marta deducton, f eected by the sur-
vvng spouse, wth respect to property passng by w from a
decedent who ded n 19 but before pr 3 of that year, f the
survvng spouse s entted to receve the ncome for fe and has
the power to use or consume the corpus for her (hs) comfortabe
support.
Pubc Law , approved February 1 , 1953, contnues unt
une 30, 105 , the suspenson of certan mport ta es on copper.
Pubc Law 17 , approved ugust 1, 1953, e tends ndefntey
the provson that Members of Congress may deduct for ncome
ta purposes amounts whch they e pend for vng e penses n
Washngton. The deducton may not e ceed 3,000 n any ta -
abe year.
Secton , Pubc Law 212, entted Outer Contnenta Shef
Lands ct, approved ugust 7, 1953, e tends the nterna rev-
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Msc. 600
enue aws to a artfca sands and f ed structures whch may
be erected on the outer Contnenta Shef for the e potaton
therefrom of resources.
Pubc Law 221, approved ugust 7, 1953, contnues unt the
cose of une 30, 195 , the suspenson of dutes and mport ta es
on meta scrap.
Pubc Law 2 3 (Customs Smpfcaton ct of 1953), ap-
proved ugust ,1953, amends certan admnstratve provsons
of the Tarff ct of 1930. Certan of the provsons amended
reate to e emptons from dutes and nterna revenue ta es.
Pertnent e cerpts from Pubc Laws 17 , 212, and 2 3, and the
entre te t of Pubc Law 221 are pubshed on pages 73, 75, 1, and
7 , ths uetn. Pubc Law was pubshed n C. . 1953-1, 529.
Rev. Ru. 226
Pubcaton of new ncome ta Reguatons 11
Reguatons 11 supersedng Reguatons 111 wth respect to ta abe
years begnnng after December 31, 1951, was pubshed n the Fed-
era Regster on Saturday, September 26, 1953, as part 39 of tte 26
of the Code of Federa Reguatons,
The new reguatons codfy the e stng provsons of Reguatons
111 whch are appcabe to ta abe years begnnng after December
31 , 1951, but do not contan provsons of Reguatons 111 whch have
no appcaton to ta abe years begnnng after that date. They do
not affect the vadty of eectons or other actons taken pursuant to
the provsons of Reguatons 111.
The reguatons as pubshed n the Federa Regster are a true copy
of the offca reguatons and may be cted n the usua manner. (For
e ampe, sec. 39.22(a)-, Reguatons 11 .) Copes of the Federa
Regster have been dstrbuted to each regona commssoner and
dstrct drector. Lmted dstrbuton has aso been made n the
Natona Offce.
Offca copes of Reguatons 11 w be avaabe n bound form
from the Superntendent of Documents n appro matey a month.
These copes w contan an nde and append and w be n the
vme format as s used by the Federa Regster.
COMMISSION R S R ORG NIZ TION ORD R No. 1
stabshment of nterna revenue regons and regona offces
Secton 1. Pukpose.
The purpose of ths reorganzaton order s to mpement the pro-
vsons of Treasury Department Order No. 150-26 by provdng basc
nstructons for the ordery qudaton of former dstrct comms-
soners offces and estabshment of nterna revenue regons and
regona offces.
Orgnay Issued as IR Crcuar No. 1 9, dated September 23,1993.
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601 MRO.
S C. 2. ORG NIZ TION ND FUNCTION S.
.01 ffectve uy 1,1953, Treasury Department Order No. 150-26,
copy attached, aboshes the offces of dstrct commssoners of nter-
na revenue and estabshes n eu thereof nne nterna revenue
regons, each of whch comprses the ursdctona area of a regona
commssoner of nterna revenue. ach nterna revenue regon s
composed of severa nterna revenue dstrcts, whch term w here-
after be used to descrbe the dstrcts estabshed pursuant to sec-
ton 3f 50 of the Code, each of whch comprses the |ursdctona area
of a dstrct drector of nterna revenue.
.02 Treasury Department Order No. 150-26 has no effect on the
actvtes or |ursdctona areas of the nterna revenue dstrcts,
e cept for the transfer of Puerto Rco and the rgn Isands of the
Unted States to the Dstrct Drector of Interna Revenue, Lower
Manhattan. The dstrct drectors sha contnue to e ercse the au-
thortes and perform the dutes deegated and assgned to them before
the effectve date of such order, e cept wth respect to functons per-
formed by the coho and Tobacco Ta Dvsons whch are beng
transferred by separate order to the ssstant Regona Commssoner,
coho and Tobacco Ta . It s antcpated that other functons w
be paced n dstrct drectors uy 1,1953, or shorty thereafter. ach
dstrct drector sha report and be responsbe to the regona com-
mssoner of the nterna re venue regon whch encompasses hs nter-
na revenue dstrct.
.03 The regona commssoners sha e ercse the authortes and
perform the dutes deegated and assgned to the former dstrct com-
mssoners of nterna revenue and n effect mmedatey pror to the
effectve date of ths order, ncudng the drecton and coordnaton
of the work of the dstrct drectors of nterna revenue wthn such
regons, and such other dutes as may subsequenty be assgned. ach
regona commssoner sha report and be responsbe to the Com-
mssoner of Interna Revenue.
Sec. 3. Desgnaton of Regona Commssoners.
Regona commssoners have been desgnated as foows:
Regon Regona commmonert offce. Regona eonmuumer
tanta tanta Federa Savngs dg__ son C. Pamer
oston 55 Tremont St Wbur . Gaahan
Chcago 17 North Dearborn St rnest C. Wrght
Cncnnat.. Post Offce dg George . Nea
Daas Mercante Commerce dg fred W. Femng
New York Cty 90 Church St Carence R. rgbaum
Omaha Dodge and 1 th Sta Frank W. Lohn
Phadepha 1700 Wdener dg dward C. Dougherty
San Francsco Food dg Morrs . Fremmng
Sec. . Lqudaton of Dstrct Commssoners Offces.
.01 Former dstrct commssoners offces ocated n tanta, oston,
Chcago, Daas, New York Cty, and Phadepha are transferred to
the new regona commssoners offces n ther respectve ctes.
.02 Former dstrct commssoners offces ocated n uffao, Ceve-
and, Detrot, Los ngees, Seatte, and St. Pau are each whoy con-
taned wthn a new nterna revenue regon. The regona comms-
soners of the nterna revenue regons n whch such offces are
ocated sha be responsbe for the qudaton of these offces.
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502
.03 Former dstrct commssoners offces ocated n atmore, r-
mngham, Denver, St. Lous, and Lousve are havng ther nterna
revenue dstrcts dvded among two or more nterna revenue regons.
Responsbty for the qudaton of these offces sha be as foows:
atmore Regona Commssoner, Phadepha
rmngham Regona Commssoner, tanta
Denver Regona Commssoner, Omaha
St. Lous Regona Commssoner, Omaha
Lousve Regona Commssoner, Cncnnat
.0 Offcers n charge are e pected to take a possbe steps eadng
to the ordery transfer or qudaton of ther respectve offces pror
to uy 1,1953. In those cases where t s desrabe for the qudat-
ng offcer to take over pror to uy 1, 1953, because the offcer n
charge s beng transferred to a new poston, or for other reason,
arrangements shoud be made between the offcers concerned to that
effect.
Sec. 5. Utzaton of Personne, Records, and Factes.
.01 The personne, records, equpment, and other factes of the
former dstrct commssoners offces are transferred to the superv-
son of the regona commssoners responsbe for the transfer or
qudaton of such offces, as set forth n secton of ths order, wth
the e cepton that former dstrct commssoners offce personne
(such as ppeate personne) admnstratvey ocated n an nterna
revenue dstrct transferred to a dfferent regona commssoner are
transferred, together wth pertnent records and factes, to the
supervson of such regona commssoner.
.02 The ureau s pocy wth respect to the personne attached to
the offces beng qudated s to utze a quafed personne n the
Interna Revenue Servce to the fuest e tent possbe. Lsts of such
empoyees avaabe for transfer to other postons and ocatons w
be furnshed empoyng offcers throughout the ureau wth nstruc-
tons for preferenta treatment n connecton wth a vacances n the
Interna Revenue Servce. In those cases where personne s found to
be e cess to the needs of the ureau, a actons taken wth respect to
such personne w be processed strcty n accordance wth the reduc-
ton-m-force reguatons of the Cv Servce Commsson and the
Treasury Department.
.03 The genera prncpe governng the transfer of records s that
records pertanng to each ndvdua nterna revenue dstrct w be
transferred to the regonn offce encompassng such dstrct, whe
records of a genera nature w be transferred to the regona offce
to whch the former dstrct commssoner s offce s transferred or
whch has qudaton authorty over t.
.0 The dsposton of space, suppes, equpment, and other fac-
tes w be determned by the qudaton offcer.
.05 ddtona nstructons coverng the poces and procedures set
forth n ths secton are beng prepared for eary ssuance.
Sec. 6. Tmng of Lqudaton.
It s e pected that a ma|or phases of the qudaton process w
be competed by ugust 1, 1953, athough t may be necessary to hod
a few empoyees for an addtona perod of not more than 30 days.
Ths qudaton goa does not appy to ppeate or coho and
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Tobacco Ta actvtes, concernng whch speca nstructons w be
ssued.
Sec. 7. stabshment of Regona Commssoned Offces.
The regona commssoners w move as rapdy as possbe to es-
. tabsh ther new offces and have them n operaton by uy 1, 1953.
Instructons prevousy ssued for te estabshment of the former ds-
trct commssoners offces may be used as genera gude nes for the
estabshment and staffng of such offces. Necessary modfcatons of
these nstructons w soon be ssued.
Sec. . d|ustments n Inspecton and Lega Servces.
.01 The Inspecton Servce organzaton s beng ad|usted to change
the tte chef nspector to regona nspector and to provde one
such regona nspector for each nterna revenue regon.
.02 It s understood that the organzaton of the Offce of Chef
Counse aso w be ad|usted to change the tte dstrct counse to
regona counse , and to provde one such regona counse for each
nterna revenue regon.
.03 The effectve date of these organzatona ad|ustments w be
announced ater.
Sec. 9. ffect on stng Dutes and Drectves.
.01 cept as modfed by ths order, a empoyees sha contnue
to perform the dutes they were authorzed to perform mmedatey
pror to the effectve date of ths order, and to compy wth procedures
n effect at that tme, unt otherwse provded.
.02 drectves, nstructons, orders, certfcates, reguatons, ru-
ngs, deegatons of authorty, and other actons heretofore ssued or
taken, and n effect mmedatey pror to the effectve date of ths order,
sha reman n fu force and effect e cept as heren modfed, unt
otherwse provded; provded that whenever any such document, dee-
gaton, or acton appes to the ncumbent of a poston where tte h;s
een changed by. or bv vrtue of, ths order t sha be deemed to appy
to the ncumbent of the poston carryng the new counterpart tte.
Sec. 10. ffectve Date.
Ths order s effectve uy 1,1953, concurrenty wth Treasury De-
partment Order No. 150-26.
O. Gordon Dek,
ctng Commssoner.
une 19, 1953.
TR SURY D P RTM NT ORD R No. 150-26
ureau of Interna Revenue reorganzaton. Offces of regona
commssoner and dstrct drector of nterna revenue.
y vrtue of the authorty vested n me as Secretary of the Treasury,
t s hereby ordered:
1. Regona comm oner of nterna revenue. ach offce of ds-
trct commssoner of nterna revenue sha bear the operatng tte
of regona commssoner of nterna revenue, dentfed by the name
of the cty n whch the headquarters offce s ocated.
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2. Dstrct drector of nterna revenue. The tte of each offce of
drector of nterna revenue sha be changed to dstrct drector of
nterna revenue, dentfed by the name of the cty or subdvson
thereof n whch the headquarters offce s ocated.
3. stabshment of offces and boundares of regona comms-
soner.
(a) tanta. There s estabshed an offce of Regona Com-
mssoner of Interna evenue, tanta, whch sha be comprsed
of the States of abama, Forda, Georga, Msssspp, North
Carona, South Carona, and Tennessee, and the Cana Zone.
The headquarters offce sha be n tanta, Ga.
(6) oston. There s estabshed an offce of Regona Com-
mssoner of Interna Revenue, oston, whch sha be comprsed
of the States of Connectcut, Mane, Massachusetts, New amp-
shre, Rhode Isand, and ermont. The headquarters offce sha
be n oston, Mass.
(c| Chcago. There s estabshed an offce of Regona Com-
mssoner of Interna Revenue. Chcago, whch sha be comprsed
of the States of Inos, Mchgan, and Wsconsn. The head-
quarters offce sha be n Chcago, 111.
(d) Cncnnat. There s estabshed an offce of Regona Com-
mssoner of Interna Revenue, Cncnnat, whch sha be com-
prsed of the States of Indana, entucky, Oho, rgna, and
West rgna. The headquarters offce sha be n Cncnnat,
Oho.
(e) Daan. There s estabshed an offce of Regona Com-
mssoner of Interna Revenue, Daas, whch sha be comprsed
of the States of rkansas, Lousana, Okahoma, New Me co,
and Te as. The headquarters offce sha be n Daas, Te .
(/) New York Cty. There s estabshed an offce of Regona
Commssoner of Interna Revenue, New York Cty, whch sha
be comprsed of the State of New York and Puerto Rco and r-
n Isands of the Unted States. The headquarters offce sha
a n New York, N. Y. _
(g) Omaha. There s estabshed an offce of Regona Com-
mssoner of Interna Revenue, Omaha, whch sha be comprsed
of the States of Coorado, Iowa, ansas, Mnnesota, Mssour,
Nebraska, North Dakota, South Dakota, and Wyomng. The
headquarters offce sha be n Omaha, Nebr.
(h) Phadepha. There s estabshed an offce of Regona
Commssoner of Interna Revenue, Phadepha, whch sha
be comprsed of the States of Deaware, Maryand, New ersey,
and Pennsyvana, and the Dstrct of Coumba. The headquar-
(t) San Francsco. There s estabshed an offce of Regona
Commssoner of Interna Revenue, San Francsco, whch sha
be comprsed of the States of rzona, Caforna, Idaho, Mon-
tana, Nevada, Oregon, Utah, and Washngton, and the Terrtores
of aska and awa. The headquarters offce sha be n San
Francsco, Caf.
. boton of certan offces of dstrct commssoner. The offces
of dstrct commssoner of nterna revenue estabshed pror to the
effectve date of ths order are aboshed.
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5. Regona offce n whch offce of dstrct drector ncuded. The
offce of any dstrct drector of nterna revenue ncuded wthn the
terrtory comprsng the offce of a regona commssoner of
nterna revenue sha be ncuded wthn the offce of such regona
commssoner.
6. Interna revenue dstrcts. ach dstrct estabshed pursuant
to secton 3650 of the Interna Revenue Code sha be known as an n-
terna revenue dstrct and sha be dentfed by the name of the cty
or subdvson thereof n whch the headquarters offce of the dstrct
drector of nterna revenue s ocated.
7. Puerto Rco and rgn Isands of Unted States ncuded n In-
terna Revenue Dstrct, Lower Manhattan. Puerto Rco and the r-
gn Isands of the Unted States, now comprsng a part of the In-
terna Revenue Dstrct, atmore, sha be and they are transferred
to and made a part of the Interna Revenue Dstrct, Lower Man-
hattan.
. Inconsstent -provson. ny provson of any order nconsstent
wth any provson of ths order s modfed to the e tent of such
nconsstency.
9. ffectve date. Ths order sha be effectve uy 1,1953.
M. . Fosom,
ctng Secretary of the Treasury.
une 15, 1953.
COMMISSION R S R ORG NIZ TION ORD R No. 15
Genera deegaton of functons to regona commssoners and
dstrct drectors of nterna revenue.
Pursuant to the authorty vested n me as Commssoner of Interna
Revenue, t s hereby ordered:
1. Regona commssoner. The functons of the regona comms-
soner of nterna revenue wth respect to the regon n whch hs offce
s ocated sha, e cept as otherwse provded by any order or document
effectve on the same date as ths order, consst of the functons vested
n the dstrct commssoner of nterna revenue mmedatey pror to
the effectve date of ths order.
2. ssstant regona commssoners. (a) Postons. There sha
be n the offce of the regona commssoner of nterna revenue a pos-
ton of assstant regona commssoner for each of the foowng
functons:
dmnstraton udt
coho and Tobacco Ta Coecton
ppeate Integence
(b) Functons. The functons of the assstant regona comms-
soners sha, e cept as otherwse provded by any order or document
effectve on the same date as ths order, consst of the functons vested
n the assstant dstrct commssoner for the same actvtes mmed-
atey pror to the effectve date of ths order.
3. Dstrct drectors. (a) Functons. The functons of the ds-
trct drector of nterna revenue wth respect to the dstrct n whch
hs offce s ocated sha, e cept as otherwse provded by any order or
document effectve on the same date as ths order, consst of the f unc-
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506
tons vested n drectors of nterna revenue mmedatey pror to the
effectve date of ths order: Provded, That such functons sha not
ncude those of the former head. coho and Tobacco Ta Dvson,
whch functons have been vested n the ssstant Regona Comms-
soner, coho and Tobacco Ta .
. Dvson heads. (a) Postons. There sha be n the offce of
the dstrct drector a poston of head of each of the foowng
dvsons:
dmnstraton Coecton
udt Integence
(6) Functons. The functons of each head of dvson sha, e -
cept as otherwse provded by any order or document effectve on the
same date as ths order, consst of the functons vested n the head of
the same dvson mmedatey pror to the effectve date of ths order.
5. ssstant dstrct drector of nterna revenue. There sha e n
the offce of each dstrct drector of nterna revenue the poston of
assstant dstrct drector of nterna revenue. In case of death, resg-
naton, absence, or sckness of the dstrct drector, such assstant ds-
trct drector sha, wthout further authorzaton, perform the func-
tons of the dstrct drector unt otherwse provded. In the per-
formance of such functons he sha be desgnated as actng dstrct
drector of nterna revenue.
6. uthorty to redeegate. ny functon vested n a regona com-
mssoner or dstrct drector of nterna revenue may, wthn the
framework of the organzaton descrbed heren, be deegated by hm
to any subordnate under hs supervson, e cept as otherwse drected.
7. Contnuaton of functons. cept as otherwse drected, a
offcers and empoyees wthn any regon sha contnue to perform
the functons they were authorzed to perform mmedatey pror to
the effectve date of ths order and to compy wth procedures n effect
at such tme.
. Pror orders affected. (a) The foowng orders and any
amendments thereof are revoked:
Commssoner s Reorganzaton Order No Ch-1, dated May 15, 1952.
Commssoner s Reorganzaton Order No. NIC-1, dated une 23, 1952.
Operatons Reorganzaton Order No. 3, dated September , 1952.
Operatons Reorganzaton Order No. Det-1, dated November 2 , 1952.
(b) ny other order nconsstent wth any provson of ths order
s modfed to the e tent of such nconsstency.
9. ffectve date. Ths order sha be effectve uy 1, 1953.
T. Coeman ndrews,
, , Commssoner.
uy 1,1953.
COMMISSION R S R ORG NIZ TION ORD R No. 17
Standard nomencature for organzatona unts and prncpa
offcers.
Pursuant to the authorty vested n me as Commssoner of Interna
Revenue and n order to standardze termnoogy appcabe to the
Interna Revenue Servce, t s drected:
1. The geographc organzatons of the Interna Revenue Servce
are desgnated as Natona, Regona, and Dstrct.
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2. The organzatona components of the Interna Revenue Servce
and the ttes of ts prncpa offcers are desgnated as foows, the
desgnaton of each component and the prncpa offcer of such com-
ponent beng ndcated on the same ne:
Servce Commssoner
Offce ssstant commssoner
Regon Regona commssoner
Dstrct Dstrct drector
Dvson (Natona) Drector
Dvson (Regon or dstrct) Chef
ranch Chef
Secton Chef
Unt Supervsor
Group Supervsor
3. e stng deegatons of authorty to any offcer or empoyee
and a references to any organzatona component affected by ths
order sha appy to the poston or the organzatona component as
redesgnated 1by ths order.
. Ths order sha be effectve uy 7,1953.
T. Coeman ndrews,
Commssoner.
uy 7,1953.
COMMISSION R S R ORG NIZ TION ORD R No. 20
Deegaton of authorty to grant e tensons of tme for fng estate
ta returns.
Pursuant to the authorty vested n me as Commssoner of Interna
Revenue, t s drected:
1. The authorty to grant e tensons of tme to fe estate ta returns,
not to e ceed 6 months from the due date, s deegated to the dstrct
drectors of nterna revenue to be e ercsed n accordance wth
appcabe reguatons and procedures.
2. Ths order sha become effectve September 1,1953.
O. Gordon Dek,
ctng Commssoner.
ugust 26,1953.
COMMISSION R S R ORG NIZ TION ORD R No. 21
Deegaton of authorty to grant e tenson of tme to pay Income,
e cess profts, estate, and gft ta os.
Pursuant to the authorty vested n me as Commssoner of Interna
Revenue, t s drected that:
1. The authorty to grant e tensons of tme to pay ncome, e cess
profts, estate, and gft ta es, ncudng decences, s hereby dee-
gated to the dstrct drectors of nterna revenue to be e ercsed n
accordance wth appcabe reguatons and procedures.
2. Ths order sha become effectve September 1,1953.
O. Gordon Dek,
ctng Commssoner.
ugust 26,1953.
2 670 5 33
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50
COMMISSION RS ORG NIZ TION ORD R No. 23
Dstrct drectors authorzed to requre records to be kept showng
abty to ncome ta .
Pursuant to the authorty vested n me as Commssoner of Interna
Revenue, dstrct drectors of nterna revenue are hereby authorzed
to requre any person, by notce served upon hm, to keep such records
as sha show whether or not such person s abe to the ncome ta
under chapter 1 of the Interna Revenue Code, and the correct amount
of ncome sub|ect to ta .
T. Coeman ndrews,
Commssoner.
September 11, 1953.
COMMISSION R S R ORG NIZ TION ORD R No. 25
Deegaton of authorty to grant e tensons of tme for fng
returns and payng certan e cse ta es.
Pursuant to the authorty vested n me as Commssoner of Interna
Revenue, t s drected:
1. The authorty to grant e tensons of tme to fe returns and
pay ta es coected wth respect to teegram, teephone, rado, and
cabe factes, and transportaton of persons and property, pursuant
to sectons 3 67(b), 3 69(e), and 3 75(d) of the Interna Revenue
Code, respectvey, and to make monthy deposts n payment of such
ta es pursuant to Treasury Decson 6025 p. 00, ths uetn ,
approved uy 3, 1953, s deegated to dstrct drectors of nterna
revenue to be e ercsed n accordance wth appcabe reguatons and
procedures.
2. Ths order sha be effectve ths date.
T. Coeman ndrews,
Commssoner.
September 29, 1953.
T C NIC L C NG S, CT OF 1953
ouse of Representatves Report No. 9 , ghty-thrd Congress, Frst Sesson
uy 21, 1953
Mr. Reed of New York, from the Commttee on Ways and Means, submtted the
foowng report to accompany . R. 6 26 :
The Commttee on Ways and Means, to whom was referred the bU ( . R
6 20) to amend the Interna Revenue Code to e tend the tme durng whch
certan provsons reatng to ncome and estate ta es sha appy, and for
other purposes, havng consdered the same, report favoraby thereon wthout
amendment and recommend that the b do pass.
I. G N R L ST T M NT
. R. 6 26 contans 17 sectons deang wth amendments to the Interna
Revenue Code. S of the sectons e tend the perod durng whch certan
provsons of the Code w appy. The other 11 sectons reate to amendments
to the Interna Revenue Code provdng for remova of nequtes In ncome and
estate ta cases. Your commttee beeves that It Is mportant to take care of
these nequtes ahead of the genera revson b whch w be consdered ne t
year.
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(Msc.
II. PL N TION OF T ILL
. tenson Provsons
Secton 101. ecton as to recognton of gan n certan corporate qudaton .
s secton e tends to 1953 the provsons of secton 112(b)(7) of the
Interna Revenue Code deang wth the nonrecognton of enn In certan
corporate qudatons. Ths provson whch apped to certan qudatons In
a snge caendar month n d was e tended by the Revenue ct of 1951 to
such qudatons In 1952 and s further e tended by ths to such qudatons
occurrng n a snge caendnr month In 1953. Your commttee beeves that such
an e tenson for 1 year Is desrabe to enabe those who were nmbe to arrange
for qudaton wthn te requste ero In 1951 or 1952 to have the benetts
of ths provson f they can compete such qudatons In a snge caendar month
In 1953.
Secton ot. tenson of tme for eectons under Pubc Lac 539 overrung
rgnan ote cate.
In Pubc I-aw 539, approved uy 1 , 10T 2, Congress overrued the decson of
the Supreme Court n the rgnan ote case. Under that decson a ta -
payer who deducted deprecaton for any year n e cess of the amount aowabe
for such year was nevertheess requred to reduce the 1 ass of hs property by
the entre amount of deprecaton aowed, even though be had receved no
ta beneft from camng such e cessve deprecaton as a deducton. Under
Pubc I|w 539, the bass of the pro erty was not requred to be reduvd by
such e cessve deprecrton uncsf the ta payer had receved a ta beneft for
takng a deducton for such e cessve amount. The ta payer was granted under
the aw an eecton (under such reguatons as the Secretary prescrbed) to
appy ths new treatment retroactvey to the perod snce February 2 . 1913,
and before anuary 1, 1952, but no eecton coud be made after Decemer 31,
1U52. The Treasury reguatons under the aw were not promugated unt
December 30, 1952. Thus ta payers were not Rven suffcent tme to determne
whether such an eecton voud e benefca to them. Your commttee therefore
deems t desrabe to e tend through December 31, 195 , the tme wthn whch
an eecton may be made. Snce Pubc I-aw 539 provdes that an eecton once
made s rrevocabe, the b, n order to provde unform treatment, permts
ta payers to revoke wthn the e tended perod eectons made pror to anuary
1, 1953.
Secton 103. tenson of tme for makng eecton wth respect to tear oss
recoveres.
Secton 3- 1 of the Revenue ct of 1951 sets forth a new method for treatment
of war osses under secton 12 of the Interna Revenue Code. It provdes that
at the eecton of the ta payer (under such reguatons as the Secretary may
prescrbe) the ta for the year n whch the deducton for the war oss was
taken Is to be recomputed by reducng the deducton by the amount of the re-
covered property taken at ts deprecated cost on the date of the oss or at Its
far market vaue on the date of recovery, whchever s ower. The resutng
Increase n ta for the year of the oss, f any, s added to the ta for the year of
recovery. The tme for eectng the beneft of ths provson e pred on December
31, 1952. Snce the T.-easury reguatons nterpretng ths secton of the aw
were not promugated unt Decemer 30, 1952, ta payers dd not have suffcent
tme to determne whether It was advantageous to make such an eecton. The
b e tends the perod for makng such an eecton through December 31, 1953,
Secton 10. tenson of perod of abatement of ncome ta es of deceased mem-
bers of rmed Forces.
Secton 15 of the Interna Revenue Code provdes In the case of an Indvdua
who ded after une 2 , 1950, and pror to anuary 1, 195 , as a resut of actve
servce n a combat zone as a member of the rmed Forces, an abatement of
Income ta abty whch was outstandng at the date of bs death. It aso
provdes a forgveness of the ta wth respect to the ta abe year n whch fas
the date of hs death or wth resect to any pror ta abe year endng on or after
the frst day he so served n a combat rone after une 2 , 1950. Your commttee
b e tends the perod to whch ths secton Is appcabe for one addtona year
so as to ncude the caendar |-ear 195 .
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510
Secton 105. tenson of temporary provsons reatng to fe nsurance
companes.
The present temporary provsons for the ta aton of fe Insurance companes
are e tended for 1 year by ths secton of your commttee s b. Pendng the
resuts of studes beng made by the staffs of the Treasury and the ont Commt-
tee on Interna Revenue Ta aton, your commttee deems t advsabe to con-
tnue for 1 year the provsons of the present aw.
Secton 106. tenson of perod for e empton from addtona estate ta of
deceased members of rmed Forces.
Secton 939(b) of the Interna Revenue Code e empts from the addtona
estate ta estates of decedents dyng after une 2 , 1950, and before anuary 1,
193 , whe n actve servce as members of the rmed Forces of the Unted States,
where such decedents were ked n acton whe servng n a combat zone or ded
from wounds, dsease, or n|ury ncurred whe so servng n ne of duty and
by reason of a hazard to whch they were sub|ected as an ncdent of such servce.
Your commttee s b e tends the appcaton of ths secton to anuary 1,1955.
. Msceaneous
Secton 201. enue of acton for voaton of State cgarette ta acs.
The act of October 19,19 9, provded that persons, other than dstrutors, who
se or dspose of cgarettes n nterstate commerce must forward to the tobacco
ta admnstrators of Stntes to whch shpments are made monthy reports
settng forth the names and addresse of the persons to whom shpments are
made and the brand and quantty of cgarettes so shpped. Some courts have hed
that under the statute voatons of the act are commtted at the pace from whch
the cgarettes are shpped, snce the act ony requres the shppers to forward
ther reports. The b requres the actua fng of the reports wth the State
tobacco admnstrator. Ths woud have the effect of assurng, n the event of an
offense commtted under the act, that the venue of the acton woud be n the
dstrct n whch the State tobacco admnstrator has hs offce.
Secton 202. Deducton of certan unpad e penses and nterest.
In the case of certan cosey reated ta payers, such as a corporaton and a
sharehoder ownng more than 50 percent of the corporaton s stock, secton
2 (c) of the Code operates to dsaow deducton of certan e penses and Interest
f the foowng condtons are met:
(1) The amount s not pad wthn the ta abe year or wthn 2 months after
the cose thereof; and
(2) Under the recpent s method of accountng the amount s not, uness pad,
ncudbe n hs ncome n the ta abe year n whch, or wth whch, the ta abe
year of the payor corporaton ends.
Ths provson s ntended to nsure that transactons between such reated
ta payers do not operate to shft tems of ncome or deductons. stuaton has
been caed to the attenton of your commttee, however, where secton 2 (c)
may work an undue hardshp. For e ampe, a recpent on the cash bass may
have an amount credted to hs account and made avaabe to hm by the corpo-
rate payor wthn 2 months after the cose of the payor s ta abe year so that
the recpent must ncude t n ncome as an tem constructvey receved n the
ta abe year so credted. If, however, the corporate ta payer fas actuay to
pay over such amount wthn the perod of 2 | months, the tem w not be a-
owed to the corporaton as a deducton. Your commttee beeves that such a
case shoud not fa wthn the ban of secton 2 (c) and the b so provdes by
an approprate amendment of requrement (1) above.
The amendment s appcabe to ta abe years of the payor begnnng after
December 31, 1950, but under certan condtons, set forth to nsure that pay-
ments w be propery accounted for ta wse wth respect to both partes, tbe
pnyor may eect to make ths amendment appcabe to ta abe years begnnng
after December 31,19 5, and before anuary 1,1951.
Secton 203. Income ta bass of property transferred n trust.
Secton 113(a) (5) of e stng aw contans a provson to the effect that where
the grantor retans the ncome from property n trust for hs fe wth power to
revoke the trust, the bass of the pro| erty n the hands of the persons entted
to take the property under the terms of the trust Instrument after the grantor s
death sha, after such death, be the same as If the property had passed under a
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511
(Msc.
w e ecuted on the day of the grantor s death. Ths resuts n the bass of the
property In the hands of the recpents beng Its far market vaue at the date of
the grantor s death or, at the eecton of the e ecutor, the vaue 1 year from the
date of death. Your commttee beeves that ths same rue shoud appy to
stuatons where the grantor wth a reserved fe estate has the power to make
any change In the en|oyment of the corpus of the trust through the power to
ater, amend, or termnate the trust. In both cases, the trust property s requred
to be ncuded n the gross estate of the grantor for estate ta purposes. The
amendment appes ony to grantors dyng after December 1,11 51, and ouy wth
respect to ta abe years endng after December 31, 1951.
Secton 20 . arned ncome from tourers vhout the Unted States.
Your commttee deems t advsabe to repea secton 116(a) (2) of the Interna
Revenue Cade, effectve as to amounts receved after pr 1 , 1953. Secton
116(a)(2) e cudes from ncome In the case of a ctzen of the Unted States
ncome earned abroad f suc h ctzen whs present n a foregn country or countres
for a perod of 17 out of 1 consecutve months. Whe ths paragraph was
desgned to encourage men wth technca knowedge to go abroad In order to
compete s| ecnc pro|ects, t has been sub|ect to a great dea of abuse. Some
ndvduas wth arge earnngs have sezed upon the provson as an Inducement
to go abroad to perform servces, whch were customary performed at home, for
the prmary purpose of avodng the Federa ncome ta es. It as aso been
ascertaned that In many cases mercans takng advantage of ths provson do
ot pay any ncome ta even to the foregn country or countres n whch the
ncome s earned. Ths s because they are not n any partcuar foregn country
ong enough to estabsh a resdence or because the foregn country n ueston
does not mpose any Income ta . It s beeved that the re|en shoud not be
effectve unt pr 15, 1953, so that ta payers who went abroad w not be
ob|ect to a ta on ther earnngs receved pror to notce that ths provson
woud be emnated. owever, ta payers were put on notce as to the possbe
repea of secton 116(a) (2) by the ntroducton of a reea b on pr 1 ,10. 3,
by the charman of the commttee and by the pubcaton of correspondence wth
the Secretary of the Treasury, whch was pubshed n the Congressona Record
of that date, In whch the Secretary of the Treasury e pressed concern over the
manner n whch ths paragraph was beng utzed for ta -avodance puroses
and e pressed the hoe that egsatve treatment woud be gven to ths probem
to prevent such abuses. The b w not affect the abty of any empoyer
to deduct and wthhod the ta on such earnngs n the case of remuneraton pad
before the frst day of the frst month begnnng more than 1 days after the date
of the enactment of ths act.
Secton 205. et operatng oss deductons.
Tour commttee has ncuded provsons desgned to emnate dspartes n
the treatment of ta payers n reseet to the ta abe years to whch a net oeratng
oss may be carred forward. Under these provsons the number of years to
whch a net operatng oss may be carred forward by certan corporatons re-
portng ncome on the bass of a fsca year has been e tended. Under the cutoff
dates n e stng aw these corporatons are mted n the use of ther net op-
eratng osses. For e ampe, under e stng aw, f a corporaton has a ta abe
year begnnng on December 1, 19 7, a net operatng oss deveoped n that year
may ony be carred forward to the 2 succeedng ta abe years whereas f the
ta abe year had begun on anuary 1,19 S, such may be avaabe to offset gans
of the 3 succeedng ta abe years.
Your commttee has provded that n the case of a corporaton, other than a
corporaton whch commenced busness after December 31, 19 5, whch has a
net operatng oss for a ta abe year begnnng n 19 7 and endng n 19 (so
that the ta abe year overaps the crtca dates) such a corporaton may utze
such oss n the thrd succeedng ta abe year. The amount of such carryover
to the thrd year cannot e ceed an amount whch bears the same rato to the net
operatng oss as the number of days n the oss year fang after December
31. 19 7, s of the tota number of days n the oss year.
In the case of a corporaton the frst ta abe year of whch began n 19 9 and
ended n 1950, a comparabe e tenson s provded. Such corporatons are put on
a bass smar to that provded for corporatons wth net operatng osses for
ta abe years begnnng after 19 9, that s, the net operatng oss may be ava-
abe for the 5 succeedng ta abe years. owever, your commttee s amendment
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512
sub|ects the amount of the carryover to the fourth and ffth succeedng ta abe
years to a genera mtaton to such part of the net operatng oss as s propery
aocabe to 1050.
Your commttee has aso added a provson amendng secton 1 of the act of
uy 15, 10 7 (61 Stat. 32 ). Ths act aowed a carryforward of the net op-
eratng oss of a predecessor raroad corporaton to a successor raroad cor-
poraton. Snce the reorganzaton may have caused a short ta abe year of
the predecessor and of the successor to fa wthn one 12-month perod, such
corporatons woud, n effect, be dened the fu 2-year carryforward avaabe to
other corporatons, the act aowed a carryover for 3 ta abe years n such
cases. Secton 330(b) of the Revenue ct of 1951 added secton 122(b) (2) (C)
to the Code whch provded, n the case of a corporatons, for a 3-year carry-
forward of a net operatng oss ncurred for any ta abe year begnnng after
December 31, 1 7, and before anuary 1, 1950. ccordngy you commttee s
amendment woud aow a successor raroad corporaton a -year carryover n
order to contnue the pror treatment under the act of uy 15,19 7.
Secton 206. mortzaton deducton for gran storage factes.
crtca shortage of factes for storng gran has deveoped throughout the
Naton durng the past severa years. Ths shortage has been fet partcuary
by producers of such grans as wheat and corn. In vew of the stuaton whch
has arsen, your commttee has fet mpeed to provde an nducement for ta -
payers to construct new gran storage factes, to ncrease the capacty of those
aready n e stence, or to adapt e stng constructon to the storage of gran.
Under e stng aw, a ta payer undertakng such e pendtures woud be a-
owed to recover hs costs ony through a deducton for deprecaton taken over
the perod of the usefu fe of such new constructon or adaptaton. Tour com-
mttee has added secton 12 to the Code to aow such costs n the case of
constructon or adaptaton after December 31, 1052, and before anuary 1. 1967.
to be deducted, at the ta payer s eecton, over the perod of 00 months begnnng
ether wth the month foowng the month n whch the facty was competed,
or wth the succeedng ta abe year. In the event that the shortage of factes
for storng gran remans n a crtca state through 1956, your commttee woud
consder t approprate to e tend the date wthn whch a ta payer may con-
struct such factes and receve the benefts of ths provson. The deducton
s avaabe ony wth respect to ta abe years endng after the date of the enact-
ment of ths act. In the case of new constructon the deducton s ony avaabe
wth respect to so much of the cost as s attrbutabe to constructon after Decem-
ber 31, 1952, and n the case of the ateraton or adaptaton of e stng budngs
ony such cost as s propery attrbutabe thereto after such date may be so
deducted.
Ths amortzaton deducton Is In eu of that aowed for deprecaton, nt a
ta payer Is aowed to deduct ordnary deprecaton for that part of hs costs of
constructon whch woud not quafy under ths secton, for e ampe, by reason
of not havng been Incurred subsequent to December 31, 1952. ta payer may
eect to dscontnue hs amortzaton deductons under ths secton as of the
begnnng of any month specfed In a notce fed wth the Secretary before the
begnnng of such month and may thereafter be aowed the deprecaton deduc-
ton. In the case of property hed by one person for fe wth remander to an-
other, the fe tenant s aowed the deducton under ths secton as If he were the
absoute owner. Speca rues are provded to aow the benefts of ths deducton
to a person acqurng a gran storage facty to whch ths secton Is appcabe.
These rues are dscussed n the technca part of ths report reatng to ths
provson.
Ths speca amortzaton deducton Is avaabe to a farmer constructng a
gran storage facty. The statute defnes a gran storage facty as a corncrb,
gran bn, or gran eevator, or any smar structure prmary suted for the
stornge of gran, whch s Intended by the ta payer at the tme of hs eecton
to he used for the storage of gran produced by hm. The deducton s ato ava-
abe to any person who constructs any pubc gran warehouse permanenty
equpped for handng gran. Under the defnton of a gran storage facty
the speca amortzaton deducton s not aowed to persons who store ony gran
purchased for consumpton n ther busness. For e ampe, persons engaged
n the mng of four who construct storage factes for purchased gran u
n such processng woud not be aowed to deduct the cost of any factes u kr
ths provson.
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513
Mso.
Secton 207. cuson of certan transfers takng effect at death.
Your commttee has amended the estate ta provsons of the Code reatng
to certan transfers of property wth retenton of the ncome for fe by the
transferor. In 1930 the Supreme Court hed that property so transferred shoud
not be ncuded n the ta abe estate of the transferor. May v. ener (2 1 U. S.
23 ). In response to ths and reated decsons, on March 3, 1031, Congress
adopted a |ont resouton provdng that such transfers were ncudbe ( 0
Stat. 1516), and the Revenue ct of 1932 substantay reenacted the provsons
of ths |ont resouton. The |ont resouton was nterpreted n 15)3 as beng
ony prospectve n ts operaton so as not to appy the transfers made pror to
the date of ts adopton. assett v. Wech (303 U. S. 303).
In the face of what had ong been regarded as the setted Interpretaton of
the then e stng estate ta provsons reatng to these pre-1931 transfers wth
retenton of a fe estate by the transferor, the Supreme Court n 19 9 n efteet
overrued Its two earer decsons and hed that a transfer of property n 192 ,
wth ncome retaned for fe by the transferor, requred that the transferred
property be ncuded n the ta abe estate of the transferor who ded n 1939.
Commssoner v. Church (335 U. S. 632).
Foowng the Church decson the Technca Changes ct of 19 9 (as amended)
provded that, n the case of fe estates retaned n transfers made on or before
March 3, 1931 (and n some cases before une 7, 1932), the property woud not
be ncuded n the decedent s gross estate soey by reason of retenton of the
fe estate f the decedent ded after the enactment of the Code on February
10, 1939, and pror to anuary 1, 1951. s that act was passed by the Senate,
t contaned provsons whch woud have restored the estate ta aw to what
It was pror to the Church opnon, that s, pre-1931 transfers woud not be
ncuded n the gross estate of the decedent merey by reason of the retenton
of a fe estate, regardess of when the decedent ded. Ths provson was
mted n conference, however, n the manner descrbed above.
Your commttee now agrees that the effect of the Church decson shoud be
emnated n a cases to whch t was appcabe. Pror egsaton has aready
restored the estate ta aw to what t was before the Church decson n respect
to a decedents dyng after the enactment of the Code and pror to anuary
1, 1951. Your commttee s provson accompshes ths same resut n respect
of decedents dyng on or after anuary 1, 1951.
Your commttee has aso provded reef for certan decedents where the death
occurred pror to February 11,1939, and whose estates were burdened wth estate
ta by reason of transfers made before March , 1931, nvovng the retenton
of a fe estate, the reservaton of a mnute reversonary nterest, or both. Snce
property transferred n ths manner woud not he Incuded n the gross estate f
the decedent ded after February 10, 1939 (and before 1951), your commttee s
amendment woud acheve a smar e empton for estates of decedents dyng
pror thereto. owever, your commttee has not fet It necessary to open the
statute of mtatons to any great e tent n cases of decedents dyng pror to
February 11, 1939. It s ony n cases n tgaton at the tme of the Church
decson where there woud appear to be any undue hardshp. In these cases
a refund or credt resutng from ths provson w be aowed If a cam s fed
wthn 1 year from the date of enactment of ths act.
/Secton 20 . Faure to renqush a power n certan dsabty cases.
Grantors of dscretonary trusts created pror to anuary 1, 1939, who had
retaned certan powers whch woud resut n the ncuson of the trust property
n ther gross estate for estate ta purposes were, under secton 1000(e) of the
Code, permtted to renqush such powers on or after anuary 1, 19 0, and on
or before December 31, 19 7, free of gft ta . Your commttee beeves that
grantors who were unabe to renqush ther dscretonary powers wthn the
above perod because of a menta dsabty shoud not be penazed. It Is there-
fore provded that there sha not be Incuded In a decedent s estate property
prevousy transferred n trust as to whch he retaned certan dscretonary
powers f such decedent for at east 3 months pror to December 31, 19 7, aud
contnung to the date of hs death was under a menta dsabty such that
he coud not have renqushed such powers free of gft ta pursuant to secton
1000(e). The terra menta dsabty s ntended to encompass those cases
n whch the decedent durng the requste perod pror to hs death was, In fact,
Incapabe because of hs menta condton of renqushng the power, whether
or not he was egay decared mentay ncompetent durng a or any part of
such perod.
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51
Secton 209. Reversonary nterests n case of fe nsurance.
Secton 0 (c) of the Revenue ct of 19 2 (as amended by sec. 503(a) of the
Revenue ct of 1950) provded n the case of decedents dyng after the date
of ts enactment (October 21, 19 2) that the proceeds of fe nsurance poces1
shoud not be ncuded n the decedent s estate by reason of premums pad by
the decedent pror to anuary 10,19 1, f the decedent at no tme after that dare
retaned an ncdent of ownershp n such pocy. In determnng whether the
decedent had such an ncdent of ownershp after anuary 10,19 1, there was
to be taken nto account ony those reversonary nterests e ceedng 5 percent
of the vaue of the pocy and arsng other than by operaton of aw. Your
commttee beeves that smar treatment shoud be e tended n the case of
decedents dyng after anuary 10, 19 1, and before October 22, 19 2. Such
decedents w be deemed to have an ncdent of ownershp n nsurance poces
by reason of a reversonary nterest hed after anuary 10, 19 1, ony f suc
reversonary nterest e ceeded 5 percent of the vaue of the pocy and arose by
the e press terms of the pocy or other nstrument and not by operaton of aw.
Secton 210. Marta deducton n certan cases where decedent ded before pr
S, 191, .
The provsons of ths secton reate to the marta deducton for estate ta
purposes. The attenton of your commttee has been caed to certan stuatons
where a decedent ded after December 31, 19 7, but pror to the date of the
enactment of the Revenue ct of 19 , whch aowed a marta deducton for
estate ta purposes. Consequenty, whe the act apped to such cases, estates
of decedents dyng wthn ths short perod from anuary 1, 19 , to the date of
ts enactment on pr 2, 19 , were unabe to secure the beneft of ts provsons
n some cases because the w of the decedent was not n accord wth certan
technca requrements of the act. If the decedent had been ave after the
enactment of the Revenue ct of 19 , hs w woud undoubtedy have been
rewrtten to conform to the provsons of the act. Thus, under the act, property
sub|ect to a power of appontment n order to be taken nto account for purposes
of the marta deducton must meet the requrements of secton 12(e) (1) (P)
of the Interna Revenue Code. Ths secton requres the nterest n property
passng from the decedent under a power of appontment to be n trust and the
power to be unmted and e ercsabe by the survvng spouse at a events.
Cases have been caed to the attenton of your commttee where the power
granted to the survvng spouse was not n trust and was confned to a power n
the survvng spouse to use and consume such porton of the property as the
survvng spouse may need or desre for her (or hs) comfortabe support or
mantenance. It s the opnon of your commttee that n the case of a decedent
dyng after December 31, 19 7, and pror to pr 3,19 , a power of ths broad
appcaton shoud be consdered as suffcent to permt the marta deducton of
property sub|ect to such power and the b so provdes. The secton s ony
appcabe f the survvng spouse fes wth the Secretary of the Treasury wthn
1 year after the date of the enactment of ths act an eecton to take the benefts
of the secton. If such an eecton s made the property sub|ect to such power
sha be consdered as property as to whch the survvng spouse had a genera
power of appontment created on the date of the decedent s death, e ercsabe
by deed or by w. Thus a renqushment of such power by the survvng spouse
durng her fetme w resut n a ta abe gft and f such power s not ren-
qushed durng the fetme of the survvng spouse, the property sub|ect to
such power w be ponsdered as part of the estate of such survvng spouse for
estate ta purposes.
Secton 211. Mtgaton of effect of statute of mtatons.
Secton 3 01 of the Code aows ether the ta payer or the Commssoner to
correct an mproper ta resut n certan cases where such acton woud otherwse
be prevented by the runnng of the statute of mtatons. Ths Is possbe by
reason of the aowance under that secton of an addtona perod of tme beyond
the perod of mtatons whch woud ordnary be appcabe. One of the
prncpes of the present statute s to precude any ad|ustment uness the hard-
shp resuts from the mantenance of an nconsstent poston by ether the
ta payer or the Commssoner.
The statute operates effectvey n cases to whch t s drected, but your com-
mttee reazes that ta nequtes, the correcton of whch s prevented by the
runnng of the perod of mtatons, may e st wthout regard to whether or not
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515
Msc.
the poston mantaned by ether pnrty Is Inconsstent ta payer may be
dsaowed a deducton or credt to whch he Is entted In nnother ta abe year
or to whch reated ta payer may he entted. Smary, the Commssoner
may hare ncuded an Item tn ncome for a ta abe year dfferent from the year
for whch such Item shoud hare been Incuded, or the Commssoner may have
Incuded the Item In the ncome of a reated ta payer.
Under present aw, the errors desrrwd may not be corrected If dscovered
after the e praton of the perod of mtaton In respect to the correct year of
the ta payer or of the proper ta payer. Your commttee s b Incudes provsons
amendng secton N01 In order to open the statute of mtatons n such cases.
Where a ta payer cams a dedncton or credt for a ta abe year whch Is ater
determned to be the ncorrect ta abe year, or whch s determned propery to
beong to a reated ta payer, the amendment woud permt a proper ad|ustment.
owever, the ta payer Is entted to the benefts of ths provson ony If a credt
or refund of the overpayment attrbutabe to the deducton or credt for the
correct year or to the reated ta payer was not barred at the tme the ta payer
formay asserted that he shoud have receved such credt or refund n the
year dsaowed.
Smary, the Commssoner woud be aowed to make assessment of ta wth
respect to the proper ta abe year, If at the tme he formay asserted that an
tem was Incudbe In Income for a ta abe year, Inter determned to be the Incor-
rect year, he coud have made a proper assessment of ta for the correct year. n
opportunty to make a proper assessment woud aso be e tended to the Comms-
soner under smar crcumstances In the case of the reated ta payer.
The amendments added by |our commttee are appcabe ony where the
determnaton reatng to the dsaowance of the deducton or credt, or the
e cuson of the Item from gross Income, as the case may be, became fna after
une 30, 1952.
III. D T IL D DISCUSSION OF T T C NIC L
PRO ISIONS OF T ILL
Tte I tenson Provsons
S CTION 101. L CTION S TO R COGNITION OF G IN IN C RT IN
CORPOR T LI UID TIONS
Ths secton amends secton 112(b) (7) of the Code (reatng to eecton as to
recognton of gan n certan corporate qudatons), whch secton s appcabe
under e stng aw ony n cases n whch the qudaton was pursuant to a pan
adopted after December 31, 1950, and the transfer of a the property under the
qudaton occurred wthn 1 caendar month In 1951 or 1952. The amendment
made by ths secton e tends secton 112(b)(7) for an addtona year and makes
t appcabe to cases n whch the qudaton s pursuant to a pan adopted
after December 31,1950, and the transfer of a the property under the qudaton
occurs wthn 1 caendar month n 1951, 1952, or 1953. The effect of the secton
s, n genera, to postpone the recognton of that porton of a quafed eectng
sharehoder s gan on the qudaton whch woud otherwse be recognzed and
whch Is attrbutabe to apprecaton n the vaue of certan corporate assets
unreazed by the corporaton at the tme such assets are dstrbuted n compete
qudaton.
Snce the ony amendment made by your commttee to secton 112(b) (7) s the
nserton of the date 1953 after the dates 1951 and 1952 where they now appear
n subparagraph ( )(I), the date ugust 15, 1950, Is st appcabe n sub-
paragraphs ( ), ( ), and (F) of that secton (reatng to the defnton of
e cuded corporatons and reatng to the recognton of gan to the sharehoders
from the recept of money or of stock or securtes acqured by the qudatng
corporaton after such date).
The amendment made by ths secton s appcabe to ta abe years endng
after December 31,1952.
S CTION 102. T NSION OF TIM TO M L CTION IN R Sr CT OF
C SSI D PR CI TION LLOW D FOR P RIODS FOR 1952
Ths secton amends secMon 113(d) of the Code so as to e tend through
December 31,195 , the perod wthn whch a person may make the eecton pro-
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516
vded n secton 11 (d). Ths secton aso permts an eecton made on or before
December 31, 1952, to be revoked on or before December 31,195 .
ny eecton made after December 31,1952, under secton 113(d), as amended
by ths secton, w be rrevocabe on the date made and sha be made In such
manner as the Secretary may by reguatons prescrbe. If an eecton made on
or before December 31, 1952, Is revoked after such date, no new eecton may
be made.
Nether an eecton nor a revocaton of an eecton by the transferor, donor,
or grantor, sha affect the bass of property n the hands of the transferee, donee,
or grantee f such eecton or revocaton was made after the date of the transfer,
gft, or grant of such property.
The eecton under secton 113(d), as amended by ths secton sha appy In
respect of a property hed by the person makng the eecton at any tme on
or before December 31,1952.
S CTION 103. T NSION OF TIM FOR M ING L CTION WIT R SP CT
TO W R LOSS R CO RI S
Ths secton amends secton 127(c) (5) of the Code (reatng to eectons wth
respect to war osses) to e tend from December 31, 1952, to December 31, 1953,
the perod durng whch a ta payer may make an eecton to have the provsons
of secton 127(c) (3) appy to war oss property whch was recovered durng a
ta abe year endng on or before October 20, 1951. No change s made wth
respect to eectons reatng to such property recovered durng ta abe years
endng after October 20,1951.
S CTION 10 . T NSION OF P RIOD OF T M NT OF INCOM T S
OF M M RS OF RM D FORC S UPON D T
Ths secton amends secton 15 of the Interna Revenue Code to contnue for
an addtona year the abatement of ncome ta provded for members of the
rmed Forces who de as the resut of servce In a combat zone.
Secton 15 of the Code now provdes that n the case of an ndvdua who
des after une 2 , 1950, and pror to anuary 1, 195 , whe In actve servce as
a member of the rmed Forces of the Unted States, f such death occurred whe
servng n a combat zone (as determned under sec. 22(b) (13) of the Code)
or as a resut of wounds, dsease, or n|ury ncurred whe so servng, (1) the
ncome ta mposed by chapter 1 of the Code sha not appy wth respect to the
ta abe year n whch he des or wth respect to any pror ta abe year endng
on or after the frst day he so served n a combat zone after une 2 , 1950, and
(2) the ncome ta mposed by chapter 1 of the Code and under the correspond-
ng tte of each pror revenue aw, for ta abe years precedng hs years of
servce n a combat zone whch I| unpad at the date of hs death sha be for-
gven. Ths secton merey contnues ths provson unt anuary 1, 1955.
S CTION 103. T NSION OF T MPOR RY PRO ISIONS R L TING TO LIF
LNSUR NC COMP NI S
Ths secton woud amend sectons 201, 203 , and 33 of the Interna Revenue
Code to provde that the method of ta ng fe nsurance companes used n 1951
and 1952 sha be e tended 1 more year to appy wth respect to ta abe years
bepnnng n 1953.
The amendment to secton 201 contnues for ta abe years begnnng n 1953
the fat-rate ta of 3 percent on the frst 200,000 and 6 percent on amounts
n e cess of 200,000 of ad|usted norma-ta net ncome (as defned n sec.
203 ). The In|uncton n secton 201(f) aganst construng sectons 201, 202,
203, and 203 so as to permt a doube deducton for the same tems s contnued
for ta abe years begnnng after December 31, 1952.
The amendment to secton 203 appes the defnton of ad|usted norma-ta
net ncome contaned theren to ta abe years begnnng n 1953.
The amendment to secton 33(a)(1)( ) e tends to 1953 ta abe years the
7 percent reserve Interest credt used n 1951 and 1952 n arrvng at the norma
ta net ncome of fe nsurance companes for purposes of computng e cess-
profts net Income.
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S CTION 106. T NSION OF P RIOD FO MPTION FROM DDITION L
ST T T OF U MU S OF M D FORC S O.N D T
Ths secton amends secton 039(b) of the Interna Revenue Code to contnue
for an addtona year the e stng e empton from the addtona estate ta
provded for members of the rmed Forces who de as the resut of servce In a
combat rone.
Secton 039(b) of e stng aw provdes that the ta mposed by secton O. tS
(the addtona estate ta ) sha not appy to the transfer of the net estate of a
ctzen or resdent of the Unted States dyng after une 2 , 1950, and before
anuary 1, 195 , whe In actve servce as a member of the rmed Forces of the
Unted States, If such decedent (1) was ked n ac ton whe servng In a combat
one, as determned under secton 22(b)(13) or (2) ded at any pace as a resut
of wounds, dsease or n|ury suffered, whe servng n a combnt zone (as deter-
mned under sec. 22(b) (13)) and whe n ne of duty, by reason of a hazard to
whch he was sub|ected as an ncdent of such servce. Ths secton merey
contnues the e empton unt anuary 1, 11)55.
Tte II Msceaneous
S CTION 201. NC OF CTIONS FOR IOL TIONS OF CT OF
OCTO R 10, 19 9
Ths secton woud amend secton 2 of the act entted n act to assst States
In coectng saes and use ta es on cgarettes, approved October 11), 1 ) ).
Secton 2 of that act provdes that any person seng or dsposng of cgarettes
n nterstate commerce whereby such cgarettes are shp ed to other than a ds-
trbutor censed by or ocated n a State ta ng the sae or use of cgarettes
ha, not ater thnn the 10th day of each month, forward to the tobacco ta ad-
mnstrator of the State nto whch the shpment s made, a memorandum or a
copy of the nvoce coverng each shpment made durng the prevous month nto
such State. The amendment made by subst-cton (a) of ths secton woud re-
qure that the memorandum or copy of nvoce be fed wth, rather than for-
warded to, the tobacco ta admnstrator, so that actons for voatons of the act
may be brought n the udca dstrct where the tobacco ta admnstrator of the
State nvoved s ocated.
Subsecton (b) of ths secton provdes that the amendment sha appy ony n
respect of memorandums or copes of nvoce s coverng shpments made durng
the caendar month In whch ths act s enacted and subsequent caendar months.
S CTION 202. D DUCTION OF C RT IN UNP ID P NS S ND INT R ST
Under the present provsons of secton 2 (c) of the Code no deducton s
aowed for nterest or e penses (1) f not pad wthn the ta abe year or wthn
2 /| months after the cose thereof; and (2) If, by reason of the method of account-
ng of the person to whom the payment s to be made, the amount thereof s not,
uness pad, ncudbe In the gross ncome of such person for the ta abe year n
whch or wth whch the ta abe year of the ta payer ends; and (3) f, at the
cose of the ta abe year of the ta payer or at any tme wthn 2 /| months there-
of ter, both the ta payer and the person to whom the payment s to be made are
persons between whom osses woud be dsaowed under secton 2 (b) of the
Code. In genera, secton 2 (c) has been nterpreted as requrng actua pay-
ment (cash or negotabe paper havng a determnabe market vaue) of the
e pense or nterest not ater than 2 , months after the cose of the ta abe year.
Ths constructon has resuted n the dena of deductons to ta payers n some
cases even though by appcaton of the doctrne of constructve recept the
amount for wdch the deducton s camed s requred to be ncuded n the gross
ncome of the payee durng the 2 months after the cose of the payor s ta abe
year.
Secton 202 of ths b amends secton 2 (c) (1) of the Code to prevent the
dsaowance of a deducton for nterest or e enses f the amount thereof Is In-
cudbe n the gross Income of the payee wthn the ta abe year of the payor
or wthn the 2Mt months foowng the cose of such ta abe year.
Paragraph (b) (1) of secton 202 of ths b provdes that subsecton (a) sha
be appcabe to ta abe years of the payor begnnng after December 31, 1950.
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51
Paragraph (b) (2) provdes that, If the ta payer (payor) so eects wthn 1
year after the date of the enactment of ths act, subsecton (a) sha aso appy
to such ta abe years of the ta payer whch began after December 31, 19 5, and
before anuary 1, 1051, as are specfed In the eecton. Ths eecton for any
ta abe year w not be vad uness at or before the tme of fng such eecton,
( ) the payee has ncuded the amount deductbe by the ta payer In gross
Income for the ta abe year n whch It was ncudbe, (C) the payee fes a
wrtten consent to the assessment nnt coecton of any defcency and Interest
attrbutabe to the nonncuson of such amount In gross ncome for such ta abe
year, or (0) the ta payer pays an amount equa to the defcency and Interest
whch woud be assessed f the payee had fed such consent.
The perod of mtatons provded n sectons 275 and 276 of the Code on th
makng of an assessment and the begnnng of dstrant or a proceedng n coun
for coecton sha, wth respect to any defcency and nterest thereon resutng
from the fng of the consent requred n ( ) above. Incude 1 year foowng
the date such consent was fed f such perod of mtatons otherwse wouM
e pre before the end of such 1-year perod. The assessment and coecton may
be made notwthstandng any provson of aw or any rue of aw whch other-
wse woud prevent such assessment and coecton.
If an eecton by a ta payer Is fed for a ta abe year for whch the aowance
of a credt or refund of an overpayment s barred, at the tme of fng the eecton,
by any aw or rue of aw, then any consent fed by the payee pursuant to ths
subsecton wth respect to such year sha be vod.
If the payee Is requred to ncude In gross ncome pursuant to hs consent an
amount whch was erroneousy Incuded In hs gross ncome for another ta abe
year and, on the date the consent s fed, proper ad|ustment for the other
ta abe year Is prevented by a provson of the nterna revenue aws other than
secton 3701 (reatng to compromses), then the error sha be corrected In
accordance wth the provsons of secton 3 01 of the Code as f such consent were
a determnaton under secton 3 01 of the Code In whch there s adopted a
poston mantaned by the Secretary of the Treasury.
S CTION 203. SIS OF C RT IN PROP RTT. TR NSF RR D IN TRC T
Subsecton (a) of secton 203 of the b amends secton 113(a)(5) of the
Code, reatng to the bass of property transmtted at death, to e tend the appca-
ton of that secton to property acqured under the terms of certan types of
trust nstruments.
If propery s transferred In trust to pay the ncome for fe to, or upon the
order or drecton of, the grantor wth the rght reserved to the grantor at a
tmes pror to hs death to revoke the trust, secton 113(a) (5) of e stng aw
provdes that the bass of such property n the hands of persons entted under
the terms of the trust Instrument to the property after the grantor s death
sha, after such death, be the same as though the trust nstrument had been a w
e ecuted by the grantor on the date of hs death. Ths secton of the h
woud provde the same rue n cases where the grantor (In addton to reservn;
rghts n the ncome) under the terms of the trust Instrument had reserved the
rght at a tmes pror to hs death to make a change In the en|oyment thereof
through the e ercse of a power to ater, amend, or termnate the trust. Ths
amendment, ke the provsons of e stng aw, s ntended to appy ony to
property whch forms a part of the corpus of the trust at the tme of the grantor s
death.
Subsecton (b) of secton 203 of the b provdes thnt the amendment made by
subsecton (n) sha appy ony n the case of property transferred by grantors
dyng after Deccm)er 31, 1051, and ony wth respect to ta abe years endng
after December 31, 1951.
S CTION 20 . RN D INCOM FROM SOURC S WIT OUT TU
UNIT D ST T S
Under present secton 116(a) (2) a ctzen of the Unted States may e cude
from grass ncome a amounts receved from sources wthout the Unted States
whch consttute earned ncome (as specfcay defned) attrbutabe to any perod
of 1 consecutve months durng whch the ta payer s physcay present In a
foregn country or countres for a tota of at east 510 fu days. mounts pad by
the Unted States or any agency thereof do not come wthn the e cuson.
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Ths secton mts the e cuson from gross Income provded by secton
110(a) (2) of the Code to amounts receved or accrued, dependng upou the ta -
payer s method of accountng, on or before pr 1 , 11)53, provded such amounts
otherwse meet the requrements of secton 116(a)(2). mounts receved or
accrued, dependng upon the ta payer s method of accountng, after pr 1 ,
19T.3, may not t e e cuded under secton 116(a) (2).
The amendment bus no effect on the runnng of the 1 month perod durng
whch a ta payer may quafy wth respect to the e cuson of Income receved ou
or before pr 1 , 1053. Thus, a part of the IS-month quafyng perod may
occur after pr 1 , 1953.
The nmendneut une by ths secton provdes wth regard to an amount
receved after pr 1 , 1053, In the case of a ta payer entted to the benefts of
secton 107. that the computatons und r secton 1U7 sha e made wthout regard
to the e cuson provded by secton 116(a) (2).
Subsecton (h) amends secton 1621(a) ( ) ( ) of the Code to provde that there
w be no wthhodng on remuneraton pad to an empoyee If t Is reasonabe to
beeve that such remuneraton w be e cuded from gross Income under secton
t(a) of the Code. Under present aw, wthhodng Is requred wth regard to
remuneraton for servces whch may be e cuded from gross ncome under
secton 116(a)(1) or (2) In cases where the remuneraton Is for servces per-
formed outsde the Unted States hut not wthn a foregn country, for e ampe,
remuneraton for servces performed on the hgh seas.
Subsecton (c) provdes that the amendment to secton 1021 (a) ( ) ( ) sha
not affect the abty of any empoyer to deduct and wthhod ta mposed by
secton 1622 n the case of any remuneraton pad In-fore the frst day of the frst
month begnnng more than 10 days after the date of enactment.
S CTION 205. N T OP R TING LOSS C YO tS
(a) mendment of tcron 123(6) (2).
Secton 122(b) (2) of the Interna Revenue Code provdes. In genera, that a net
operatng oss sustaned In a ta abe year begnnng pror to anuary 1, 10 (to
the e tent that It Is not absorbed as a carryback), can be carred over to the
2 succeedng ta abe years, and smary that a net operatng oss sustaned In a
ta abe year begnnng after December 31,10 7, and before anuary 1, 1050, c u
be carred over to the 3 succeedng ta abe years. Subsecton (a) of secton 205
woud amend secton 122(b) (2) of the Code to provde that a corporaton whch
has a net operatng oss for a ta abe year begnnng n 10 7 and endng n 10 S
may kewse carry such oss forward to the 3 succeedng ta abe years. The
carryover to the thrd succeedng ta abe year, however, sha not e ceed that
amount of the net operatng oss whch bears the same rato to the oss as the
number of days In the ta abe year after December 31, 10 7, bears to the tota
number of days In the ta abe year. The amendment In effect woud thus aow
that porton of the oss attrbutabe to 10 to be carred over for 3 ta abe years
to the e tent that t has not been absorbed by the ncome of pror and ntervenng
years. The amendment has no appcaton to a corporaton whch commenced
busness after December 31, 19 5, snce such a corporaton, under the present
provsons of secton 122(b) (2) (D), may carry a net operatng oss sustaned In
a ta abe year begnnng after December 31, 10 0, and before anuary 1, 10 ,
forward to the 3 succeedng ta abe years.
Secton 122(b) (2) (U) of the Code provdes that a net operatng oss sustaned
In a ta abe year t egnnng after December 31, 10 0, may be carred over to the
succeedng ta abe years. Subsecton (a) of secton 205 woud aso amend
secton 122 (b) (2) to provde that f the frst ta abe year of the corporaton
began n 10 0 and ended n 1050 and If It sustaned a net operatng oss n that
ta abe year, so much of the net operatng oss as s aocabe to 1050 may be
carred forward to the fourth and ffth succeedng ta abe years. The amount of
the net operatng oss whch Is aocabe to 1050 Is determned by dvdng the oss
by the number of days n the ta abe year and mutpyng by the number of days
of the ta abe year whch fe n 1050. The amount of the carryover s deter-
mned n accordance wth the frst sentence of secton 122(b)(2)( ), whch
amount Is the e cess of the net operatng oss over the sum of the net Income for
each of the ntervenng years computed wth the mtatons, addtons, and e cep-
tons n causes (1) and (11) of that sentence, e cept that the carryover to the
fourth succeedng ta abe year Is mted to the amount of oss aocabe to 1050,
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and Is mted for the ffth succeedng ta abe year to the porton of the osa
aocabe to 1950 mnus the amount of the oss absorbed by the fourth year.
(6) Successor raroad corporatons.
Subsecton (b) of secton 205 amends secton 1(c) of Pubc aw 1 9, ght-
eth Congress. Pubc Law 1 9 aows the successors corporaton n the case of
certan reorganzed raroads to have the beneft of the carryovers of the net
operatng osses and unused e cess-profts credts of the predecessor corporaton.
t the tme of the enactment of Pubc Law 1 9 a ta payers were aowed a
2-year carryover of net operatng osses under the provsons of secton 122 of
the Interna Revenue Code. Secton 1(c) of Pubc Law 1 9 n effect provded
that If the perod begnnng on the frst day of the ta abe year of the predecessor
corporaton n whch the acquston occurred and endng on the ast day of the
ta abe year of the successor corporaton n whch the acquston occurred was
not more than 12 months, then the net operatng oss or unused e cess-profts
credt woud be carred over for 3 years nstead of 2 years as n the case of a
other corporatons. Ths provson was nserted n the statute because the ast
ta abe year of the predecessor corporaton and the frst ta abe year of the
successor corporaton n such a case woud be short ta abe years and t was
desred n effect to gve the successor corporaton, as n the case of other corpo-
ratons, the beneft of the carryovers for a fu 2-year perod. Secton 330(b) of
the Revenue ct of 1951, however, added secton 122(b) (2) (C) to the Code
whch provded that a net operatng oss sustaned n a ta abe year begnnng
after December 31, 19 7, and before anuary 1, 1950, coud be carred forward
for 3 ta abe years by a ta payers. Secton 205(b) of ths b accordngy
amends secton 1(c) of Pubc Law 1 9 to provde a -year carryover of a net
operatng oss sustaned n a ta abe year begnnng after December 31, 19 7.
and before anuary 1, 1950, In the case of such reorganzed raroads. The
amendment In effect w make the resuts under Pubc Law 1 9 conform to
those obtaned by a corporatons under secton 122(b) (2) (C) of the Code.
The amendment s to be effectve as If ncuded In Pubc Law 1 9 at the tme of
Its enactment.
S CTION 200. MORTIZ TION D DUCTION FO GR IN STOR G F CILITI S
Subsecton (a) of ths secton adds new secton 12 to the Code, provdng
an amortzaton deducton for gran storage factes. Under secton 12 (a)
the ta payer may eect to amortze the ad|usted bass (for determnng gan)
of a gran storage facty over a perod of 60 months. The amortzaton deduc-
ton s aowabe to (1) the orgna owner of a gran storage facty, 1. e., the
person who constructs, reconstructs, or erects such facty, or (2) any subse-
quent owner who acqures such a facty from another person who had made
a vad eecton to take the amortzaton deducton and had not dscontnued
such deducton under secton 12 (c). The deducton s aowabe to a subse-
quent owner ony f the orgna owner and each ntervenng owner eects to
cam the amortzaton deducton, and nether the orgna owner nor any nter-
venng owner had dscontnued the amortzaton deducton under secton 12 (c)
pror to hs dsposton of the facty.
In the case of the orgna owner who constructs, reconstructs, or erects a gran
Storage facty, the amortzaton perod s a perod of 60 mouths. e may eect
to begn such perod wth respect to any gran storage facty ether wth the
mouth foowng the month n whch the facty was competed or wth the begn-
nng of the succeedng ta abe year. In the case of a subsequent owner, the
amortzaton perod s the perod, f any, remanng at the tme of hs acqus-
ton n the CO-month perod eected under secton 12 (b) by the person who
orgnay constructed, reconstructed, or erected the facty.
The amount of the amortzaton deducton under secton 12 (a) s an amount
wth respect to each month of the amortzaton perod wthn the ta abe year
equa to the ad|usted bass of the facty at the end of such month dvded by
the number of months remanng n the perod, ncudng the month for whch
the deducton Is to be computed. The ad|usted bass of the facty at the end of
any month Is to be computed wthout regard to the amortzaton deducton for
such month. The amortzaton deducton wth respect to any month s n eu of
any deducton wth respect to the facty for that month provded by secton
23(1) of the Code, reatng to the aowance for deprecaton.
The orgna owner of a gran storage facty may eect to take the amortza-
ton deducton wth respect to such facty and to begn the 60-month amortza-
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ton perod ether wth the month foowng the month In whch the fncty was
competed or wth the begnnng of the succeedng ta abe year. In ether event
the eecton s to be made by a statement n the ta payer s return for the ta abe
year Invoved to the effect that the ta payer eects to tnke the amortzaton
deducton wth respect to the partcuar facty and to begn the UO-nonth perod
t the tme desgnated n the statement. In the case of a subsequent owner the
eecton to take the amortzaton deducton must be made by a statement to that
effect n the return for the ta abe year n whch the facty was acqured by
hm. owever, under reguatons to be prescrbed by the Secretary, ether an
orgna owner or a subsequent owner may make the eecton under secton
12 (b) pror to the fng of the return.
ny ta payer, whether the orgna owner or a subsequent owner of the gran
storage facty who has eected under secton 12 (b) to cam the amortzaton
deducton wth respect to such facty, may, at any tme after makng the eec-
ton, dscontnue the amortzaton deducton as to the remander of the amortza-
ton perod. uch dscontnuance sha become effectve as of the begnnng of
any month, durng whch the ta payer hods the facty, whch s specfed by
tbe ta payer n a notce n wrtng fed wth the Secretary before the begnnng
of such month. From the begnnng of the month specfed for the dscontnuance
of the amortzaton deducton the deducton aowabe under secton 23(1) of
the Code sha be aowed, and nether the ta payer nor any subsequent owner of
tbe gran storage facty sha be entted to any further amortzaton deducton
wth respect to such facty.
Secton 12 (d) defnes the term gran storage facty to mean
(1) any corncrb, gran bn, or gran eevator, or any smar structure
sutabe prmary for the storage of gran, whch crb, bn, eevator, or
structure Is Intended by the ta payer, at the tme of bs eecton to cam tbe
amortzaton deducton, to be used for the storage of gran produced by hm
or, f the eecton s made by a partnershp, by the members thereof, and
(2) any pubc gran warehouse permanenty equpped for recevng, ee-
vatng, condtonng, and oadng out gran.
The ntent referred to n cause (1) above must be present at the tme the eec-
ton s made, whether the eecton s beng made by the orgna owner or by the
subsequent owner.
The defnton contaned In secton 12 (d) does not ncude any facty
uness the constructon, reconstructon, or erecton of such facty was com-
peted after December 31, 10.12, and on or before December 31, 11)5 . owever,
f any structure descrbed n cause (1) or (2) atove s atered or remodeed so
as to ncrease Its capacty for tbe storage of gran, or f an e stng structure
not descr ed n cause (1) or (2) above s converted through ateraton or
remodeng nto a structure so descrbed, such ateraton or remodeng s to be
treated as the constructon of a gran storage facty, provded such ateraton
or remodeng was competed after December 31, 1052, aud on or before De-
cember 31. 1056. The term gran storage facty as used n secton 12 does
not ncude a facty any part of whch consttutes an emergency facty
wthn the meanng of secton 12 . Nor does gran storage facty ncude
any property whch s not of a character whch Is sub|ect to the aowance for
deprecaton provded n secton 23(1). Thus, gron storage facty does not
ncude the and on whch a structure defned n cause (1) or (2) above s
erected.
Secton 12 (e) provdes for the determnaton of the ad|usted bass of a gran
storage facty n the hands of a ta payer for the purposes of secton 12 (a).
In determnng the ad|usted bass of any gran storage facty In the hands of
the orgna owner where the constructon, reconstructon, or erecton of the
facty was begun before anuary 1, 1953, there s to be ncuded ony so much
of the amount of-the ad|usted bass computed wthout regard to subsecton (e)
as s propery attrbutabe to constructon, reconstructon, or erecton after De-
cember 31, 1052. In the case of any ateraton or remodeng of a structure
whch ateraton or remodeng under secton 12 (d) s treated as a constructon
of a gran storage facty, the ad|usted bass of any such facty n the bands
of the orgna owner s to be determned by Incudng ony that porton of the
ad|usted bass of the facty computed wthout regard to secton 12 (e) as h
propery attrbutabe to such ateraton or remodeng as was competed after
December 31,1952, and on or before December 31,1956.
If any e stng gran storage facty competed after December 31, 1952, Is
(pror to anuary 1, 1957) atered or remodeed so as to ncrease ts capacty
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522
for the storage of gran, such remodeng or ateraton sha be consdered a new
and separate gran storage facty, and the e pendtures for such remodeng or
ateraton sha not be apped n ad|ustment of the bass of the pree stng fa-
cty, but a separate bass sha be computed for such remodeng or ateraton.
Such remodeng or ateraton sha aso consttute a new and separate gran
storage facty for the purpose of the eecton tnder subsecton (b) of secton
12 to take the amortzaton deducton and to begn the 60-month perod.
Under the provsons of secton 12 (e) the ad|usted bass of a gran storage
facty for the purpose of computng the amortzaton deducton may dffer from
what woud otherwse consttute the ad|usted bass of such facty, n that the
ad|usted bass for the purpose of secton 12 (a) may be ony a porton of the
ad|usted bass (for determnng gan) of the gran storage facty computed
for other purposes. Thus, the ad|usted bass for the purpose of computng the
amortzaton deducton w be ony a porton of the ad|usted bass computed
under secton 113(b) where ony a porton of the bass (unad|usted) s at-
trbutabe to constructon, reconstructon, or erecton after December 31. 1952.
so, n the case of any ateraton or remodeng whch Is treated under secton
12 (d) as the constructon of a gran storage facty, the ad|usted bass of the
facty for the purpose of the amortzaton deducton w ncude ony that
porton of the ad|usted bass of the facty, otherwse determned wthout regard
to secton 12 (e), as s propery attrbutabe to such ateraton or remodetn
as was competed after December 31, 1952. In these cases, therefore, t s
necessary to determne the unad|usted bass for the gran storage facty from
whch the ad|usted bass for amortzaton purposes s derved. The ad|usted
bass of the gran storage facty for amortzaton purposes s the unad|usted
bass for amortzaton purposes ess the ad|ustment propery appcabe thereto.
Such ad|ustments are those specfed n secton 113(b) of the Code, e cept that
no ad|ustments are to be taken nto account whch ncrease the ad|usted bass
of the gran storage facty for the purposes of the amortzaton deducton.
In the case of a subsequent owner of any gran storage facty the ad|usted
bass of such facty n hs hands for the purpose of secton 12 (a) sha be
determned by ncudng ony the smaer of the foowng amounts: (1) The
bass of such facty for the purposes of secton 12 n the hands of the
transferor, donor, or grantor, ad|usted as f such facty n the hands of the
ta payer had a substtuted bass wthn the meanng of secton 113(b) (2) ( ),
or (2) so much of the ad|usted bass (for determnng gan) of the facty n
the hands of the ta payer, computed wthout regard to secton 12 as s
propery attrbutabe to constructon, reconstructon, or erecton after December
31,1952.
Lkewse, In the case of a subsequent owner of a gran storage facty the
ad|usted bass of a facty for the purpose of computng the amortzaton de-
ducton may dffer from what woud otherwse consttute the ad|usted bass of
such facty, n that the ad|usted bass for the purpose of the amortzaton
deducton may be determned by reference to the unad|usted bass for amortza-
ton purposes n the hands of the pror owner ess the ad|ustments propery
appcabe to such pror owner.
The provsons of secton 12 (e) may be ustrated by the foowng e ampes:
ampe (I). On February 2 ,1953, competes the constructon of a gran
storage facty as defned n secton 12 (d) at a cost of 2,000 for the and
and 0,000 for the constructon. Ony 3,000 of the tota cost of the facty s
propery attrbutabe to constructon after December 31,1952. eects to cam
the amortzaton deducton and to begn the 60-month perod on March 1, 1953.
Under secton 12 (e) the ad|usted bass of the facty for the purpose of secton
12 (a) as of that date s ony 3,000, the amount attrbutabe to constructon
after December 31,1952. In determnng the ad|usted bass of the facty as of
any subsequent date for the purpose of computng the amortzaton deducton,
the amortzaton deductons aowabe n respect of the perod pror to such
date must, of course, be taken nto account. See secton 113(b) of the Code
Thus, the ad|usted bass of the facty for the purpose of computng the amount
of the amortzaton deducton aowabe for the month of anuary, 195 , s
2,500 ( 3,000 mnus 500, the amortzaton deductons aowabe pror to an-
uary 1,195 ).
ampe (2). began on anuary 1,1953, and competed on une SO, 1953.
the constructon of a gran storage facty as defned n secton 12 (d) at
a cost of 5,000 for the and and 30,000 for the constructon. eects to cam
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the amortzaton deducton and to begn the O0-month perod on uy 1, 1053.
On May 1, 105 , ses the gran storage facty to for a prce of 3 ,000
of whch 6,000 s aocabe to the and. eects to cam the amortzaton
deducton on the bass of the 50 months remanng n the amortzaton perod.
, n determnng the ad|usted bass of the facty n hs hands, must start wth
the unad|usted bass of the facty n the bands of ( 30,000) and ad|ust
such bass under secton 113(b)(1)( ) In respect of amortzaton camed by
durng bs ownershp of the facty ( 5,000). Snce ths amount ( 25,000)
s smaer than the ad|usted bass (for determnng gan) of the facty In s
bands as of May 1, 105 ( 2 ,000, that to 3 ,000 ess 6,000 aocabe to and),
the ad|usted bass of the facty for the purpose of secton 12 (a) In s
bands as of May 1, 105 , to 25,000. , therefore, may Incude ony 25,000 In
determnng the ad|usted bass of the facty In bs hands as of May 1, 105 ,
the date of the purchase. The amortzaton deductons camed by must, of
course, be apped In reducton of such ad|usted bass In determnng the ad-
|usted bass of the facty as of any subsequent date for the purpose of bs
amortsaton deducton under secton 12 (a). The amount by whch the pur-
chase prce pad by and aocabe to deprecabe property ( 2 ,000) e ceeds
the ad|usted bass determned under secton 12 15(e) for such property
( 25,000) or 3,000 Is treated as the ad|usted bass (as of May 1,105 ) for the
purpose of the deprecaton deducton aowabe under secton 23(1).
s ndcated n e ampe (2) above. If the ad|usted bass of any gran storage
facty computed wthout regard to secton 12 (e) e ceeds the ad|usted bass
of such facty computed under secton 12 (e), the deducton provded by sec-
ton 23(1) sha, despte the provsons of secton 12 (a) (3), be aowed wth
respect to the gran storage facty as If the ad|usted bass for the purpose of
the secton 1(1) deducton were an amount equa to the amount of such e cess.
In the case of property hed by one person for fe wth remander to another
person, secton 12 (g) provdes that the amortzaton deducton sha be com-
puted as f the fe tenant were the absoute owner of the property and provdes
that such deducton sha be aowed to the fe tenant.
Subsecton (b) of ths secton makes certan technca amendments. Para-
graph (1) amends secton 23 (t) of the Code to ncude the amortzaton deduc-
ton provded n secton 12 . Paragraph (2) amends secton 172 of the Code
to strke out the phrase of emergency factes, and thus conforms ths secton
to the amendment made n secton 23(t). Paragraph (3) amends secton 100
of the Code to provde the same treatment In the case of gran storage factes
owned by a partnershp as n the case of emergency factes of the partnershp.
Under subsecton (c) the amendments made by subsecton (a) and (b) of ths
secton sha appy ony wth respect to ta abe years endng after the date of
the enactment of the b.
S CTION 207. CLUSION OF C RT IN TR NSF RS T ING FF CT T D T
Secton 11(c) (1) ( ) of the Interna Revenue Code provdes for the ncuson
In the decedent s gross estate for estate ta purposes of certan transfers n
whch the decedent retaned the ncome Interests for fe. Under secton 7(b)
of Pubc Law 37 , ghty-frst Congress, as amended by secton 60S of the
evenue ct of 1951, transfers of ths type made pror to March , 1931, or n
some cases pror to une 7, 1032, are not ncudbe under secton 11(c) (1) ( )
If the decedent ded pror to anuary 1, 1951. Subsecton (a) woud amend
secton 11(c)(1) of the Code to e empt from sectn 11(c)(1)( ) transfers
made pror to the dates ndcated where the decedent ded at any tme after
February 10,1939.
In the case of Commssoner v. Church (335 T . S. C32) the Supreme Court
hed that a transfer n whch the decedent retaned the ncome nterests unt
death s ncudbe n the decedent s gross estate as a transfer ntended to take
effect n possesson or en|oyment at or after death. owever, secton 11(c) (2)
of the Code as added by secton 7 of Pubc Law 37 ( ghty-frst Cong.) provdes
that transfers made pror to October , 19 9, are not sub|ect to ta under secton
11(c)(1)(C), appcabe to transfers ntended to take effect n possesson or
en|oyment at or after death (even though the decedent has reserved a fe estate)
uness the decedent has retaned a reversonary nterest n the transferred prop-
erty arsng by the e press terms of the nstrument of transfer and e ceedng n
vaue 5 percent of the vaue of the transferred property. Snce secton 11 (c) (2)
2 070 5 31
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s appcabe ony to estates of decedents dyng after February 10,1939, reserved
ncome transfers made before March ,1931, may st be ncudbe under secton
11(c) n the estates of decedents dyng on or before February 10, 1939, even
though the vaue of the decedent s reversonary nterest s ess than 5 percent.
Subsecton (b) of ths secton of the b woud appy the mtatons of secton
11(c) (2) to the estate of a decedent dyng before February 11,1939.
Subsecton (b) aso provdes a rue for cases n whch the refund or credt of
any overpayment resutng from the appcaton of subsecton (b) of ths secton s
barred. The rue provdes that f refund or credt resutng from the appcaton
of subsecton (b) Is prevented by the operaton of the statute of mtatons or by
nny other aw or rue of aw and the determnaton of estate ta abty of the
estate of any decedent dyng before February 11,1939, was pendng on anuary 17,
19 9, n the Ta Court or any court of competent ursdcton, or the decson
of any such court dd not become fna unt on or after that date, then refund
or credt may nevertheess be aowed f cam therefor s fed wthn 1 year
from the date of enactment of ths act. refund s consdered as resutng from
the appcaton of ths subsecton f ts appcaton removes an offsettng ad|ust-
ment otherwse preventng a refund or credt.
S CTION 20 . F ILUR TO R LIN UIS POW R IN C RT IN DIS ILITY
C S S
Under secton 11(d) of the Interna Revenue Code there s requred to be
Incuded n the gross estate for estate ta purposes certan property transferred
n trust by the decedent durng hs fetme where the decedent reserved the
rght to change the trust benefcares, but had no power to revest the trust
property n hmsef. Secton 20 of the b woud e empt from ths partcuar
provson certan trusts of ths type where the decedent ded after December 31,
1950, and was under a menta dsabty for a contnuous perod begnnng not
ess than 3 months pror to December 31, 19 7, and endng wth hs death.
In cases covered by the amendment made by ths secton, the decedent, f not
under a menta dsabty, coud have taken advantage of secton 1000(e) of the
Interna Revenue Code to reease, free of gft ta , the power to change the trust
benefcares. s a resut of such a reease the trust property woud ordnary
not have been ncudbe n hs gross estate under the provsons of secton
11(d) of the Code. Ths secton paces the grantor of such a trust n the same
poston for estate ta purposes as he woud have been f he had been mentay
abe to reease the descrbed power, and had done so. Ths secton woud appy
even though a guardan coud have reeased the power for the decedent. The
term menta dsabty as used n ths amendment means mentay ncompetent
to make the reease, whether or not there was a court ad|udcaton of such
ncompetence.
S CTION 209. R RSION RY INT R STS IN C S OF LIF INSUR NC
Ths secton appes the rues contaned n secton 0 (c) of the Revenue ct
of 19 2, as amended by secton 503(a) of the Revenue ct of 1950, reatng to
reversonary Interests n the case of fe nsurance, to estates of decedents
dyng after anuary 10,19 1, and before October 22,19 2.
Secton 0 of the Revenue ct of 19 2 generay revsed the provsons gov-
ernng the estate ta treatment of fe nsurance payabe to benefcares other
than the e ecutor. Under the revsed treatment one bass for sub|ectng such
fe nsurance to estate ta s payment of premums by the decedent. For ths
purpose secton 0 (c) provded that the porton of the proceeds of fe nsur-
ance poces attrbutabe to premums pad by the decedent on or before
anuary 10, 19 1, sha be e cuded f at no tme after such date the decedent
possessed an ncdent of ownershp n the poces. For ths purpose a rever-
sonary Interest was treated as an ncdent of ownershp.
owever, secton 503(a) of the Revenue ct of 1950 amended secton 0 (c)
of the Revenue ct of 19 2 by provdng that, for the purpose of determnng
whether the decedent possessed an Incdent of ownershp after anuary 10,19 1,
a reversonary nterest was not an ncdent of ownershp uness at some tme
after that date It e ceeded n vaue 5 percent of the vaue of the pocy and the
reversonary Interest arose by the e press terms of the pocy or other nstrument
and not by operaton of aw. The amendment made by secton 603(a) of the
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Revenue ct of 10. ) was effectve, however, ony as to estates of decedent
dyng after October 21,19 2. Ths secton appes the rues contaned In secton
0 (c) of the Revenue ct of 19 2, as amended by secton 503(a) of the Revenue
ct of 1950, to estates of decedents dyng after anuary 10, 10 1, and before
October 22, 19 2.
Subsecton (b) provdes that no Interest sha be pad In respect of any over-
payment resutng from the appcaton of subsecton (u) as to any payment
made pror to the date of the enactment of ths act.
S CTION 210. M RIT L D DUCTION IN C RT IN C S S W R D C D NT
DILD UU PRIL 3, 11MS
Subsecton (a) of ths secton provdes for the aowance of a marta deduc-
ton under secton 12(e) (1) ( ) of the Interna Revenue Code n a case wher
an nterest n property passes by w from a decedent. If the survvng spouse s
entted for fe to a the Income from such property, payabe annuay or at
more frequent Intervas, wth power In the survvng spouse to use and consume
Such porton of the property as the survvng spouse mny need or desre for ter
(or hs) comfortabe support and mantenance, provded that there s no power
In any person other than the survvng spouse to appont any part of such prop-
erty. Ths subsecton woud aso appy n a case where the survvng spouse had
greater powers than those descrbed In subsecton (a) f such greater powers
ncude the specfed powers. Under e stng aw, a marta deducton woud not
be aowabe n a case of ths type because of the operaton of the termnabe
Interest rue contaned In secton 12(e)(1)( ) of the Code. It s further
provded that nothng In ths subsecton sha be construed to permt a doube
deducton for any property.
Under subsecton (b), subsecton (a) s to appy ony If the survvng spouse
so eects and In such cose the property sub|ect to the power s treated, for both
gft and estate ta purposes, as property over whch such spouse has a genera
power of appontment created on the date of the decedent s death and e ercsabe
by deed or w. It Is furthe- provded that If the survvng spouse makes the
eecton, the mtaton provsons on the assessment and coecton of any
amount of gft or estate ta resutng from such eecton sha be e tended to
Incude 1 year from the date such eecton Is fed.
Subsecton (c) provdes that ths secton sha appy ony to estates of de-
cedents dyng after December 31, 19 7, and on or before the date of the enact-
ment of the Revenue ct of 19-1 .
S CTION 211. MITIG TION OF FF CT OF ST TUT OF LIMIT TIONS
Secton 211 of the b adds new paragraphs (6) and (7) to secton 3 01(b)
of the Code, reatng to crcumstances of ad|ustment, and amends the second
sentence of secton 3S01(b). Paragraph (0) permts an ad|ustment, when a
deducton or credt Is dsaowed, of ta abty wthn the addtona perod of
tme provded by secton 3 01(c) n cases where (1) a reated ta payer was
entted to the deducton or credt or (2) the ta payer was entted to the
deducton or credt for a dfferent ta abe year, f, at the tme the deducton or
credt was ncorrecty camed, credt or refund for the correct year or to the
reated ta payer was not barred. Paragraph (7) provdes smar rues where
the Secretary ncuded an ncome tem n the ncorrect ta abe year or n-
cuded an ncome Item n the Income of the wrong ta payer of a reated ta payer
group. The amendment to the second sentence of secton 3S01(b) e cepts cases
descrbed n paragraphs (0) and (7) from the requrement that the ad|ustment
be made ony n cases where the other party has mantaned an nconsstent
poston, snce cases descrbed n paragraphs (0) and (7) are not attrbutabe
to the mantenance of an nconsstent poston by the other party to the dspute.
The new paragraphs (6) and (7) appy ony where the determnaton became
fna on or after uy 1, 1952.
Subsecton (c) of secton 211 provdes that In any case In whch the deter-
mnaton became fna before the enactment of ths b, the 1-year perod n
secton 3 01(c) for the makng of the ad|ustment s e tended to ncude the
perod of 1 year from the date of enactment of the b.
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526
M NDING T INT RN L R NU COD TO T ND T TIM
DURING W IC C RT IN PRO ISIONS R L TING TO INCOM ND
ST T T S S LL PPLY
Senate Report No. 6 5, ghty-thrd Congress, Frst Sesson Caendar No. 6 2
uy 2 (egsatve day, uy 27), 1953
Mr. Mkn, from the Commttee on Fnance, submtted the foowng report
to accompany . R. 6 26 :
The Commttee on Fnance, to whom was referred the b ( . R. 6 26) to
amend the Interna Revenue Code to e tend the tme durng whch certan
provsons reatng to ncome and estate ta es sha appy, and for other purposes,
havng consdered the same, report favoraby thereon wth amendments and
recommend that the b as amended do pass.
The amendments are as foows:
Secton 20 (a) s amended by strkng out nes 17 through 25, ncusve, on
page 10 and nes 1 through , ncusve, on page 11 and nsertng n eu thereof
the foowng:
(a) mendment of Secton 116(a)(2). Secton 116(a)(2) (reatng to e -
cuson from gross ncome of earned ncome from sources wthout the Unted
States) s hereby amended by addng at the end thereof the foowng new sen-
tences : If the 1 -month perod ncudes the entre ta abe year, the amount e -
cuded under ths paragraph for such ta abe year sha not e ceed 20,000. If
the 1 -month perod does not Incude the entre ta abe year, the amount e cuded
under ths paragraph for such ta abe year sha not e ceed an amount whch
bears the same rato to 20,000 as the number of days n the part of the ta abe
year wthn the 1 -month perod bears to the tota number of days n such year.
Page 12, ne 1, strke out pr 1 ,1953 and nsert:
December 31,1952, but ony to such amounts as are receved on or after anuary 1,
1953.
Page 29, ne 11, strke out uy and nsert n eu thereof une and on
page 30, ne 1, strke out uy and nsert une.
I. G N R L ST T M NT
. R. 6 26 contans 17 sectons deang wth amendments to the Interna
Revenue Code. S of the sectons e tend the perod durng whch certan
provsons of the Code w appy. The other 11 sectons reate to amendments
to the Interna Revenue Code provdng for remova of Inequtes n ncome and
estate ta cases. Tour commttee beeves that t s mportant to take care of
these nequtes ahead of the genera revson b whch w be consdered ne t
year.
II. PL N TION OF T ILL
. tenson Provsons
Secton 101. ecton as to recognton of gan n certan corporate qudaton .
Ths secton e tends to 1953 the provsons of secton 112(b) (7) of the Interna
Revenue Code deang wth the nonrecognton of gan n certan corporate
qudatons. Ths provson whch apped to certan qudatons n a snge
caendar month n 1951 was e tended by the Revenue ct of 1951 to such qu-
datons n 1952 and s further e tended by ths b to such qudatons occurrng
n a snge caendar month n 1953. Your commttee beeves that such an
e tenson for 1 year s desrabe to enabe those who were unabe to arrange
for qudaton wthn the requste perod n 1951 or 1952 to have the benefts
of ths provson f they can compete such qudatons n a snge caendar
month n 1953.
Secton 102. tenson of tme for eectons under Puoc Law 5S9 overrung
rgnan ote case.
In Pubc Law 639, approved uy 1 ,1952, Congress overrued the decson of
the Supreme Court n the rgnan ote case. Under that decson a ta payer
who deducted deprecaton for any year n e cess of the amount aowabe for
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527
Msc
such year was nevertheess requred to reduce the bass of hs property by the
entre amount of deprecaton aowed, even though he had receved no ta
beneft from camng such e cessve deprecaton as a deducton. Under Pubc
aw 539, the bass of the property was not requred to be reduced by such
e cessve deprecaton uness the ta payer had receved a ta beneft for takng
a deducton for such e cessve amount. The ta payer was granted under the
aw an eecton (under such reguatons as the Secretary prescrbed) to appy
ths new treatment retroactvey to the perod snce February 2 , 1913, and
before anuary 1, 1952, but no eecton coud be made after December 31, 1952.
The Treasury reguatons under the aw were not promugated unt December
SO, 1952. Thus ta payers were not gven suffcent tme to determne whether
such an eecton woud be benefca to them. Your commttee therefore deems
It desrabe to e tend through December 31, 195 , the tme wthn whch an
eecton may be made. Snce Pubc Law 539 provdes that an eecton once
made s rrevocabe, the b, n order to provde unform treatment, permts
ta payers to revoke wthn the e tended perod eectons made pror to anuary 1,
1953.
Secton 103. tenson of tme for makng eecton wth respect to war osa
recoveres.
Secton 3 1 of the Revenue ct of 1951 sets forth a new method for treatment
of war osses under secton 127 of the Interna Revenue Code. It provdes that
at the eecton of the ta payer (under such reguatons as the Secretary may
prescrbe) the ta for the year n whch the deducton for the war oss was
taken s to be recomputed by reducng the deducton by the amount of the
recovered property taken at ts deprecated cost on the date of the oss or at ts
far market vaue on the date of recovery, whchever s ower. The resutng
Increase n ta for the year of the oss, f any, Is added to the ta for the
year of recovery. The tme for eectng the beneft of ths provson e pred on
December 31, 1952. Snce the Treasury reguatons nterpretng ths secton
of the aw were not promugated unt December 30, 1952, ta payers dd not have
suffcent tme to determne whether t was advantageous to make such an
eecton. The b e tends the perod for makng such an eecton through
December 31, 1953.
Secton 10 . tenson of perod of abatement of ncome ta es of deceased
members of rmed Forces.
Secton 15 of the Interna Revenue Code provdes In the case of an Indvdua
who ded after une 2 , 1950, and pror to anuary 1, 195 , as a resut of actve
servce n a combat zone as a member of the rmed Forces, an abatement of n-
come ta abty whch was outstandng at the date of hs death. It aso
provdes a forgveness of the ta wth respect to the ta abe year n whch fas
the date of hs death or wth respect to any pror ta abe year endng on or after
the frst day he so served n a combat zone after une 2 ,1950. The b e tends
the perod to whch ths secton s appcabe for 1 addtona year so as to n-
cude the caendar year 195 .
Secton 105. tenson of temporary provsons reatng to fe nsurance
companes.
The present temporary provsons for the ta aton of fe nsurance companes
are e tended for 1 year by ths secton of the b. Pendng the resuts of studes
beng made by the staffs of the Treasury and the ont Commttee on Interna
Revenue Ta aton, your commttee deems It advsabe to contnue for 1 year the
provsons of present aw.
Secton 106. tenson of perod for e empton from addtona estate ta of
deceased members of rmed Forces.
Secton 939(b) of the Interna Revenue Code e empts from the addtona
estate ta estates of decedents dyng after une 2 , 1950, and before anuary 1,
195 , whe n actve servce as members of the rmed Forces of the Unted
States, where such decedents were ked n acton whe servng n a combat
zone or ded from wounds, dsease, or n|ury ncurred whe so servng n ne of
duty and by reason of a hazard to whch they were sub|ected as an ncdent
of such servce. The b e tends the appcaton of ths secton to anuary 1,
1955.
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52
. Msceaneous
Secton 201. enue of acton for voaton of State cgarette ta acs.
The act of October 19, 19 9, provded that persons, other than dstrbutors,
who se or dspose of cgarettes In nterstate commerce must forward to the to-
bacco ta admnstrators of States to whch shpments are made monthy reports
settng forth the names and addresses of the persons to whom shpments are
made and the brand and qnanty of cgarettes so shpped. Some courts have
hed that under the statute voatons of the act are commtted at the pace
from whch the cgarettes are shpped, snce the act ony requres the shppers
to forward ther reports. The b requres the actua fng of the reports wth
the State tobacco admnstrator. Ths woud have the effect of assurng, n
the event of an offense commtted under the act, that the venue of the acton
woud be n the dstrct n whch the State tobacco admnstrator has hs offce.
Secton 202. Deducton of certan unpad e penses and nterest
In the case of certan cosey reated ta payers, such as a corporaton and a
sharehoder ownng more than 50 percent of the corporaton s stock, secton 2 (c)
of the Code operates to dsaow deducton of certan e penses and nterest f the
foowng condtons are met:
(1) The amount s not pad wthn the ta abe year or wthn 2 6 months
after the cose thereof; and
(2) Under the recpent s method of accountng the amount s not, uness
pad, ncudbe n hs ncome n the ta abe year n whch, or wth whch, the
ta abe year of the payor corporaton ends.
Ths provson s ntended to nsure that transactons between such reated
ta payers do not operate to shft tems of ncome or deductons. stuaton
has been caed to the attenton of your commttee, however, where secton 2 (e)
may work an undue hardshp. For e ampe, a recpent on the cash bass may
have an amount credted to hs account and made avaabe to hm by the
corporate payor wthn 2 6 months after the cose of the payor s ta abe year
so that the recpent must ncude t n ncome as an tem constructvey receved
n the ta abe year so credted. If, however, the corporate ta payer fas
actuay to pay over such amount wthn the perod of 2 months, the tem w
not be aowed to the corporaton as a deducton. Tour commttee beeves that
such a case shoud not fa wthn the ban of secton 2 (c) and the b so provdes
by an approprate amendment of requrement (1) above.
The provson s appcabe to ta abe years of the payor begnnng after
December 31,1950, but under certan condtons, set forth to nsure that payments
w be propery accounted for ta wse wth respect to both partes, the payor
may eect to make ths amendment appcabe to ta abe years begnnng after
December 31, 19 5, and before anuary 1,1951.
Secton 203. Income ta bass of property transferred n trust.
Secton 113(a) (5) of e stng aw contans a provson to the effect that where
the grantor retans the ncome from property n trust for hs fe wth power
to revoke the trust, the bass of the property n the hands of the persons entted
to take the property under the terms of the trust nstrument after the grantor s
death sha, after such death, be the same as f the property had passed under a
w e ecuted on the day of the grantor s death. Ths resuts n the bass of
the property n the hands of the recpents beng ts far market vaue at the
date of the grantor s death or, at the eecton of the e ecutor, the vaue 1 year
from the date of death. our commttee beeves that ths same rue shoud
appy to stuatons where the grantor wth a reserved fe estate has the power
to make any change n the en|oyment of the corpus of the trust through the
power to ater, amend, or termnate the trust. In both cases, the trust property
s requred to be ncuded n the gross estate of the grantor for estate ta pur-
poses. The amendment appes ony to grantors dyng after December 1, 1951,
and ony wth respect to ta abe years endng after December 31,1951.
Secton 20 . arned ncome from sources wthout the Unted States.
our commttee deems t advsabe to amend secton 116(a)(2) of the In-
terna Revenue Code, effectve as to amounts receved after December 31, 1952.
Secton 116(a)(2) e cudes from Income n the case of a ctzen of thf Unted
States ncome earned abroad f such ctzen was present n a foregn countrv or
countres for a perod of 17 out of 1 consecutve months. Whe ths paragraph
was desgned to encourage men wth technca knowedge to go abroad In order
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529
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to compete specfc pro|ects. It has been sub|ect to a great dea of abuse. Pome
Indvduas wth Urge earnngs have ezed upon the provson as an Induce-
ment to go abroad to perform servces, whch were customary performed at
home, for the prmary purpose of avodng the Federa Income ta es. It hns aso
been ascertaned that n many cases mercans takng advantage of ths pro-
vson do not pay any Income ta even to the foregn country or countres In whch
the ncome s earned. Ths s because they are not n any partcuar foregn
country ong enongb to estabsh a resdence or because the foregn country n
queston does not Impose any ncome ta . Under the ouse b, secton
216(a) (2) of the Interna Itevenne Code Is repeaed effectve ns of pr 15,11)53.
Under your commttee amendment, secton 110(a)(2) Is retaned but s mted
to 20,000 of earned ncome f the ta payer Is abroad for the fu ta abe year or
to a porton thereof f the ta payer s abroad for ess than the fu ta ahe
|ear. Whe the commttee amendment appes to ta abe years endng after
December 31, 1052, t w cover ony such amounts as are receved on or after
anuary 1, 1953. Your commttee beeves that an outrght repea of secton
116(a)(2) s not necessary to correct the reported abuses under e stng aw.
There are many egtmate busness arrangements whch necesstate sendng
technca personne abroad. mtaton on the amount of the earned ncome
from foregn sources whch Is e empt w, n the opnon of your commttee,
be suffcent to correct the evs whch have been brought to ts attenton. The
b w not affect the abty of any empoyer to deduct and wthhod the ta
on remuneraton pad before the frst day of the frst month begnnng more an
10 days after the date of the enactment of ths b. For the purpose of ths pro-
vson, f an ndvdua traves from one pace In a foregn country to another
pace n the same country, or to a pace n another foregn country and f such
trave e tends over a perod of ess than 2 hours and does not nvove trave
wthn the Unted States or any possesson thereof, such ndvdua sha not be
deemed outsde a foregn country durng the perod of such trave.
Secton S05. ct operatng ost deducton .
The b Incudes provsons desgned to emnate dspartes In the treatment
of ta payers In respect to the ta abe years to whch a net operatng oss may be
carred forward. Under these provsons the number of years to whch a net
operatng oss may be carred forward by certan corporatons reportng ncome
on the bass of a fsca year has been e tended. Under the cutoff dates n e stng
aw these corporatons are mted n the use of ther net operatng osses. For
e ampe, under e stng aw, f a corporaton has a ta abe year begnnng on
December 1, 19 7. a net operatng oss deveoped n that year may ony be car-
red forward to the 2 succeedng ta abe years whereas If the ta abe year had
begun on anuary 1, 11)13, such may be avaabe to offset gans of the 3 suc-
ceedng ta abe years.
It Is provded that n the case of a corporaton, other than a corporaton whch
commenced busness after December 31, 19 5, whch has a net operatng oss for
a ta abe year begnnng n 19 7 and endng n 19 (so that the ta abe year
overaps the crtca dates) such a corporaton may ut ze such oss n te thrd
succeedng ta abe year. The amount of such carryover to the thrd year can-
not e ceed an amount whch bears the same rato to the net operatng oss as
the number of days n the oss year fang after December 31, 19 7, s of the
tota number of days n the oss year.
In the case of a corporaton the frst ta abe year of whch began n 19 9 and
ended n 1950, a comparabe e tenson s provded. Such corporatons are put
on a bass smar to that provded for corporatons wth net operatng osses
for ta abe years begnnng after 19 9, that s, the net operatng oss may be
avaabe for the 5 succeedng ta abe years. owever, the b sub|ects the
amount of.the carryover to the fourth and ffth succeedng ta abe years to a
genera mtaton to such part of the net operatng oss as Is propery aocabe
to 1950.
The b adds a provson amendng secton 1 of the act of uy 15,19 7 ( 61 Stat,
2 ). Ths act,aowed a carryforward of the net operatng oss of a predecessor
raroad corporaton to a successor raroad corporaton. Snce the reorganza-
ton may have caused a short ta abe year of the predecessor and of the successor
to fa wthn one 12-month perod, such corporatons woud, n effect, be dened
the fu 2-year carryforward avaabe to other corporatons, the act aowed a
carryover for 3 ta abe years In such cases. Secton 330(b) of the Revenue ct
of 1951 added secton 122(b) (2) (C) to the Code whch provded, n the case of
a corporatons, for a 3-year carryforward of a net operatng oss ncurred for
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530
any ta abe year begnnng after December 31,19 7, and before anuary 1, 1950.
ccordngy the b woud aow a successor raroad corporaton a -year carry-
over In order to contnue the pror treatment under the act of uy 15, 19 7.
Secton 206. mortzaton deducton for gran storage factes.
crtca shortage of factes for storng gran has deveoped throughout the
Naton durng the past severa years. Ths shortage has been fet partcuary
by producers of such grans as wheat and corn. In vew of the stuaton whch
has arsen, t s beeved necessary to provde an nducement for ta payers to
construct new gran storage factes, to ncrease the capacty of those aready
n e stence, or to adapt e stng constructon to the storage of gran.
Under e stng aw, a ta payer undertakng such e pendtures woud be
aowed to recover hs costs ony through a deducton for deprecaton taken
over the perod of the usefu fe of such new constructon or adaptaton. The
b adds secton 12 to the Code to aow such costs n the case of constructon
or adaptaton after December 31, 1952, and before anuary 1, 1957, to be
deducted, at the ta payer s eecton, over the perod of 60 months begnnng ether
wth the month foowng the month n whch the facty was competed, or
wth the succeedng ta abe year. In the event that the shortage of factes
for storng gran remans n a crtca state through 1956, t woud be approprate
to e tend the date wthn whch a ta payer may construct such factes and
receve the benefts of ths provson. The deducton s avaabe ony wth
respect to ta abe years endng after the date of the enactment of ths act In
the case of new constructon the deducton s ony avaabe wth respect to so
much of the cost as s attrbutabe to constructon after December 31, 1952, and
n the case of the ateraton or adaptaton of e stng budngs ony such cost
as s propery attrbutabe thereto after such date may be so deducted.
Ths amortzaton deducton s n eu of that aowed for deprecaton, but
a ta payer s aowed to deduct ordnary deprecaton for that part of hs costs
of constructon whch woud not quafy under ths secton, for e ampe, by
reason of not havng been ncurred subsequent to December 31, 1952. ta -
payer may eect to dscontnue hs amortzaton deductons under ths secton
as of the begnnng of any month specfed n a notce fed wth the Secretary
before the begnnng of such month and may thereafter be aowed the depreda-
ton deducton. In the case of property hed by one person for fe wth re-
mander to another, the fe tenant s aowed the deducton under ths secton
as f he were the absoute owner. Speca rues are provded to aow the
benefts of ths deducton to a person acqurng a gran storage facty to whch
ths secton s appcabe. These rues are dscussed n the technca part of
ths report reatng to ths provson.
Ths speca amortzaton deducton s avaabe to a farmer constructng a
gran storage facty. The statute defnes a gran storage facty as a corncrb,
gran bn, or gran eevator, or any smar structure prmary suted for the
storage of gran, whch s ntended by the ta payer at the tme of hs eecton
to be used for the storage of gran produced by hm. The deducton s aso
avaabe to any person who constructs any pubc gran warehouse permanenty
equpped for handng gran. Under the defnton of a gran storage facty the
speca amortzaton deucton s not aowed to persons who store ony gran
purchased for consumpton n ther busness. For e ampe, persons engaged In
the mng of four who construct storage factes for purchased gran used n
such processng woud not be aowed to deduct the cost of any factes under
ths provson.
Secton 207. cuson of certan transfers takng effect at death.
The b amends the estate ta provsons of the Code reatng to certan trans-
fers of property wth retenton of the ncome for fe by the transferor. In
1930 the Supreme Court hed that property so transferred shoud not be ncuded
n the ta abe estate of the transferor. May v. Rener (2 1 U. S. 23 ). In
response to ths and reated decsons, on March 3, 1931, Congress adopted a
|ont resouton provdng that such transfers were Incudbe ( 6 Stat 1516),
and the Revenue ct of 1932 substantay reenacted the provsons of ths |ont
resouton. The |ont resouton was Interpreted n 193 as beng ony pros-
pectve n ts operaton so as not to appy the transfers made pror to the date
of ts adopton. Uassett v. Wech (303 U. S. 03).
In the face of what had ong been regarded as the setted Interpretaton of
the then e stng estate ta provsons reatng to these pre-1931 transfers wth
retenton of a fe estate by the transferor, the Supreme Court In 19 9 n effect
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531
Msc.
overrued ts two earer decsons and hed that a transfer of property In 192 ,
wth ncome retaned for fe by the transferor, requred that the transferred
property be ncuded n the ta abe estate of the transferor who ded n 1939.
Commssoner v. Church (335 U. S. 632).
Foowng the Church decson the Technca Changes ct of 19 9 (as amended)
provded that, n the case of fe estates retaned n transfers made on or before
March 3, 1931 (and n some cases before une 7,1932), the property woud not
be ncuded n the decedent s gross estate soey by reason of retenton of the fe
estate f the decedent ded after the enactment of the Code on February 10,1939,
and pror to anuary 1, 1951. s that act was passed by the Senate, t con-
taned provsons whch woud have restored the estate ta aw to what t was
pror to the Church opnon, that s, pre-1931 transfers woud not be ncuded n
the gross estate of the decedent merey by reason of the retenton of a fe estate,
regardess of when the decedent ded. Ths provson was mted n conference,
however, n the manner descrbed above.
It s beeved that the effect of the Church decson shoud be emnated n
a cases to whch t was appcabe. Pror egsaton has aready restored the
estate ta aw to what t was before the Church decson n respect to a
decedents dyng after the enactment of the Code and pror to anuary 1, 1951.
The provson n the b accompshes ths same resut n respect to decedents
dyng on or after anuary 1,1951.
The b aso provdes reef for certan decedents where the death occurred
pror to February 11,1939, and whose estates were burdened wth estate ta by
reason of transfers made before March , 19 1, nvovng the retenton of a fe
estate, the reservaton of a mnute reversonary nterest, or both. Snce property
transferred n ths manner woud not be ncuded n the gross estate f the
decedent ded after February 10,1939 (and before 1951), the b woud acheve
a smar e empton for estates of decedents dyng pror thereto. owever, t s
not fet necessary to open the statute of mtatons to any great e tent n cases
of decedents dyng pror to February 11, 1939. It s ony In cases n tgaton
at the tme of the Church decson where there woud appear to be any undue
hardshp. In these cases a refund or credt resutng from ths provson w
be aowed f a cam s fed wthn 1 year from the date of enactment of ths
act.
Secton S0 . Faure to renqush a power n certan dsabty cases.
Grantors of dscretonary trusts created pror to anuary 1, 1939, who had
retaned certan powers whch woud resut n the ncuson of the trust property
n ther gross estate for estate ta purposes were, under secton 1000(e) of the
Code, permtted to renqush such powers on or after anuary 1, 19 0, and on
or before December 31, 19 7, free of gft ta . Grantors who were unabe to
renqush ther dscretonary powers wthn the above perod because of a
menta dsabty shoud not be penazed. It s therefore provded that there
sha not be ncuded n a decedent s estate property prevousy transferred In
trust as to whch he retaned certan dscretonary powers f such decedent for
at east 3 months pror to December 31, 19 7, and contnung to the date of hs
death was under a menta dsabty such that he coud not have renqushed
such powers free of gft ta pursuant to secton 1000(e). The term menta
dsabty Is ntended to encompass those cases n whch the decedent durng
the requste perod pror to hs death was, In fact, ncapabe because of hs
menta condton of renqushng the power, whether or not he was egay
decared mentay ncompetent durng a or any part of such perod.
Secton 209. Reversonary nterests n case of fe nsurance.
Secton 0 (c) of the Revenue ct of 19 2 (as amended by sec. 503(a) of the
evenue ct of 1950) provded n the case of decedents dyng after the date of
Its enactment (October 21, 19 2) that the proceeds of fe nsurance poces
shoud not be ncuded n the decedent s estate by reason of premums pad by
the decedent pror to anuary 10,19 1, f the decedent at no tme after that date
retaned an ncdent of ownershp n such pocy. In determnng whether the
decedent had such an ncdent of ownershp after anuary 10,19 1, there was
to be taken nto account ony those reversonary Interests e ceedng 5 percent
of the vaue of the pocy and arsng other than by operaton of aw. It s
beeved that smar treatment shoud be e tended In the case of decedents
dyng after anuary 10, 19 1, and before October 22, 19 2. Such decedents w
be deemed to have an Incdent of ownershp In nsurance poces by reason of
a reversonary nterest hed after anuary 10, 19 1, ony f such reversonary.
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532
Interest e ceeded 5 percent of the vaue of the pocy and arose by the e press
terms of the pocy or other nstrument and not by operaton of aw.
Secton 210. Marta deducton n certan cases where decedent ded before pr
3,19 .
The provsons of ths secton reate to the marta deducton for estate ta
purposes. ttenton has been caed to certan stuatons where a decedent ded
after December 31, 19 7, but pror to the date of the enactment of the Revenue
ct of 19 , whch aowed a marta deducton for estate ta purposes. Con-
sequenty, whe the act apped to such cases, estates of decedents dyng wthn
ths short perod from anuary 1, 19 , to the date of ts enactment on pr 2,
19 , were unabe to secure the beneft of ts provsons n some cases because the
w of the decedent was not n accord wth certan technca requrements of
the act. If the decedent had been ave after the enactment of the Revenue ct
of 19 , hs w woud undoubtedy have been rewrtten to conform to the pro-
vsons of the act Thus, under the act, property sub|ect to a power of appont-
ment n order to be taken nto account for purposes of the marta deducton
must meet the requrements of secton 12(e)(1)(F) of the Interna Revenue
Code. Ths secton requres the nterest n property passng from the decedent
under a power of appontment to be n trust and the power to be unmted and
e ercsabe by the survvng spouse at a events. Cases have arsen where the
power granted to the survvng spouse was not n trust and was confned to a
power n the survvng spouse to use and consume such porton of the property
as the survvng spouse may need or desre for her (or hs) comfortabe support
or mantenance. In the case of a decedent dyng after December 31, 19 7, and
pror to pr 3, 19 , a power of ths broad appcaton shoud be consdered as
suffcent to permt the marta deducton of property sub|ect to such power and
the b so provdes. The secton s ony appcabe f the survvng spouse fes
wth the Secretary of the Treasury wthn 1 year after the date of the enactment
of ths act an eecton to take the benefts of the secton. If such an eecton s
made the property sub|ect to such power sha be consdered as property as to
whch the survvng spouse had a genera power of appontment created on the
date of the decedent s death, e ercsabe by deed or by w. Thus a renqush-
ment of such power by the survvng spouse durng her fetme w resut n a
ta abe gft and If .such power s not renqushed durng the fetme of the sur-
vvng spouse, the property sub|ect to such power w be consdered as part of the
estate of such survvng spouse for estate ta purposes.
Secton 211. Mtgaton of effect of statute of mtatons.
Secton 3 01 of the Code aows ether the ta payer or the Commssoner to
correct an mproper ta resut n certan cases where such acton woud other-
wse be prevented by the runnng of the statute of mtatons. Ths s possbe
by reason of the aowance under that secton of an addtona perod of tme
beyond the perod of mtatons whch woud ordnary be appcabe. One
of the prncpes of the present statute s to precude any ad|ustment uness the
hardshp resuts from the mantenance of an nconsstent poston by ether the
ta payer or the Commssoner.
The statute operates effectvey In cases to whch It Is drected, but ta Inequ-
tes, the correcton of whch s prevented by the runnng of the perod of m-
tatons, may e st wthout regard to whether or not the poston mantaned by
ether party s nconsstent. ta payer may be dsaowed a deducton or credt
to whch he s entted n another ta abe year or to whch a reated ta payer
may be entted. Smary, the Commssoner may have ncuded an tem h
ncome for a ta abe year dfferent from the year for whch such tem shoud
have been ncuded, or the Commssoner may have ncuded the tem n the
ncome of a reated ta payer.
Under present aw, the errors descrbed may not be corrected If dscovered
after the e praton of the perod of mtaton n respect to the correct year
of the ta payer or of the proper ta payer. The b ncudes provsons amend-
ng secton 3 01 n order to open the statute of mtatons n such cases. Where
a ta payer cams a deducton or credt for a ta abe year whch Is ater deter-
mned to be the ncorrect ta abe year, or whch s determned propery to beong
to a reated ta payer, the amendment woud permt a proper ad|ustment. ow-
ever, the ta payer s entted to the benefs of ths provson ony f a credt or
refund of the overpayment attrbutabe to the deducton or credt for the correct
year or to the reated ta payer was not barred at the tme the ta payer formav
asserted that he shoud have receved such credt or refund n the year dsaowed.
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533
Msc.
Smary, the Commssoner woud be aowed to make assessment of ta wth
respect to the proper ta abe year, If at the tme he formay asserted that an
tem was ncudbe n ncome for a ta abe year, ated determned to be the
ncorrect year, he coud have made a proper assessment of ta for the correct
year. n opportunty to make a proper assessment woud aso be e tended to
the Commssoner under smar crcumstances n the case of the reated ta payer.
The provsons added by the b appy ony where the determnaton reatng
to the dsaowance of the deducton or credt, or the e cuson of the tems from
gross ncome, as the case may be, became fna after une 30, 1052. Under your
commttee s b the provson w not appy f the determnaton became fna
pror to une 1,1052.
In the opnon of the commttee t s necessary to dspense wth the requre-
ments of subsecton of rue I of the Standng Rues of the Senate to
e pedte the busness of the Senate.
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IND

batement. (See Cams (refund or abatement).)

ccountng methods: Page
Determnaton of gross ncome 101
Reguatons 111 amended 100
ccountng perod, appcaton to change, Reguatons 111 amended 1 7
d|usted bass:
mortzaton of mortgage premums by mutua savngs banks, bud-
ng and oan assocatons, and cooperatve banks 3
Mnes, deferred, deveopment and e poraton e pendtures, Regua-
tons 111 amended 132
d|usted gross ncome, net operatng oss carryback, correcton of standard
deducton 22
dmnstraton and procedure:
Certan functons reatng to bonds transferred to dstrct drectors,
Reguatons 111 amended . 1 5
Change n nomencature 3
Coecton offcer, tte assgned, Treasury Decson 5900 and Treasury
Decson 5901 amended
Deegaton of authorty to grant e tenson of tme for fng estate ta
returns (Reo. Order No. 20) 507
Deegaton of authorty to grant e tenson of tme for fng returns
and payng certan e cse ta es (Reo. Order No. 25) . 50
Deegaton of authorty to grant e tenson of tme to pay ncome,
e cess-profts, estate, and gft ta es (Reo. Order No. 21). 507
Deegaton of functons to regona commssoners and dstrct drec-
tors (Reo. Order No. 15).. 505
Dstrct drectors authorzed to requre records to be kept showng
abty to ncome ta (Reo. Order No. 23) 50
stabshment of nterna revenue regons and regona offces (Reo.
Order No. 1 ) 500
Federa statutes reatng to frearms and ct quor traffc . 5
New Form 211 for use by nformants 70
Payment of Federa ta es by Seres Treasury notes . 53
Payment of Federa ta es by Seres C Treasury notes 59
Pavment of Federa ta es by Treasury obgatons, Treasury Decson
703 amended 66
Pocy, reopenng agreed ssues, rasng new ssues, ncome and profts
ta cases 50
Preparaton of Form 720, quartery Federa e cse ta return 51
Prorty of Federa ta en fed subsequent to devery of wrt of
e ecuton by |udgment credtor : 67
Pubc nspecton of certan accepted offers n compromse 69
Pubcaton of rungs addressed to ta payers 9
Reatng to tobacco nvoces, Form 77
Standard nomencature for organzatona unts and prncpa offcers
(Reo. Order No. 17) 506
Transfer of functons pertanng to offers n compromse . 69
coho ta :
ternate operatons, bottng-n-bond department as ta pad bottng
house, Reguatons 10 amended 373
asc permt hoders, changes n ocaton - 3 1
Drawback cams concernng nonbeverage products
Drawback cams, monthy fng, Reguatons 29 amended 393
(535).
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53G
coho ta Contnued
Industra acoho: p,t
Denaturants, Reguatons 3 amended . 35
Pant operated as regstered dstery or frut dstery, Regua-
tons 3 amended . 35 5
Labes and State ta stamps, aff ed on cases of botted-n-bond sprts,
Reguatons 10 amended 37
Markng and dsposng of contaners for dsted sprts Reguatons
13 amended - S75
Preparaton and submsson of copes of certan monthy reports con-
cernng quors, Reguatons 3, 5, 7, 11, 15, and 16 amended 362
Transfers of dsted sprts, reportng procedure . 3 1
Weghts and measures, scae tanks, Reguatons 3, , 5, 10, 15
amended 35
Wnes, shpment from bonded warehouses n buk, Reguatons 7
amended - 360
ocaton of ncome and deductons, sae of property used for both per-
sona and ncome-producng purposes 20
mendments:
Reguatons 3:
ppend - S5S
Secton 1 2.6 . 35
Sectons 1 2.276 through 1 2.279 (revoked), 1 2.279a (added),
1 2.279b (added), 1 2.279c (added), 1 2.279d (added), 1 2.279e
(added), 1 2. 23 --- 356
Sectons 1 2.355, 1 2. 56, 1 2. 59, 1 2.6 2, 1 2.6 5, 1 2.616,
1 2.6 7, 1 2.6 9 (revoked), 1 2.66 , 1 2.7 1, 1 2.7 7, 1 2.7 9
(revoked), 1 2. 19, 1 2. 22, 1 2. 23 (revoked), 1 2. 67,
1 2. 6 , 1 2. 73, 1 2. 7 , 1 2. 76 362
Reguatons :
Secton 1 3.92 5
Reguatons 5:
Secton 1 .121 75
Secton 1 . 2 362
Reguatons 7:
Sectons 17 .216, 17 .223a (added), 17 .251a (added), 17 .251b
(added) , - 3C0
Sectons 17 .367, 17 .379, 17 .3 1, 17 .3 2, 17 .3 , 17 .3S7,
17 .390, 17 .393, 17 . 01, 17 . 79, 17 .502, 17 .507 362
Reguatons :
Sectons 1 0.212 through 1 0.221 (added) 3 6
Reguatons 10:
Secton 1 5.110 33
Sectons 1 5.270, 1 5.271, 1 5.272, 1 5.273 373
ecton 1 5.913 37
Reguatons 11:
Sectons 1 9.295, 1 9.301 62
Reguatons 13:
Sectons 175.33, 175.3 , 175. 3, 175.55, 175.56, 175.50a (added),
175.57, 175.57a (added), 175.59a (added), 175. 9, 175.90,
175.9 , 175.9 a (added), 175.95, 175.115 375
Reguatons 15:
Secton 190.116 35
Secton 190.510 362
Reguatons 16:
Sectons 1 7.316, 1 7.326 362
Reguatons 29:
Sectons 197.21, 197.21a (added), 197.22, 197.21, 197.25, 197.25a
(added), 197.35 through 197.57 (added) 393
Reguatoas 3 :
Inappcabe to tobacco products, cgarette papers, and tubes 3 6
Reguatons 6:
Sectons 316.0, 316.2, 316.7, 316.30, 316.50, 316.50a, 316.51,
316.52, 316.5 , 31f.55a (added), 316.56, 316.61a (added),
310.70, 316.71, 316.72, 316.90, 316.91, 316.110, 316.120, 316.122,
310.195 through 310.199 (added), 316.20 0
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537
mendments Contnued
Reguatons 105: Page
Sectons 1.2, 1.7, 1. , 1.9, 1.56, 1.7 , 1.79, 1. 0, 1.97.. 27
Reguatons 111:
Sectons 29.15-1, 29.15-2 (added), 29.20 -1, 29.231-1 91
Sectons 29.22(a)-5, 29.23(a)-, 29.23(a)- , 29.23(c)-2 100
Sectons 29.22(b)()-2, 29.22(b)(2)-2, 29.22(b)(2)-5, 29.113(a)
(5)-L 29.165-6 106
Sectons 29.22(b)(2)-5, 29.23(p)-, 29.165-1, 29.165-6 203
Sectons 29.23(m)-. 29.23(m)-2, 29.23(m)-15, 29.23(ra)-17,
29.23(cc)- (added), 29.23(ff)- (added), 29.2 -2, 29.113(b)
(1)-1 - -- 132
Sectons 29.23(m)-, 29.23(m)-3, 29.23(m)-5, 29.23(m)- ,
29.23(m)-10, 29.23(m)-13, 29.23(m)-1 , 29.11 -1 120
Sectons 29.23(m)-, 29.102- , 29.113(a)(1 )-, 29.117-3, 29.117-
7, 29.117- , 29. 1-1 169
Sectons 29. -5, 29.112(b) (6)-3, 29.112(0-3, 29.131-3 1 5
Secton 29. 6-1 - 1 7
Sectons 29.113(a)(13)-1, 29.1 1-1, 29.191-1 (added), 29.191-2
(added), 29.3797- .. 213
Secton 29.115-9 159
Sectons 29.116-1, 29.1 7-3 162
Secton 29.117-13 (added) 173
Secton 29.117-1 (added) 17
Secton 29.1 -1 201
Reguatons 116:
Secton 05.102 312
Reguatons 129:
Secton 2 .31 (a) (90) 231
Reguatons 130:
Sectons 0. 30-1, 0. 30-2, 0. 31-1, 0. 32-1 231
Secton 0. 31-1 91
Sectons 0. 35-6(a)(1), 0. 3.5-7(a)(2), 0. 59(d)- through
0. 59(d)-6 (added), 0. 59(e)- (added) 2 2
Secton 0. 53-2 120
Secton 0. 56-2 235
Treasury Decson 703, artce 1 (C. . -2, 2 (1936)) 66
Treasury Decsons 6900 and 5901, C. . 1952-1, 237, 23
Treasury Decson 6025 (added) 00
mortzaton:
mergency factes, gran storage factes - 177
Mortgage premums, muta savngs banks, budng and oan assoca-
tons, and cooperatve banks 3
Premums pad for mortgage oans nsured by Federa ousng
dmnstraton . 1
nnutes:
Cost bass, contract e ecuted n e change for rea property 53
Survvorshp:
Death benefts, Reguatons 111 amended 106
Ta abe status, e cuded from decedent s gross estate 259
Ta abty:
Defntey determnabe benefts - 202
Insurance purchased by empoyer 111
rmed Forces:
Pay, e cuson from gross ncome e tended (P. L. 213). - 75
Perod of tme dsregarded, nonmtary personne n orean combat
zone 2
Retrement pay, percentage of dsabty 13
ssocatons, natona farm oan assocaton 155

ack pay, accrua perod, retroactve ncrease n arma rates 139

ad debts:
Mutua savngs banks 1
Reserve, undvded profts - 120
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53
anks: p
mortzaton of premums pad for mortgage oans nsured by Federa
ousng dmnstraton . 1 3
Doube aowance of deductons for Pennsyvana ta on shares 39
Insured, when amounts credted by Federa Depost Insurance Corpo-
raton are ncudbe n ncome, nonretroactve appcaton of rung.. 1 0
Mutua savngs and cooperatve, amortzaton of mortgage premums
on composte bass - 3
Mutua savngs, bad debt osses 21
ass (see aso d|usted bass):
nnutes, survvorshp, e cuded from decedent s gross estate . 259
Instament obgatons, property sod pror to death of spouse . 32
Stock of empoyer corporaton n hands of dstrbutee, empoyees
trust dstrbutons 203
Stock, reorganzaton, separate ncorporaton of branches . 35
enefcares (gee aso Decedents):
Death benefts under penson pan, Reguatons 111 amended 106
mpoyees trusts, ta abe status, Reguatons 111 amended 203
enefts under pans. (See Compensaton (receved).)
onds, nterest, Tweve Year Doar Savngs ond of State of Israe
ssued at dscount - 5
udng and oan assocatons:
mortzaton of mortgage premums on composte bass - 33
Reserve for bad debts, undvded profts 120
C
Canceaton of ndebtedness, assets dstrbuted n qudaton of subsdary. 55
Capta assets:
rtstc .works, terary composton . 29
Defnton, property sod or e changed between spouses or between an
ndvdua and a controed corporaton, Reguatons 111 amended.. 173
Partnershp nterest:
y gft or purchase, Reguatons 111 amended . 213
ffect of change n membershp . 212
Capta gans and osses:
Corporatons, oss due to dmnuton n vaue of assets . 117
Indvduas:
Rea estate e changed for annuty contract 53
Termnaton payments made to empoyee, Reguatons 111
amended 17
Lvestock. (See Lvestock saes.)
Property 117(|) treatment:
Condemnaton award, farm bsected by State turnpke 36
Sae of Chrstmas trees 12
Sae or e change between spouses or between an ndvdua and
a controed corporaton, Reguatons 111 amended 173
Short saes, arbtrage operatons - 173
Tmber and coa:
Chrstmas trees, ncome from sae 12
Dsposa of coa, Reguatons 111 amended 169
Capta stock, speca ssue to Federa ousng dmnstraton by co-
operatve apartment corporaton - 130
Carrybacks and carryovers (see aso Net operatng oss):
Computaton of net operatng oss 176
Corporatons, reducton n net ncome, chartabe deductons aow-
abe - 21
Indvduas, reducton n ad|usted gross ncome, standard deducton._ 22
Ctzens of Unted States (nonresdent), earned ncome e cuded from
gross ncome 2
Reguatons 111 amended - 162
Cams for refund or abatement:
Interm aowances, nvountary qudaton of LIFO nventores So
eopardy assessment, Pubc Law 27 S
ont payees on rembursement check . S3
Lmtaton, net operatng oss carrybacks and carryovers 176
Suts for refund of ta es, status of defendant where coector s suc-
ceeded bv drector 70
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539
Paee
Cosng agreements, bass, subsdary s assets.. . 55
Commssons:
ecutor s, deducton for ether ncome or estate ta es . 79
Payabe to corporaton n qudaton, assgned stockhoder 10
Commttee reports:
Technca Changes ct of 1953:
ouse of Representatves Report No. 9 50
Senate Report No. 6 5 626
Communty property and ncome, deducton for partnershp osses 209
Compensaton (receved):
Sckness or n|ures:
enefts under sef-nsured pans whch are
Insurance pans 102
Not nsurance pans 10
mpoyee contrbutons pad by empoyer, New York State ds-
abty benefts aw 99
Nonoccupatona dsabty benefts, State of New York 15
Permanent dsabty retrement benefts, Inos Teachers
Retrement System 16
Temporary dsabty benefts, Inos Teachers Retrement
System 16
Condemnaton awards, farm bsected by State turnpke, e pendtures to
restore usabty . 36
Consodated returns (see aso Returns (consodated)):
Unused e cess-profts credt, Reguatons 129 amended 231
Constructve recept of ncome, banks, amounts credted by Federa
Depost Insurance Corporaton, nonretroactve appcaton of rung.. 1 0
Contracts, e ecutory, to se a manuscrpt 29
Contrbutons (deductbty):
Corporatons:
mpoyees ospta ssocaton 1
Net operatng oss carryback, reducton n net ncome . 21
Indvduas:
ood donaton 127
aue of property nterest transferred to trust 12
Cooperatves, apartment corporaton, deducton for ta es and nterest 130
Corporatons:
Lqudaton:
Competed pror to end of annua accountng perod, fng returns. 1 9
arned commssons 10
Sae of corporate assets, dsaowance of surta e empton and mn-
mum e cess-profts credt, Reguatons 111 and 130 amended 91
Court decsons:
Frst Natona ank of Phadepha, The, v. Commssoner 39
Reporter Pubshng Co., Inc., v. Commssoner 117
Credts aganst net ncome, pubc uttes, for dvdends pad on certan
preferred stock 20
D
Damages, severance, farm bsected by State turnpke 36
Deaers n securtes, record owner of stock, dvdends dstrbuted 9
Decedents, ncome from surrender of une ercsed stock optons 17
Decaratons. ( See stmated ta .)
Deductons:
usness e penses:
Contrbuton by empoyer, constructon of empoyees hospta
budng.. 11
Insurance premums pad for empoyees 11
Interest pad on mortgages by fe nsurance companes 220
Mne deveopment and e poraton costs, Reguatons 111
amended 132
Rehabtaton payments made to empoyees after ma|or dsaster. 112
State of North Carona ta on quors, wnes, beer, etc 116
Contrbutons. See Contrbutons (deductbty).)
mpoyees, transportaton aowances n addton to wages - 303
Fnes and penates, reease of mortgage 19
2 070 5 35
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Deductons Contnued p w
Medca e penses, amounts pad to quafed psychoogsts 129
Nonbusness e penses, tenant-stockhoder s share of ta es and
nterest of cooperatve apartment corporaton 130
Standard, net operatng oss carryback, reducton n ad|usted gross
ncome 22
Ta es:
Pennsyvana, doube aowance 39
State of North Carona on quors, wnes, beer, etc.. 116
State of Pennsyvana on cgarettes 117
When to be taken:
ttorney s fees, e ecutor s commssons 79
Foregn ta es pad, ncome from ong-term contract 27
Losses from embezzement 1 3
Prepad ntangbe drng and deveopment costs - 1 1
Deferments. (See Perod of tme dsregarded.)
Defcences:
mnated by reef provson, ad vaorem penates 227
Interest on, gan from sae of prncpa resdence 26
Dependents (credt). (See emptons: Dependents.)
Depeton:
d|usted bass, dsposa of coa, Reguatons 111 amended 169
ased on costs, ncudbe n determnaton of gross ncome 101
ased on dscovery vaue or percentage of ncome, Reguatons 111
amended .. 100
Low-grade ron ore, processes consdered mnng operatons 15S
Percentage:
Mneras egbe, Reguatons 111 and 130 amended 120
Mnng, cacum carbonates and shae 1
Deprecaton:
Determnaton of cost of nventores, Reguatons 111 amended 100
Incudbe n determnaton of gross ncome 101
Dsabty benefts (see aso Compensaton (receved)):
Member of unformed servces . 13
New York State, empoyee contrbutons pad by empoyer . 99
Temporary, receved under Inos Teachers Retrement System . 16
Dstrbutons (corporatons) (see aso Dvdends):
Reorganzaton, separate ncorporaton of branches 35
Spt-off reorganzaton, recognton of gan or oss 37
Dvdends:
Dstrbuton, n redempton of stock, Reguatons 111 amended 159
Gross ncome, dstrbuton whe securty deaer s record owner 9
Informaton returns by savngs and oan assocatons, etc., Reguatons
111 amended 201
Pad credt, apportonment, pubc utty havng nonutty ncome.. 26
When ta abe, accruas on stock purchased 221

arned ncome (sources wthout Unted States), nonresdent ctzens 2

Reguatons 111 amended 162
mpoyees trust. (See Trusts: mpoyees .)
mpoyment ta es:
mpoyer-empoyee:
grcutura aborer, ncdenta servces 297
abystters under contro of babystter agency 29
Domestc servces performed by famy members 30
Martme servce, vesses operated by the Unted States (P. L.
196) 7
Pathoogst ._ 296
mpoyment assocatons and agences, babystter servce . 29
cepted servces:
grcutura, tenant or owner, crop purchase agreement 299
Domestc servce, reguar empoyment, perod of sckness 310
Mtary agences, cvan personne on contract or fee bass 301
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mpoyment ta es Contnued Paee
Ta :
Rate, combned FIC and ncome ta wthhodng tabes, weeky
payro perod.... 317
Wages:
penses, day transportaton to constructon pro|ect 303
Insurance premums pad by empoyer . I
Wthhodng ta :
mpoyee, teachers (nstructors), on a contract or fee bass 301
Wages:
Insurance premums pad by empoyer 111
Pad to babystter 29
Servces outsde Unted States, Reguatons 116 amended 312
state ta :
dmnstraton e penses, attorney s fees, e ecutor s commssons,
eecton to take deducton, statement, and waver . 79
nnutes. (See Transfers.)
onds, Unted States, vaue at whch ncuded n gross estate 253
Chartabe gfts and bequests, w contest compromse, amounts
deductbe 273
Communty property, proceeds of fe nsurance pocy purchased wth
communty funds 26
Credts aganst ta , foregn ta credts, decedents dvng after October
20, 1951, Reguatons 105 amended ... 27
Dpomatc mmunty, Unted Natons representatves 291
Insurance, fe:
Recevabe by benefcary other than estate, proceeds ncudbe
n gross estate 26
Recevabe by estate:
Pocy proceeds 267
Proceeds ncudbe n gross estate 26
Marta deducton:
Lfe nsurance, survvng spouse benefcary 26
Termnabe nterest, of survvng 6pouse n rea property 275
Wdow s aowance, far vaue, dower nterest, rea property 275
Nonresdents, not ctzens, foregn envoys 291
Powers of appontment:
Genera power, dsposa of property, power of devsee 267
Tme of creaton, death of nsured 267
Rea property, abama, dower nterest, survvng spouse... 275
Returns, nspecton, by other than Treasury offcas _ 150
Survvorshp annutes. (See Transfers.)
Transfers:
dmnstraton e pense, trust accountng 257
Intended to take effect at death (pror to October , 19 9),
decedent s nterest n annuty payments 262
Renqushment of powers, durng fetme to revoke, amend,
termnate trusts 265
Retrement and death benefts, rght to receve decedent s nterest
n annuty payments 262
Survvorshp annutes:
ercse of opton to take reduced annuty 259
Payments to certan desgnated benefcares 262
auaton:
Stock, ncuson of goodw . 255
Une ercsed stock optons 17
stmated ta , penates for faure to fe decaraton 2
cess-profts ta :
bnorma ta year:
Income from sae of tangbe property arsng out of research and
deveopment, Reguatons 130 amended 235
Income, o and gas e poraton, dscovery, prospectng, over 12-
month perod - 236
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cess-profts ta Contnued _ Ptf
d|usted e cess-profts net ncome:
Mnmum e cess-profts credt, dsaowance n case of transferred
corporate assets, Reguatons 130 amended 91
Reguatons 130 amended 231
cess-profts credts:
ased on ncome:
Part II transactons 2 9
Teevson broadcastng companes, Reguatons 130 amended. 2 2
Reguated pubc uttes, approprate reguatory body 235
Ta abe acqustons, records requrements 251
Unused e cess-profts credt:
Offset, consodated and subsdary returns 1S3
Reguatons 130 amended 231
Genera, 6-months e tenson to December 31, 1953 73
Mnng, natura resources, etc., e empt e cess output, Reguatons 130
amended 120
Reef for new corporatons:
ase date, busness acqured n ta -free transacton . 233
Incdenta ncome pror to start of busness for whch organzed. 233
Ta -free e changes:
New corporaton acqurng busness of partnershp, base date 233
Part II transactons - 2 9
changes of property, rea property for annuty contract 53
cse ta es:
dmssons ta :
ctvtes for beneft of hosptas 333
r show conducted by Cv r Patro - 3 0
aet company, cvc or communty membershp assocaton.... 337
each cub, season eases of cabns and cabanas 327
Charges pad by eterans dmnstraton on behaf of veterans. 327
Concerts conducted by cvc organzaton 33
Dues and ntaton fees, transfer fee, stock sod by wthdrawng
cub member - 3
rroneousy coected 3
empt, pubc-supported organzaton 332
empt, pubc-supported organzaton renderng hca.th and
hygene servces. 3 0
Foregn dpomats, consus, and other offcers 325
gh schoo athetc game proceeds, speca renta arrangement
of fed 329
Lecture ustrated by moton pctures 339
Ltte theater organzatons performances 331
Mnature or subgauge tran rdes 329
Museum, hstorc 336
Payment for grandstand events n addton to genera admsson
charge 23
Pay for beneft of unversty n provdng schoarshp 335
Prvate cub, dues and other charges . 3 2
uafcaton for e empton, hospta recevng funds from Unted
States and/or oca government - 33
Cabaret ta :
Cabaret empoyee, charges for food, etc - 329
Con-operated devces, recordng machne . 399
Dues, ntaton fees, etc.:
each cub, membershp fees, pus seasona charges 3 1
Country cub, amounts pad for stock 3
Form 720, quartery return, nformaton requred . 51
Import ta es, meta scrap, suspenson of ta e tended, Pubc Law 221. 7S
Manufacturers ta :
utomobes, etc.:
owance for ta pad on new parts for use n rebudng of
automobe parts or accessores 33
permenta mode brake assemby 2
Ftted truck top covers . . . 25
Grease sea kt ... ... 22
Rear assembes for mk tank trucks . ... .... 23
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cse ta es Contnued rase
Manufacturers ta Contnued
utomobes, etc. Contnued
Reguatons 6 amended 0
Sheded spark pugs 2
Spark pug termna protectors . 25
Spreaders for farm use or ce contro 22
Communcatons recevers, etc., Reguatons 6 amended 0
ectrc energy, Reguatons 6 amended 0
ectrc, gas, and o appances, Reguatons 6 amended 0
Gasone, used n persona cars by State or potca subdvson
empoyees on offca busness 32
Genera, sae of ta abe artces for e port, cams for refund or
credt 35
Mechanca pencs, pens, and ghters, Reguatons 6 amended.. 0
Musca nstruments, panos 29
Phonographs, record payer attachment 2
Photographc apparatus, Reguatons 6 amended 0
Rado recevng set, kts contanng unassembed component
parts 2
Refrgerators, etc.:
Compressors and condensng unts 31
ousehod type 30
Reguatons 6 amended 0
Sportng goods, Reguatons 6 amended 0
res and nner tubes, Reguatons 6 amended 0
frcotcs
Cassfcaton of drugs (P. L. 2 0) 0
Trust Terrtory of the Pacfc Isands (P. L. 23 )... 79
Payment of ta , use of Federa depostares, reguatons prescrbed.. 00
Processng ta ; coconut and other vegetabe os, e portaton, nterest
on refund of ta S52
Retaers ta :
ass for ta , nonta abe artce gven n connecton wth sae of
fatware 350
Contaner, chest for sterng fatware 350
ewery, barrettes, and combs ornamented wth precous or
semprecous stones 352
Semprecous stones and artces made from types of petrfed
wood 352
Returns, quartery fng, reguatons prescrbed . 00
Stamp ta es:
onds, etc., short-term notes ssued by fnance corporaton 3 5
Transportaton ta :
Persons:
Students, payng ndvdua e penses 3
Property:
Caroad shpment, separate charges for e empt and non-
e empt portons 3
cavated matera, sand and grave pant on premses 37
Purchased and transported by carrer for own use 36
Transfer and storage company, dstrbuton of poo car
shpments. 35
Wagerng ta es:
Sezure of automobes, voaton of wagerng ta aw . 379
empt corporatons and assocatons, natona farm oan assocatons 155
empt ncome:
Cost-of-vng aowances, cvan empoyees statoned n Terrtores
and possessons 52
arnngs from operaton of foregn shps, apan 22
Sources wthout the Unted States, Oknawa - 225
emptons:
Dependents:
rrearage payments for support of chd.. 22
Defnton amended (P. L. 213) 75
pense ncurred for support - 26
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5
F P o
Farmers and farmng:
Lvestock osses, Invountary conversons. . . 169
Fducares, statement wavng e pense deductons ... 79
Foregn corporatons, shppng, nterest on short-term nvestments . 1
Foregn ta credt:
atan ta . 56
Oknawa, a foregn country . 22.5
Ta mposed by apan on royates 5S
When to be taken, ncome from ong-term contract . 27
Forms, 1099, aowances n addton to wages. . 303
Fraud, defcency emnated by reef provson .. 227
G
Gan or oss:
asts:
Instament obgatons, property sod pror to death of spouse.. 32
Producton cost of manuscrpt . 29
Subsdary s assets, dstrbuted n qudaton 55
Lqudaton, whoy-owned subsdary 55
Recognton:
Interest on defcency from sae of prncpa resdence, at e pra-
ton of repacement perod 226
Reorganzaton, separate ncorporaton of branches . 3o
Spt-off reorganzaton.. 37
Surrender of une ercsed stock optons -- 17S
Gft ta :
Communty property, fe nsurance, thrd party benefcary 26
Gft-spttng, eecton by husband or wfe . 292
Returns, nspecton, by other than Treasury offcas 150
auaton, corporate stock, restrcted dsposton 29
Gross ncome:
cusons:
enefts under sef-nsured pans whch are
Insurance pans 102
Not nsurance pans - 10
Cost-of-vng aowances, cvan empoyees statoned n Terr-
tores and possessons - 52
Death benefts under penson pans and survvorshp annutes,
Reguatons 111 amended - 106
arnngs from operaton of foregn shps. 22
Income from sources wthout the Unted States . 2
Reguatons 111 amended 2
Interest to Unted States ctzens, obgatons, Puerto Rcan
Genera Suppes dmnstraton 12
Nonoccupatona dsabty benefts - 13
Rehabtaton payments made by empoyer 112
Incusons:
ccrued dvdends on purchases, fe nsurance companes . 221
Dsabty retrement pay, member of unformed servces
arned commssons, corporaton n qudaton
mpoyees accdent nsurance premums pad by empoyer . 11
Interest on short-term nvestments by foregn shppng corpo-
ratons - 1
Payments for subsstng subeases - 97
When ncuded:
Credts to nsured banks by Federa Insurance Depost Corpo-
raton, nonretroactve appcaton of rung . 1 0
Increase n arma rates, retroactve 139
I
Income from sources wthout the Unted States, Oknawa . 225
Informaton at source:
Dvdends pad by savngs and oan assocatons, etc., Reguatons 111
amended 201
Form 10U9 for rembursed e penses of arpane pots.............. 199
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Inspecton of returns. (.See Returns: Inspecton.) Pag
Instament saes:
Casua, personaty, terary composton 29
Property hed |onty sod pror to death of spouse 32
Insurance:
Premums:
ccdent nsurance carred by empoyer 11
Pad by empoyer for empoyees annutes 111
Unearned, rensurance reserves - 222
Proceeds, death benefts under penson pans and survvorshp annu-
tes, Reguatons 111 amended 106
Insurance companes:
Lfe:
ccrued dvdends, amounts pad on purchases 221
mortzaton of premums pad for mortgage oans nsured by
Federa ousng dmnstraton 1 3
Determnaton of net ncome - 220
Interest:
Pad, fe nsurance companes - 220
Receved:
Foregn shppng corporatons, short-term nvestments 1
Obgatons, Puerto Rcan Genera Suppes dmnstraton, to
Unted States ctzens 12
Tweve Year Doar Savngs ond of State of Israe, dscount
at whch ssued 95
Inventores (LIFO):
ectve method, prce nde es for uy 1953, for use by department
stores 19
Interm aowances, nvountary qudatons 5
Invountary converson:
Condemnaton awards, e pendtures to restore usabty 36
Lvestock ked by ghtnng, governmenta order, etc 169
L
Leases, reassgnment of orgna ease ncudng subeases 97
Legsaton:
ghty-thrd Congress:
Dgest of Pubc Laws pertanng to nterna revenue matters 9
Pubc Law 125 r 73
Pubc Law 17 73
Pubc Law 196 --- 7
Pubc Law 212 75
Pubc Law 213 75
Pubc Law 219 - - 76
Pubc Law 221 - - 7
Pubc Law 23 79
Pubc Law 2 0 0
Pubc Law 2 3 1
Pubc Law 27 -
Pubc Law 2 3 -
Pubc Law 2 7 - ----- 5
Lessors and essees, reassgnment of orgna ease, payments for subsstng
subeases 97
Lens for ta es, prorty, |udgment credtor (New York) 67
Lqudatons:
Corporatons:
arned commssons 10
Fna returns 1 9
Dstrbuton of assets, whoy-owned subsdary 55
Lvestock saes, nvountary converson, anmas ked by ghtnng,
governmenta order, etc 169
Loans, mortage, nsured by Federa ousng dmnstraton, amortza-
ton of premums pad - 1 3
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Losses:
Casuaty or theft:
Dsaster damages rembursed by empoyer . 112
mbezzed funds .. ... . 1 3
Indvduas:
Partnershp, dstrbutve share - 1 0
Sae of property used for both persona and ncome-producng
purposes - 20
Lmtaton on
Deducton for partnershp osses nvovng communty property.. 209
O and gas operatons . 1 1
Trade or busness carred on n more than one form . 1 2
Msceaneous, dmnuton n vaue of assets 11
M
Mtary personne. (See rmed Forces.)
Mnes:
ass for depeton:
Cacum carbonates and shae 1
Reguatons 111 and 130 amended 120
Deveopment and e poraton costs, Reguatons 111 amended 132
Low-grade ron ore, processes consdered mnng operatons 15
N
Net operatng oss:
d|usted gross ncome, standard deducton for ndvduas 22
Carrybacks and carryovers, mtaton on refunds 176
Reducton n net ncome, chartabe deductons aowabe to corpora-
ton 21
O
Obgatons, Unted States or possessons, Puerto Rco, Genera Suppes
dmnstraton, ssuance to Unted States ctzens 12
O and gas propertes:
Lasses, mtaton on deductons 1 1
Prepad ntangbe drng and deveopment costs 1 1
Optons. (See Stock rghts.)
Overpayments ( ee aso Cams for refund or abatement):
Interm aowances, nvountary qudatons of L1FO nventores 5
P
Partnershps:
Death of partner, effect on partnershp nterests and requrements
for rng returns . 212
Dstrbuton:
Lmtaton on deducton, ndvdua s oss . ISO
Losses nvovng communty property 2t9
Famy, aocaton and ta aton of ncome, Reguatons 111 amended.. 213
Returns, change n membershp durng ta abe year . 212
Payment of ta :
cceptance of Seres Treasury notes.... 53
cceptance of Seres C Treasury notes 59
cceptance of Treasury obgatons, Treasury Decson 703 amended.
Redempton of stock to pay death ta es, Reguatons 111 amended.. 159
Penates:
d vaorem, defcency emnated by reef provson 227
Faure to fe decaraton and pay estmated ta 2
Payment for reease of mortgage . 19
Perod of tme dsregarded, personne of Unted Natons orean Recon-
structon gency servng n combat zone -- 2
Persona hodng companes, faure to fe tmey return, Form 112011.... 226
Possessons of Lnted States:
Cost-of-vng aowances pad to cvan empoyees - 52
Puerto Rco, Genera Suppes dmnstraton, obgatons to Unted
States ctzens .. - 12
Status of Oknawa . ..... .- ...... 225
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Procedure. (.See dmnstraton and procedure.) f t
Pubc aws:
ght v-thrd Congress:
Dgest of enactments pertanng to Interna revenue matters 0
No. 125, e tendng e oess-profts ta to December 31, 1953 73
No. 17 , makng appropratons for the egsatve branch and
the |udcary branch for the fsca year endng une 30, 195 .. 73
No. 196, unempoyment nsurance, martme servce, vesses oper-
ated by the Unted States 7
No. 212, reatng to the |ursdcton of the Unted States over
the submerged ands of the outer Contnenta Shef 75
No. 213, amendng defnton of dependent and e tendng e emp-
ton from ncome ta es for certan members of rmed Forces. 75
No. 219, reatng to retrement of |udges of The Ta Court of
the Unted States 76
No. 221, e tendng suspenson of mport ta on meta scrap 7
No. 23 , e tendng narcotcs provsons reatng to Terrtora
e tent of aw to ncude Trust Terrtory of the Pacfc Isands. 79
No. 2 0, cassfyng certan drugs as narcotcs 0
No. 2 3, amendng certan admnstratve provsons of the
Tarff ct of 1930 and reated aws. 1
No. 27 , reatng to abatement of |eopardy assessment.
No. 2 3, reatng to drawback cams wth respect to dsted
sprts used n manufacture of nonbeverage products
No. 2 7, Technca Changes ct of 1953, e tendng the tme durng
whch certan provsons reatng to ncome and estate ta es
sha appy, and for other purposes 5
Pubc uttes, apportonment of credt for dvdends pad on preferred
tock 26

Rea estate:
Prncpa resdence, nterest on defcency from recognzed gan at
e praton of repacement perod 220
Property e changed for annuty contract 53
Redempton of stocks and bonds, treatment of dscount at whch Tweve
Year Doar Savngs ond of State of Israe was ssued 95
Refunds. (.See Cams for refund or abatement.)
Reguatons (tee aso mendments: Reguatons):
nnouncement of pubcaton of ncome ta Reguatons 11 500
Form 10 2 Suppement, e change of nformaton under ncome ta
conventons 77
uartery e cse ta returns Reguatons 2, 3, , 6, 7, , 51,
99. 113, and 119 affected by Treasury Decson 6025 00
Wthhodng, amended Unted States-Canada ncome ta conventon. 59
Wthhodng, Unted States-Fnand ncome ta conventon 1 5
Reorganzatons:
Separate ncorporaton of branches . 35
Spt-off 37
Resdence. (See Rea estate.)
Retrement aowances:
Permanent dsabty, receved under Inos Teachers Retrement
System . 16
Returns:
Consodated, eecton wth respect to frst return to be fed after
uy 16, 1953, Rev. Ru. 17 modfed 1 1
Corporatons:
Consodated ncome ta returns, eecton wth respect to frst
return to be fed after uy 16, 1953, Rev. RuL 17 modfed... 1
Faure to fe tmey Form 1120 226
Fractona part of year, fna return, qudated corporaton 1 9
Informaton:
Form 10 2 Suppement, use under any ncome ta treaty pro-
vdng for e change of nformaton . 77
Form 1099 for rembursed e penses of arpane pots . 199
Savngs and oan assocatons, etc., Reguatons 111 amended... 201
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Returns Contnued
Inspecton:
Federa estate and gft, for oca ta admnstraton purposes .
Processng of appcatons by dstrct drectors - 152
Tme for fng, decaraton of estmated ta . 2
Royates, credt for ta mposed by apan . 5S
S
Saes or e changes, between spouses or between an ndvdua and a con-
troed corporaton, Reguatons 111 amended 1 3
Securtes transactons:
rbtrage operatons 1 3
Stock purchased wth dvdend accruas _ 221
Sef-empoyment ta :
Incuded and e cuded earnngs, optometry and |ewery busness 6
Professons, professona servces not specfcay e cuded 5
Trade or busness:
ewery and optometry, optca servces performed by member
of partnershp 5
Professona servces, not specfcay e cuded S
Servcemen. (See rmed Forces.)
Shortsaes, arbtrage operatons 1 3
Stock rghts, une ercsed stock optons surrendered by estate of deceased
empoyee 1 3
Surta e emptons, dsaowance to transferee of corporate assets, Regua-
tons 111 amended SI
T
Ta Court of the Unted States, The:
Decsons of, st of acquescences and nonacquescences 3-
Ta es:
Deducton:
d|ustment, Pennsyvana ta on bank shares 39
State of Pennsyvana on cgarettes - 11
Foregn countres. (See Foregn ta credt.)
Reta saes, State of North Carona, on quors, wnes, beer, etc 116
Tobacco ta :
Form 77 , tobacco nvoce, dsposton S
Ta -free tobacco products, cgarette papers, tubes, for use of Unted
States, Reguatons amended . 3 6
Traveng e pense, day transportaton aowances 3 3
Treates:
Reguatons under amended Unted States-Canada ncome ta conven-
ton M
Unted States-Fnand ncome ta conventon 1 5
Trusts:
mpoyees :
Defntey determnabe benefts 202
Dstrbutons to benefcares, ta abe status, Reguatons 111
amended 203
Inos Teachers Retrement System, permanent dsabty re-
trement aowances 16
states and trusts:
Irrevocabe transfer, property nterest, chartabe foundaton
beneft 123
w
Wavers:
Renqushng rght to e pense deductons. -- W
Restrcton on assessment and coecton, e ecuton not prerequste to
parta agreement 50
War (perod of tme dsregarded) (sec aso rmed Forces):
Personne of Unted Natons orean Reconstructon gency servng
n combat zone .......................... 2
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Income ta at source:
Reguatons under amended Unted States-Canada ncome ta
conventon 59
Reguatons under Unted States-Fnand ncome ta conventon.. 1 5
Rates:
Combned FIC and ncome ta wthhodng tabes, weeky pay-
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Workmen s compensaton awards. (See Dsabty benefts )
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T IS OO IS DU ON T L ST D T
ST MP D LOW
R N W D OO S R SU CT TO IMM DI T
R C LL
LI R RY, UNI RSITY OF C LIFORNI , D IS
ook Sp-55m-10, 6 ( 0 ) 5 -31/5
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U. S. Interna Revenue
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