Bureau of Internal Revenue Cumulative Bulletin 1939-2

SP CI L TT NTION dre ed e cautonary notce on ths page that pub-
shed rungs of the ureau do not have the force and effect
of Treasury Decsons and that they are appcabe ony to facts presented n the pubshed case
Treasury Department : : : : : ureau of Interna Revenue
Interna Revenue uetn
Cumuatve uetn 1939-2
ULY-D C M R, 1939
IN T IS ISSU
Introductory Notes I
Contents - II
Rungs Nos. 9 97-10126
oard of Ta ppeas 1-73
Income Ta
Part I ( , Interna Revenue Code and 1939 ct
, 193 ct) 75-174
Part II (1937 and 1936 cts) 175-192
Part III (1935 and 1934 or Pror cts) .... 193-250
mpoyment Ta es 251-324
Msceaneous Ta es
state and Gft Ta es 325-346
Capta Stock Ta es 347-354
Saes Ta es, Stamp Ta es, tc 355-103
Msceaneous Rungs 404-4 5
Commttee Reports 4 7-636
Inde 637-650
The rungs reported n the Interna Revenue uetn are for the nformaton of ta payers and ther counse as
showng the trend of offca opnon n the admnstraton of the ureau ot Interna Revenue the rungs other than
Treasury Decsons have none of the force or ofh-ct of Treasury Decsons and do not commt the Department to
any nterpretaton of the aw whch has not been formay approved and promugated fay the Secretary of the
Treasury. ach rung embodes the admnstratve appcaton of the aw and Treasury Decsons to the entre
state of facts upon whch a partcuar case rests. It s especay to be noted that the same resut w not neces-
sary be reached n another case uness a the matera facts are dentca wth those of the reported case. s t s
not aways feasbe to pubsh a compete statement of the facts underyng each rung, there can be no assurance
that any new case s dentca wth the reported case. s bearng out ths dstncton, t may be observed that the
rungs puMNhe from tme to tme may appear to reverse rungs prevousy pubshed.
Offcers of the ureau of Interna Revenue are especay cautoned aganst reachng a concuson n any case
merey on the bass of smarty to a pubshed rung, and shoud base ther |udgment on the appcaton of a per-
tnent provsons of the aw and Treasury Decsons to a the facts n each case. These rungs shoud be used as
ads n studyng the aw and ts forma constructon as made n the reguatons and Treasury Decsons prevousy
ssued.
In addton to pubshng at Interna Revenue Treasury Decsons, t s the pocy of the urean of Interna Revenue
to pubsh a rungs and decsons, ncudng opnons of the Chef Counse for the ureau of Interna
Revenue, whch, because they announce a rung or decson npon a nove queston or upon a queston n regard
to whch there e sts no prevousy pubshed rung or decson, or for other reasons, are of such mportance as
to be of genera nterest. It s aso the pocy of the urean to pubsh a rungs or decsons whch revoke, modfy,
amend, or affect n any manner whatever any pubshed rung or decson. In many nstances opnons of the
Chef Counse for the ureau of Interna Revenue are not of genera nterest because tbey announce
no new rung or no new constructon of the revenue aws but smpy appy rungs aready made pubc n certan
stuatons of fact whch are wthout speca sgnfcance. It s not the pocy of the ureau to pubsh nch opnons.
Therefore, the numbers assgned to the pubshed opnons of the Chef Counse for the ureau of
Interna Revenue are not consecutve. No unpubshed rung or decson w be cted or reed upon by any offcer
or empoyee of (he ureau of Interna Revenue as a precedent n the dsposton of other cases. Uness otherwse
specfcay ndcated, a pubshed rungs and decsons have receved the consderaton and approva of the
Chef Counse for the ureau of Interna Revenue.
UNIT D ST T S GO RNM NT PRINTING O IC : W S INGTON : 19-10
or tae by the Superntendent of Documents, Washngton, D. C.
See bach of tte for prces
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The Interna Revenue uetn servce for 1940 w consst of weeky
buetns and semannua cumuatve buetns.
The weeky buetns w contan the rungs and decsons to be
made pubc and a Treasury Department decsons (known as Treasury
decsons) pertanng to Interna Revenue matters. The semannua
cumuatve buetns w contan a rungs and decsons (ncudng
Treasury decsons) pubshed durng the prevous s months.
The compete uetn servce may be obtaned, on a subscrpton
bass, from the Superntendent of Documents, Government Prntng
Offce, Washngton, D. C, for S3 per year foregn, 4.25. Snge
copes of the weeky uetn, 5 cents each.
New subscrbers and others desrng to obtan the 1919, 1920, and
1921 Income Ta Servce may do so from the Superntendent of Docu-
ments at prces as foows: Dgest of Income Ta Rungs No. 19
(contanng dgests of a rungs appearng n Cumuatve uetns
1 to 5, ncusve), 50 cents per copy Cumuatve uetns Nos. 1 to 5,
contanng n fu a rungs pubshed snce pr, 1919, to and n-
cudng December, 1921, as foows: No. 1, 30 cents No. 2, 25 cents
No. 3, 30 cents No. 4, 30 cents: No. 5, 25 cents.
Persons desrng to obtan tne Saes Ta Cumuatve uetns for
anuary- une and uy-December, 1921, may procure them from the
Superntendent of Documents at 5 cents per copy.
Persons desrng to obtan the Interna Revenue uetn servce for
the years 1922 to 1939, ncusve, may do so at prces as foows:
Cumuatve uetn.
Year.
Prce,
(cents)
rst 6
months.
Second 6
months.
1922.
1-1
1-2
40,30
1923
II-
II-2
30, 40
1924
III-
III-2
50, 50
1925
I -1
I -2
40, 35
1926
-
-2
40, 30
1927
I-1
I-2
40, 40
192
II-1
I1-2
35, 50
1929
III-1
III-2
50, 55
1930
I -1
I -2
50, 50
1931
-
-2
65,30
I-1
I-2
30, 30
1933.
1I-1
II-2
30, 50
1934
III-1
III-2
50,60
1935
I -1
I -2
50,50
1936
-1
-2
55, 45
1937 -
1937-1
1937-2
60, 50
193 -
193 -1
193 -2
60, 50
f 1939-1
Part 1
50,
Part 2
1. 00,
1939-2
60
Persons desrng to obtan the servce n dgest form may do so at
prces as foows: Dgest No. 13 (1922-1924), 60 cents Dgest No. 17
(1925), 25 cents Dgest No. 21 (1926), 15 cents Dgest No. 22 (1925-
1927), 35 cents and Dgest (ncome ta rungs ony, pr, 1919, to
December, 1930, ncusve), 1.50.
nqures n regard to these pubcatons and subscrptons shoud
be sent to the Superntendent of Documents, Government Prntng
Offce, Washngton, D. C.
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INTRODUCTORY NOT S.
The Interna Revenue Cumuatve uetn 1939-2, n addton to
a decsons of the Treasury Department (caed Treasury decsons)
pertanng to Interna Revenue matters, contans opnons of the
Chef Counse, and rungs and decsons pertanng to ncome, estate,
gft, saes, capta stock, e cess profts, empoyment, and msce-
aneous ta es, as ndcated on the tte page of ths uetn, pubshed
n the weeky uetns (1939, Nos. 27 to 52, ncusve) for the perod
uy 1 to December 31, 1939. It aso contans a cumuatve st of
announcements reatng to decsons of the Unted States oard of
Ta ppeas pubshed n the Interna Revenue uetn Servce from
anuary 1, 1932, to December 31, 1939.
Income Ta rungs w be prnted n three parts. The rungs n
Part I w be prnted as Part I, (Interna Revenue Code and
Revenue ct of 1939) and (Revenue ct of 193 ), the secton
headngs correspondng wth the sectons of the Code and the 1939
and 193 cts, respectvey, and the artce headngs correspondng
wth the artce headngs of Reguatons 101. Rungs under the
Revenue cts of 1937 and 1936 w be prnted as Part II, the secton
headngs correspondng wth the secton headngs of those cts and
the artce headngs correspondng wth the artce headngs of Regu-
atons 94. Rungs under the Revenue cts of 1935 and 1934 or
pror cts w be prnted as Part III, the secton headngs corre-
spondng wth the secton headngs of the Revenue ct of 1934 and
the artce headngs correspondng wth the artce headngs of Regu-
atons 6.
Rungs under Ttes III and I of the Soca Securty ct and
under Subchapters and C, Chapter 9, of the Interna Revenue
Code are pubshed under artce headngs of Reguatons 91 and 90,
respectvey rungs under the Carrers Ta ng ct of 1937 and
under Subchapter , Chapter 9, of the Interna Revenue Code are
pubshed under the artce headngs of Reguatons 100 and rungs
under Tte III of the Revenue ct of 1936 Ta on un|ust enrch-
ment are coded under the sectons of that ct and the artce
headngs of Reguatons 95.
R I TIONS.
The foowng abbrevatons are used throughout the uetn:
, , C, etc. The names of ndvduas.
. R. M. Commttee on ppeas and Revew memorandum.
. R. R. Commttee on ppeas and Revew recommendaton.
. T. coho Ta Unt.
. T. . oard of Ta ppeas.
C. . Cumuatve uetn.
Ct. D. Court decson.
C. S. T. Capta Stock Ta Dvson.
C. T. Ta es on empoyment by carrers.
D. C. Treasury Department crcuar.
. T. state Ta Dvson.
G. C. M. Genera Counse s, ssstant Genera Counse s, or Chef Counse s
memorandum.
I. R. . nterna Revenue uetn.
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I
I. T. Income Ta unt.
M, N, , Y, Z, etc. The names of corporatons, paces, or busnesses, accord-
ng to conte t.
Mm. Mmeographed etter.
MS. Msceaneous Dvson.
0. or L. O. Soctor s aw opnon.
0. D. Offce decson.
Op. . G. Opnon of the ttorney Genera.
P. T. Processng Ta Dvson.
S. T Saes Ta Dvson.
S. Sver Ta Dvson.
S. M.- Soctor 6 memorandum.
So. Op. Soctor s opnon.
S. R. Soctor s recommendaton.
S. S. T. Ta es on empoyment by others than carrers.
T. Tobacco Dvson.
T. . M. dvsory Ta oard memorandum.
T. . R. dvsory Ta oard recommendaton.
T. D. Treasury decson.
and y are used to represent certan numbers, and when used wth the word
doars represent sums of money.
The practce of promugatng Treasury Decsons that embody
court decsons reatng to the nterna revenue has been dscontnued.
ereafter opnons of the courts, wth approprate headnotes for the
nformaton and gudance of ta payers and offcers and empoyees of
the ureau of Interna Revenue, w be pubshed n the Interna
Revenue uetn wthout forma approva and promugaton by the
Secretary of the Treasury.
NNOUNC M NT R L TING TO O RD O T PP LS D CISIONS.
Under the provsons of the recent Revenue cts, reatng to ap-
peas to the oard of Ta ppeas, the Commssoner may acquesce
n the decson of the oard or he may, f the appea was heard by
the oard pror to the passage of the 1926 ct, cause to be nsttuted
a proceedng n court for the coecton of any part of a ta deter-
mned by the Commssoner to be due but dsaowed by the oard,
provded that such proceedng s commenced wthn one year after
fna decson of the oard. s to appeas heard by the oard after
the passage of the 1926 ct, the Commssoner may, wthn s
months after the oard s decson s rendered, fe a petton for a
revew of the decson by a Crcut Court of ppeas or by the Unted
States Court of ppeas for the Dstrct of Coumba however, as to
decsons rendered on and after une 7, 1932, pettons for revew
must be fed wthn three months after the decson s rendered.
In order that ta payers and the genera pubc may be nformed as
to whether or not the Commssoner has acquesced n a decson of
the oard of Ta ppeas dsaowng a ta determned by the Com-
mssoner to be due, announcement w be made n the weeky ue-
tn at the earest practcabe date. notce that the Commssoner
has acquesced or has nonacqucsced n a oard decson reates, how-
ever, ony to the ssue or ssues decded n favor of the ta payer.
Decsons so acquesced n shoud be reed upon by offcers and
empoyees of the ureau of Interna Revenue as precedents n the
dsposton of other cases before the ureau.
or addtona nformaton whch w be of assstance n the use
of the Interna Revenue uetn servce read the Introductory Notes
to the atest Dgest.
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D POSIT D Y T
r D ST T S O M RIC
UN I 40
CONT NTS.
Treasury decsons
4906
4907
491)
49119
4910
4911
4912
4913
4914
4916
4917
491
4919
4920
4921
4922
4923
4924
4925
4926
4927
492
4929
4930
4931
4932
4933
493)
4935
4930
4937
493
4939
4940
4941
4942
4943
4944
4945
4946
4947
494S
4949
4950 .
4951
49.12
4953
4954
4955
4 56
4957
Court decsons:
1409
1407
140
1409
1410
1411
1412
1413
1414
1415
1416
1417
141 .
1419
1420
1421
1422
1423
1424
M
Rung No.
1939-27-9 99
1939-27-9904
1939-27-9905
1939-27-991 1
1939-2 -9915
1939-30-9927
1939-31-9941
1939-31-9942
1939-31-9943
1939-32-9952
1939-33-9660
1939-33-9959
1939-33-4 904
1939-33-9966
1636-34-9976
1939-34-9077
1939-34-997
1939-34-9967
1939-35-99
1939-35-99 9
1939-35-99 7
1939-35-9990
1939-36-10003
1939-36-9995
1939-36-10004
1939-36-9996
1939-37-10015
1939-37-10014
1939-37-10010
1939-37-10017
1939-3 -10U23
1939-39-10025
1939-39-10029
1939-39-10032
1939-39-10031
1939-39-10033
1939-39-10034
1939-39-10035
1939-39-10030
1939-40-1004
1939-10-10047
1939-41-10052
1039-41-1005
1939-41-n059
1939-42-10061
1930-42-10067
1939-47-10100
1939-4 -10103
1939-4 -10109
1939-4 -10110
1939-50-10120
1930-27-9900
1939-2 -9914
1939-30-9923
1939-31-9935
1939-31-9936
1939-31-9937
1939-32-W46
1939-33-9656
1939-34-6971
1939-35-99 3
1939-36-6994
1939-37-10009
1939-10-10042
1939-41-10055
1939-44-10079
1939-46-100 9
1939-46-10090
1939-47-10093
1939-47-10094
1939-47-10095
Pace.
404
442
445
422
2 IS
351
347
395
10
359
139
s
436
374
355
363
372
439
356
437
143
441
1
379
312
325
30
270
267
101
320
120
111
311
272
401
409
43
97
403
367

43
79
110
IM
2 7
76
33
32
22
305
246
19
200
202
239
329
220
210
244
39
221
3 4
206
3
212
213
Rung.
-Con.
Court decsons
1426
1427
142
1429
1430
Chef Counse s
randa:
20950
21329
21373
2141
21432
2147
21496
21497
21503
21507
21532
21.540
21575
215 6
21610
21702
21714
oard of Ta ppeas:
54771
7394 ..
76367..
77675.
7 709
7 952.
1230.
1991.
2565.
2 14.
2659.
2722.,
3341..
3576.
3 31.
3 32.
3 33.
3 49.
42 2..
4321.
4639.
4795.
4 07.
4992.
5516.
5679.
6709.
71 .
72 5.
7393
7460.
7465.
7533.
7.552.
7553.
796 .
79 5.
094.
101.
294.
151.
453.
5 .
593.
591.
Rung No.
1039-47-10096
1939-4 -10105
1939-49-10113
1939-50-1011
1939-51-10122
1939-46-100
1939-29-691
1939-31-69:10
1939-32-9917
1936-36-9997
1939-35-99 0
1639-45-100 3
1
1931M7-10012
1939-39-10027
1939-42-10062
1939-42-10061
1939-11-10053
1939-49-10115
1939-61-10123
1939-3 -1001
1939-15-100 2
1936-31-992
1939-34-9960
1939-51-10121
1936-35-9979
1939-31-992
1939-35-6979
1939-31-692
1939-30-9919
193 - 33-6953
1639-29-9916
1939-40-10036
193 - 3 -1001
1639-31-992
1639-31-992
163 - 31-992
1639- 2 -6607
1939- 31-692
1939-2 -6907
1939-32-9944
1639-42-100 0
1639-17-10092
1939-35-9979
1936-32-9944
1936-47-10092
1939- 47-10092
1939-27-9 97
1936-33-66.53
1639-33-9953
1639-31-992
1939-33-6953
1639-31-692
1639-36-9979
1 39-35-6979
1639-31-9966
1 39-35-9979
1939-47-10092
1939-44-10074
1936-42-1OU60
1 39-42-10000
1 39-11-10060
193 -32-9944
193 -31-992
193 -31-992
1 39-31-992
Page.
340
352
191
332
20
175
179
2
249
2.(4
159
1 9
1 7
205
1 9
231
103
3 3
21
1
1,11
39
16
1
24
32

6
15
42
4
46.49
22.57
23
23
23
32
59
(13.27,
60,61
6.44
II
41
39
24
12
31
61
72
64
3
46
39
61
62
1
60
11,4
56
11
6,27
4
22, .56
23
23
23
( )
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1
3
-
0
1
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2
2

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4
:
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I
Rung.
oard of Ta ppeas
Contnued.
(100
mo
064 ,
7
1)70
9033
9134
9259
9267
92S3
D2 7
9304
9366
9464
95 3
9615
9616
96 4
96 5
9720
990
90091
90104
90134
90323
90392
90703
90760
90 01
90 02
90 03
1)0 97
90911
90915
9104
91137
01193
91451
9 52
91453
91535
91665
91723
91795
91 74
91943
920 3
92103
92119
92125
92169
92195
92240
922
92569
92570
92571
92572
92573
92574
92621
92996
93029
93055
93056
93102
93221
93279
93626
94006
94213
94214
94259
94161
944 6
9451
9464
97169
Offce decsons (I. T.):
3294
3295
3296
Rung No.
1939-31-992
1939-31-992
1939-46-100 7
1939-46-100 7
1939-35-9979
1930-42- 10060
1939-32-9944
1939-51-10121
1939-51-10121
1939-41-10050
1939-32-0944
1939-32-9914
1939-47-10092
1930-42-10060
1939-31-992
1939-35-9979
1039-35-9979
1939-39-10024
1939-39-10024
1039-3.5-9979
1930-34-9066
1939-29-9916
1030-45 100 2
1939-31-992
1939-31-092
1 90-39-10024
1930-52-10124
1939-30-0919
1939-35-9079
1939-35-9079
1939-35-0979
1939-34-9966
1939-30-9919
1930-43-1006
1939-42-10060
1039-35-0970
1039-31-092
1039-31-992
1939-31-092
1939-31-092
1930-51-10121
1939-4 -10102
1939-46-100 7
1930-3 -1001
1939-33-9953
1930-29-0916
1939-35-9979
1039-29-0916
1939-40-10111
1939-34-0966
1939-46-100 7
1939-41-10074
1939-36-9901
1939-32-9944
1939-49-10111
1939-49-10111
1939-49-10111
1939-49-10111
1939-49-10111
1039-49-10111
1039-31-902
1939-19-10111
1039-32-9944
1939-31-992
1930-31-902
1939-51-10121
1930-29-9916
1939-34-9066
1930-27-0 97
1030-34-9966
1039-44-10074
1030-44-10074
1039-42-101 O
1039-39-10024
1930-35-9979
1939-36-9001
1039-29-9916
1939-35-9979
1039-27-0 0
1939-27-9901
1939-2 -900
21
21
2
11
47
IS
35
42
42
26,27
20
37
11,4
67
47
43
65
17
17
20,60
20
43,70
42,69
51
55
61
34
29,62
1
1
36
39
49.71
46,50
25,2
6
15
I I, 15
12, 14
2
57
44
21
30
23
42
57
.M
21
30
21
63,5
39, 71
13,35
46
g
49
61
49
5
12, 14
64
25
4
4
60
56
30
39
17,25
3,32
3,32
45
3
17
SO
25
22
151
243
133
Rung.
Offce decsons (I.
Contnued.
3297
329
3299
3300
3301
3302
3303
3304
3305
3306
3307
330
3309
3310
3311
3312
3313
3314
3315
3316
3317
331
3319
3320
3321
3322
T.)-
3324.
3326
3327
332
3329
3330
3331
3332
3333
3334
3 35
3336
3337
333
3339
3340
Offce decsons ( . S. T.):
369
370
371
372
373
374
375
376
377
37
379.
3 0
Offce decsons ( . T.):
12
13
Offce decsons (C. T.):
17
1
19._
Offce decsons (S. T.):
3
4
5
6
7

9
90
91
92
3
04
Offce decson (C. . T.):
10
Offce decsons (MS.):
215
216
Rung No.
1939-2 -9900
137
1939-29-9917
164
1939-30-9021
163
1939-30-9922
173
1030-31-9929
76
1039-31-9931
105
1039-31-9932
164
1030-31-0(133
16
1030-31-9034
205
1939-32-0945
149
1939-33-9954
156
1939-33-9955
404
1939-34-096
1 3
1939-34-9970
190
1039-35-99 2
206
1030-36-9992
16
1939-36-99(1
171
1939-37-10005
152
1939-37-10006
164
1939-37-10007
1
1939-37-1000
233
1939-37-10013
233
1939-3 -10019
161
1039-3 -10020
191
1030-3 -10021
23
1930-39-10026
177
1939-40-10037
90
1939-40-1003
135
1039-40-10039
151
1039-40-10040
157
1939-40-10041
173
1939-41-10051
4
1039-41-10054
153
1039-42-10063
1 5
1039-43-10069
130
1939-43-10070
IM
1039-44-10077
134
1939-45-100 4
1 0
1039-17-10099
193
1939-4 -10104
1-9
1939-49-10112
132
1930-49-10114
421
1939-50-10117
1(
1039-52-10125
167
1939-27-9902
323
1039-31-993
274
1939-33-9961
255
1930-33-9963
315
1939-34-9973
27S
1939-36-0999
290
1939-3 -10022
2 0
1939-41-10057
2S6
1939-42-1000
23
1939-43-10071
232
1939-44-1007
293
1939-52-10126
2
1039-32-99.51
335
1039-36-10001
336
1039-2 -9910
31
1930-32-994
295
1939-33-9903
204
I939-2S-9911
362
1939-2 -9912
3 6
1930 32-9949
371
1939-32-9950
3 7
1930-33-0957
37
1939-33-995
3W
1930-34-9974
37
1939-34-9975
3 1
1039-35-09 4
S7S
1930-43-10072
360
1939-43-10073
364
1939-46-10091
376
1939-47-10101
34S
1939-27-9903
451
1930-31-9940
452
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II
Rung.
Rung No.
Page.
Rung.
Rung No.
Page.
Offce decsons (MS.)
Mmeographs Contnued.
Contnued.
4967
1939-44-10075
127
217
1930-36-10002
453
49
1939-14-10076
134
21
1939-40-10049
454
4977
1939-47-10097
399
219
1939-44-100 1
455
1939-30-9926
04
220
1939-60-10119
456
1939-30-9920
524
Offce decsons (T.):
1939-35-99 6
63
60
1939-2 -9913
457
1939-37-10010
665
61
1939-31-9939
457
1939-37-10011
693
62
1939-35-99 5
457
1939-39-1002
4 5
63
1939-40-10043
45
1939-40-10044
4 7
64
1939-44-10O 0
45
1939-40-10045
491
65 ..
1939-49-10116
45
1939-40-10046
502
Department crcuar:
1939-45-100 5
470
230 (revsed)
1939-30-9925
460
1939-45-100 6
629
Mmeographs:
1939-47-1009
600
4767 (rev.)
1939-36-999
276
1939-4 -10106
611
1939-30-9924
461
1939-4 -10107
626
1939-36-10000
296
1939-4 -1010
462
S::::::::::::::::::
1939-41-10056
261
1939-52-10126
632
1939-42-10065
469
1939-52-10120
634
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CONT NTS O CUMUL TI ULL TINS (T. T.) 1 TO 5: S. T. OR 1920 ND 1921: INT RN L
R NU , 1-2. II-. II-2. III-. II1-2, I -1. I -2, -. -2 I-1. I-2. 11-1. II-2. TD-1. UI-2 .
I -.I -2. -. -2. I-1. I-2, II-. n-2, 11I-1. II1-2, I -1. I -2. -1. -2. 1937-1. 1937-2.
193 -1. 193 -2. 1939-1 (P RT 1 ND P RT 2) ND 1939-2.
Cumuatve uetn.
Income Ta :
December, 1019 (No. 1)
anuary- une, 1920 (No. 2) - ---
uy-December, 1920 (No. 3)
anuary- une, 1921 (No. 4)
uy-December, 1921 (No. 5). -
Saes Ta :
1920 (S. T. 1-20) -
anuary- une, 1521 -
uy-December, 1921 -
Interna Revenue uetn:
anuary- une, 1922 (No. 1-1)
uy-December, 1922 (No. 1-2) --
anuarv- une, 1923 (No. II-)
uy-December, 1923 (No. II-2)
anuary- une, 1924 (No. I 1) --
uy-December, 1924 (No. III-2) -
anuary- une, 1925 (No. I -1)
uy-December, 1925 (No. I -2)
anuary- une, 1926 (No. -) --
uy-December, 1926 (No. -2)
anuary- une, 1927 (No. I-1)
uy-December, 1927 (No. I-2).
anuary- une, 192 (No. II-1).
uy-December, 192 (No. II-2) --
anuary- une, 1929 (No. III-1) -
uy-December, 1929 (No. III-2)
anuary- une, 1930 (No. I -1). -
anuary- une, 1931 (No. -)
anuary- une, 1932 (No. I-1).-
uy-December, 1932 (No. I-2)
anuary- une, 1933 (No. II-1)-
uy-December, 1933 (No. II-2).
anuary- une, 1934 (No. III-1) --
uy-December, 1934 (No. III-2)
anuarv- une, 1935 (No. I -1)
anuary- une, 1936 (No. -1)
anuarv- une, 1937 (1937-1)
uy-December, 1937 (1937-2) --
anuary- une, 193 (193 -1)-
uv-Deecmber, 193 (193 -2)
anuary- une, 1939 (1939-1 Part 1 and Part 2)
uy-December, 1939 (1939-2) -
(vm)
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I
I
I
O RD O T PP LS.
CUMUL TI LIST O NNOUNC M NTS R L TING TO
D CISIONS O T UNIT D ST T S O RD O T
PP LS PU LIS D IN T INT RN L R NU UL-
L TIN S R IC ROM NU RY 1, 1932, TO D C M R 31,
1939, INCLUSI .
nnouncements reatng to the acquescence or nonacquescence of the Commssoner In
decsons of the Unted States oard of Ta ppeas, as pubshed n the weeky Interna)
Revenue uetns from December 22, 1924, to December 31, 1931, ncusve, are prnted n
Cumuatve uetn -2, popes 1-106. The st beow, therefore, contans ony such announce-
ments pubshed n the weeky uetns from anuary 1,1932, to December 3 , 1939, ncusve.
1939-52-10124
The Commssoner acquesces n the foowng decsons of the
Unted States oard of Ta ppeas:
Ta payer.
.
hees, Chares T - -
bees, Cfford - -
bees, rancs, estate of
bees, ohn T
bees, atherne
bees, Wcmene
bbott, ohn
cme Manfodng Co., Inc
dams, Chares
deade Park Land et a., trustees
fremow , Davd, estate of
fremow, Sarah, e ecutr
grcutura Securtes Corporaton
kron Coca-Coa ottng Co - -
kron Standard Mod Co
abama Mnera Land Co
bers, Wam .
bert Lea Packng Co., Inc
brecht et a., atherne ., e ecutrces
coma Corporaton
e ander, . ., estate of --
e ander, Nee S
e andra Crave Co., Inc
egheny Garbage Co
en, Irene C - - - - - - - - --
en et a., George G., trustees of Dons Duke Trust.
ed mercan Corporaton
376
1091
1291
1210
029
323
036
34
351
1276
cquescence reates to deducton for contrbutons.
I state ta decson: acquescence reates to deducton of 133,000.
Rung No. 10124 ncudes a acquescence and nonacquescenco notces pubshed In the Interna
evcnue uetn servce from anuary 1, 1932, to December 31, 1939.
(1)
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2
cqcescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
verson, L. T
mbassador Petroeum Co
mercan Centra Lfe Insurance Co.1
mercan Centra Uttes Co
mercan Cgar Co
mercan Crcus ont enture
mercan Ctes Power Lght Corporaton, man-
ager, the North mercan Co. Common Stock
Tradng ccount No. 5
mercan eature m Co.
mercan oundaton Co-
mercan Gas ectrc Co. and subsdary com-
panes.
mercan Prntng Co
mercan Securty Trust Co. et aL, e ecutors
mercan South frcan Lne, Inc
mercan Utzaton Co
mes, Mure Oakes
nco Investment Co...
nderson, C.
nderson et Cayton W., e ecutors of the estate
of . . nderson
nderson, . ., estate of
nderson, Gustavo
nderson, .
nderson, Staney S
nderson-Cayton Securtes Corporaton
nn rbor R. R. Co
rcher et aL, arbara
rdengh, nna
rgumbau, rank M
rmstrong, C. George
rmstrong, Susan
rmstrong, Wam
rnod fe Wnsor Co
rtnan, Carone oerdcrcr, estate of1
shforth, bert ., estate of 4
shforth et aL, Mabe ., e ecutors 4
76130
40039
30133
3199
56024
63436
3642
16229
4020
25 2
27623
664
6736
67369
69 00
39721
39167
62955
6S 30
70701
90527
71 11
5 647
33242
91453
91453
36224
63 27
42053
7 340
25 69
64163
64165-
6416
64171-
64173
6 201
73614
5 400
2552
5 603
61553
920 4
47190
4 009
49354
47190
4 009
49354
35
2
30
36
21
39
3
24
40
33
27
24
30
3
30
30
27
39
39
26
30
33
35
29
37
37
31
31
3
32
29
3
26
26
cquescence reates to ssue whether pettoner receved Interest on mortgages when t bd n property
upon forecosure.
1 state ta decson.
Nonaequescence (reatng to communty property agreement) pubshed In Cumuatve uetn
-2 (1936). pases 27 (Docket 71 11). 29 (Dockets 9447,10202,10753), 31 (Dockets 10299, 32950). 34 (Dockets
4017, 53 9, 62029, 05577, 6 324), 35 (Docket 109 0) 36 (Docket 37369), 3 (Docket 169 5), 39 (Docket 7435),
41 (Docket 9290), 45 (Dockets 4.1065.3725, 12231), 46 (Dockets 01699,6 335), and 50 (Docket 7359), wthdrawn.
Nonao uesoence pubshed n uetn II-1 (1933), wthdrawn.
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cqpescen-ces Contnued.
Ta payer.
smussen, .
tkns, . ., estate of
tkns, Mrs. .
tanta Charotte Ry. Co.
tantc Coast Lne R. R. Co.
twater, Davd .1
twater, ohn .
twater, r., Wam C.1.
uto Interurban Co
ton, dwn D
ton, Robert L
ton, Wood
.
abbtt, Inc., . T. (Deaware)
abbtt, Inc., . T. (New York)...
aey, ertha M
aey, Water C, estate of
aker, I.
aker, R.
adwn, orence G
adwn, Ga .
afour, Sr Robert
a, Php D. C
atmore Oho R. R. Co.
atmore Oho R. R. Co.
ankers Dary Credt Corporaton.
arber, rthur
arber, Php C
arber, St. George
arber Trusts, Sarah P
arbour, Robert
arcay, W. L
arker, red
arnes, rthur S
arnes, enry
arney, D. Newton, estate of.
asch, N.
Ice Coa Co
easey, W.
eaumont, Lous D.
ebb, Rchard ., estate of .
eers, Cara O
eers, rank T
eggs, ohn I. (Trusts)
eggs, ohn I., estate of
ehoteguy et u ., Ws C.
ehr, Chare
.
Docket
No.
7 5 9
3 520
3 519
7 077
5 95
65310
65311
49066
49067
49065
94461
56160
56162
56441
74047
74047
75994
75993
5634
61120
323 7
3665
40230
36737
53702
37239
4 329
26747
26755
26757
26747-
26757
1059
743
51102
1 73
56440
71720
4592
67637
60061
31931
46569
49422
41295
67 73
67 74
65675
94213
94214
3 20
39534
oard of Ta ppeas.
oume.
36
2
2
36
31
34
34
34
40
32
32
32 I
32
32
37
37
32
37
23
36
25
27
29
30
26
25
25
25
25
39
26
2
36
32
36
30
27
31
25
27
34
34
30
40
36
30
1 cquescence wth respect to hodng that pettoner was not a transferee.
cquescence reates to ssue nvovng contrbutons by shppers for constructon of sde and spur
tracks and deducton for nterna-revenue stamps aff ed to bonds.
state ta decson acquescenoe reates to deducton of 133,000.
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equ sr NC S Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
e, Ivor .1
eows as Power Co
encdum, M. L.1
ent Co., R. G
erde, r., Chares P
ernsten. Isaac M
est, rank --
ngs et a., May, e ecutors .
uns, George W
ngham, Robert
rckhead, Over W.
rdneck Reaty Corporaton...
scay ne ay Isands Co
shop Trust Co., Ltd
ack, Cark G
ack, .
ack, Mton ...
acksher, ames Urah, estate of5 4
acksher et a., D. W., e ecutors of estate of ames
Urah acksher34
ar, r., Mrs. Wey
ake, Israe O
oodgood, dth
ossom et u ., arod M.
um, uus, trustee.
umentha, Lucy
oehn, Lous
oehrnger, Rudoph
oeng, Wam .
oos ros. Cafetera Co
org eck Co
orand et a., ruce, e ecutors of estate of arret
ar orand
orand, arret ar, estate of5
ostck, r., ohn, trustee
ostonan Natona Shoe Stores, Inc
ostonan Shoe Saes Corporaton
oswe, Wam D., estate of 7
owden, Pau kers
owen, dwn L.
22335
1 592
29104
30990
57312
59796
7029
36729
36746
163
54917
51051
723 9
46079
27616
3509
40147
1625
7102
93055
6961
93056
453
453
696 2
26
90061
26750
91572
39242
40939
45741
51507
64975
7 692
49 91
167
39200
24223
34964
2722
2722
6 3 2
91259
91261
1 11
54923
629 5
27
25
2
26
32
2
26
35
29
27
33
25
23
36
39
36
39
3
3
31
3
25
3
25
30
35
29
37
25
24
3
3
31
39
39
37
26
33
1 cquescence reates to that part of decson hodng that Water . ettman s not abe as a transferee
and to mtaton ssue.
1 cquescence reates to rght of overrdng royaty owners to beneft of secton 211(b), Revenue ct of
191 .
state ta decson.
Pror nonacquescence pubshed n Interna Revenue uetn 1939-25, papre 1, revoked.
cquescence reates to ssue nvovng secton 115(g) of the Revenue ct of 192 .
cquescence reates ony to the trust ssue. Pror nonacquescence pubshed n Cumuatve uetn
193 -1, page 36, n so for as t pertans to the trust ssue, wthdrawn.
1 state ta decson. cquescence reates to e cuson of nsurance proceeds payabe to specfc bene-
fcares.
cquescence reates to ssue as to basc vaues of stock.
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cquescenoes Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
ranch, W.
ranson, red P
raun, rthur ., trustee
rawner, r., enry N., estate of
rnton, Lan McDonad
roadway- rompton udngs Lqudaton Trust .
roderck, mc C, estate of2
rown, erence
rowne, Sopha Geason Perce
ryan ct u ., C.
rvan et u ., L. .1
ryant, Wado C, estate of
uck, ohn ., estate of3.. -
uck et a., Mary M., e ecutors 3
uena sta Land Deveopment Co.
uffao Unon Iron urancc Co.
ungton, Orve
ungton, Mrs. Sade
us, een
uock, George s
urdck, a P., trustee
urdck, oe W., estate of
urke Gran Co
urnharu, Sas
urroughs, mbrose ., estate of.
urrows, Waters .
urton, en|amn T
usche, . C.7.
uter, U.
yers Trust, . T_.
yrncs, Carence P.
Cahoka Trust
Caforna Coast O Co
Cambra Deveopment Co. .
Camp Manufacturng Co
93
95 4
7 211
5S9t
54556
2095
53715
2 1
9759
24007
30037
53037
24030
24037
723 3
325 4
44153
446 4
325 4
44153
446 4
2025
10075
10070
090 4
09079
6 164
73954
31209
46322
46322
61009
1799
53795
59797
77 7
61055
9447
10202
10755
40055
6 3 2
7919
1740
2501
75411
35955
3
3
29
2
34
3
25
35
1 )
1 )
30
25
13
23
31
31
32
23
29
20
3 )
29
29
3
2
10
24
31
39
30
25
31
25
1 Nonacquesoence pubshed n Cumuatve uetn 1937-1. page 30, wthdrawn.
1 state ta decson.
state ta decson acquescence reates to vaue of certnn rea estate n San rnncseo end vaue of
stock of Langcndorf akng Co. for estate ta purposes and reasonabeness of Commssoner s aowance
for support of the wdow.
cquescence reates to ssue regardng deductons for obsoescence of bast furnaces.
cquescence reates to ssue 2 of decson.
cquescence reates to ssue as to deduct ons for e penses n connect on wth the practce of medcne.
1 Nouacquescence (reatng to communty property agreement) pubshed n Cumuatve uetn -2
(1936), pages 27 (Docket 71 11), 29 (Dockets 9447, 10202, 10755), 31 (Dockets 10299, 32950), 34 (Dockets 4017,
63 9,62029, 5577,6 321), 35 (Docket 109 0), 36 (Docket 37369), 3 (Docket 16 ), 39 (Docket 7435), 41 (Docket
9290), 45 (Dockets 45065, 3725,12231), 40 (Dockets 61C69, 6 335), and 50 (Docket 7359), wthdrawn.
cquescence reates to determnaton of far market vaue of obgatons receved from purchasers of rea
estate ots.
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6
cquescences- Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas-
oume.
M.
Canpau Reaty Co., .
Campbe, Mar|ore .1
Canaday, Inc., Ward M
Canfed et u., rances Marsha, e ecutors-
Canfed, George ., estate of
Cannng, ohn
Capta Compress Co
Carman, . .
Carne, Goude Manufacturng Co.
Caro, Sue (Mrs. Nck Stuart)
Carona, Cnchfed Oho Ry
Carona Contractng Co
Carter Pubcatons, Inc
Carter, r., W. T
Casey, arret M., estate of
Caspar Lumber Co
Cathey, George
Cathey, Luke
Catu, Dane
Catn, Theron
Centra anover ank Trust Co.
estate of dward L. Norton 2
Centra Loan Investment Co
Centra Market Street Co.3
Centra Natona ank
Centra Natona ank, trustee
Centra Renderng Corporaton
Centra Trust Savngs ank
Century Crcut, Inc., of Deaware
Champon, Davd .
Champon, T. Perre
Chapman Dewey Land Co
e ecutor of
Chapman Dewey Lumber Co_
Chemca ank Trust Co. et a., e ecutors of the
estate of rank . Sa e 2
Chcago Northwestern Ry. Co.
Chds, Mary S
Chshom, rchbad M., estate of 7
70340
4639
5S632
6 415
6 415
414 2
49303
44321
44939
5017
20074
27095
/ 63963
I 71025
/ 71649
1 71650
7763
/ 44 3
66 91
655
565
57729
46056
46057
25421
25413
451
2565
24 37
425 7
2 701
20776
425
69345
/ 55569
63 1
5556
37403
51059
33466
37402
47130
50196
5105
79276
36343
4497
5255
35
: 9
29
31
31
29
31
25
24
30
31
32
2
30
39
30
24
24
25
25
40
39
2.5
29
25
24
29
31
27
27
25
25
37
22
35
37
cquescence reates ony to the ssue: Whether certan bonds sod one day and bonds purchased the
foowng day were substantay dentca securtes.
1 state ta decson.
cquescence reates to ssue regardng apportonment of ta es among affated corporatons.
cquescence reates to bass upon whch gan or oss upon redempton of stock shoud be computed.
Nonacquesccuec as to one ssue, pubshed n Interna Revenue uetn 1U3S-31, page 1, wthdrawn.
cquescence reates to foowng ssues: Matera and suppes ad|ustment amortzaton of bond pre-
mum assessment of ssocaton of Itaway ecutves raroad Y. M. C. .
state ta decson acquescence reates to the foowng ssue: penses Incurred by the estate for offce
rent, saary of secretary, and accountant s fees.
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#
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7
cquescences Contnued.
Ta payer.
Docket
oard of Ta ppeas.
No.
oume.
Page.
47704
26
292
60970
36
116
59797
29
190
31 69
23
663
6 77
39
329
34499
24
1235
59391
35
424
335 5
1
40 90
29
436
51197
4605
24
506
4943
36
20
41962
46297
20
772
40554
25
446
54 0
2
1311
75740
76 41

1066
69 43
33
I 36
1199
3 5
3 904
2
1127
61 2
27
506
92360
39
34
1239
3
106
75491
36
791
21974
36
124
53799
26
5
42743
25
456
42707
26
794
43495
50051
2
143
66959
36
239
703 4
33
19
6 034
31
515
6 034
31
515
60434
32
920
7 279
35
444
1 591
29106
25
195
Chrstopher, Rache S.1
Church rghton Corporaton
Cty ank armers Trust Co., e ecutor
Cty ank armers Trust Co. et a., e ecutors ..
Cark et u ., orace S
Cark et a., ames, e ecutors
Caude Neon Lghts, Inc.1
Ceand state Co., Inc., enry .
Cenen W. L .
Ceveand Raway Co
Ceveand Trndad Pavng Co.4
Cnchfed Securtes Co
Cnton Cotton Ms, Inc
Cother et a., Morrs L
Coast Countes Gas ectrc Co
Coats, Inc. (R. I.), . P.s
Cogate, Mary
Coatera qutes Trust
Coyer, Langey
Conon, atharene run
Coorado Southern Rv. Co.
Coorado Utah Coa Co
Coumban Carbon Co.7
Coumbus rck Te Co.
Commerca Investment Trust Corporaton
Commerca Natona ank 1
Communty Mausoeum Co.10
Cone, mma S., e ecutr 1
Cone, Irvng ., estate of 1
Connay, Mary W. T -
Connectcut ectrc Servce Co
Connectcut Rver Power Co
state ta decson.
cquescence reates to ssues (1) e change by pettoner of property soey for stock In tbe Caude Neon
Dspays, Inc., ott Caude Neon Lghts, Inc., pha Caude Neon Corporaton, New ersey Caude
Neon Corporaton, and Caude Neon of Connectcut, Inc. (2) grants of e cusve rghts to use of patents
to certan con oratons n e change for stock (3) n respect to prevous ssue the bass for gan or oss.
cquescence does not reate to bass of property devsed sub|ect to a fe estate.
Nonacqucsccnce notce pubshed n Cumuatve uetn -2 (1931), revoked.
cquescence reates to contrbutons ssue and ssue respectng deducton of amount pad to treasurer
of Rhode Isand on account of ncreasng capta stock.
cquescence reates to foowng ssues: Whether amount receved In fna settement wth Drector
Genera of Raroads n 1921, representng renta nterest on competed addtons and betterments and
addtona compensaton for use of propertes, consttutes ta abe ncome for 1921 or durng the perod of
edera contro whether pettoner Is entted to a deducton n 1920 and 1921 for amortzaton of comms-
sons pad n connecton wth the sae of ts bonds pror to March 1, 1913 whether amounts of back ma
y receved by pettoner and affated companes durng 1920, n consequence of an order made by the
terstate Commerce Commsson, consttute ta abe ncome for that year.
Nonacqucsccnce pubshed n Interna Revenue uetn I-14 (1932), revoked.
cquescence reates to Incuson n consodated Invested capta of capta stock Issued for a te and
brck manufacturng pant, etc.
cquescence reates to the foowng ssues: Deducton of e penses In connecton wth ssuance of pre-
ferred stock deducton for dvdends credted to accounts of empoyees for purchase of stock.
W cquescence reates to Issue whether a sae of a cemetery crypt s a sae of reaty enttng the ta payer
to the nstament ass when tota amounts receved n basc year do not e ceed 40 per cent of gross prce.
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2
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1
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1
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2
2

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2
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3
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7
6
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3
1
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cqt|escences Contnued.
Ta payer.
Dorkot
No.
oard of Ta ppeas.
oume.
Page-
Conney, ames .1.
Conney, L. .1
Councy, Mary .1
Conner, rche R., admnstrator of the estate of
Lucy aduovch
Conservatve Gas Co
Consodated odngs Corporaton, manager, the
North mercan Co. Common Stock Tradng
ccount No. 6
Consodated odngs Corporaton, manager, the
ccount No. 3/3-2 -
Consodated odngs Corporaton, manager,
ccount No. 3-2
Consodated odngs Corporaton, manager, Pre-
ferred Stock Tradng ccount
Contnenta Lega and Protectve ssocaton
Contnenta O Co.
Contractors Constructon Suppy Co.
Cook Drng Co.
Cook, zabeth .5
Cook, M. M., estate of
Cook, P. W
Cooke, eatrce
Coombs, zabeth M
Coombs, . oward
Cooper, ohn I
Corbett, ott R
Cornng Trust Co., trustee
Cornwe, . L
Corrgan, ames ., estate of
Cosmopotan ond Mortgage Co. -
Costeo, oseph
Cotton, G. -
Couchman, Wam ennng
Coursey, Sarah . W.
Co , ttUa..
Co , Carre G
Co , dwn . . -
440 1
45 33
46267
51967
60566
6694
440 3
45 34
440 2
064
72391
25 3
25 5
5027
25 4
44 59
2 427
41963
2231
3 579
53044
54740
6022
26751
4476
44769
32610
40115
40926
29252
30303
0345
44617
22640
59655
67729
70957
71755
6969
6969
9292
30
331
74
74
1 cquescence reates to queston whether the vaue of rghts to subscrbe to certan bonds consttutes
ncome.
cquescence n oard s decson wth respect to computaton of ncome for perod anuary 1 to Marco
15, 1920.
Nonacquescence notce pubshed n Cumuatve uetn -2 (1931), revoked.
Nonacquescence pubshed n Interna Revenue uetn pace I, wthdrawn.
a cquescence reates to ssues regardng aocaton of tota cost between common and preferred stock
purchased,
cquescence reates to ssue nvovng method of accountng used by t3 paycr.
1 cquescence reates to that part of decson hodng that Water . ettnan s not be as a transferee:
and to mtaton Issue. .
cquescence reates to the foowne ssue- Incuson n pettoner s ta abe net ncome or 1930, the tota
proft receved from sae of rea estate by the trust.
Gft ta decson.
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9
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Crane, e ander ., estate of 1
Crane et a., e ander M., e ecutor 1
Crawford et a., nne Laure, e ecutors of the
estate of George W. Crawford
Crawford, George W., estate of
Crews, Chares.
Crews, Chares W. .
Crews, verett
Crews, verett, . ..
Crews, Raph W.
Crews, Robert .
Croker, ua
Cromwe et a., Wam Neson, e ecutors .
Cronan, Mr. and Mrs. rancs M
Crouse, George N
Crowey, oseph .1., estate of __
Crownnshed Shpbudng Co.
Cuver, Wmer T
Cunard Coa Co. _
Curts, Laura M_.
Dah, ndrew ., estate of...
Dah et a., ua, e ecutors...
Daey, ugene S., e ecutor
Day, Margaret P --
Dana, dwn L
Dana, ra M
Dana, Myer
Dancer, dth M., estate of .
Daro Tradng ccount
Davdson, dth L
Davdson, ames
7171
7171
072
072
66706
66766
66767
66767
66701
66702
41121
42619
7 1 5
f 43446
51419
35472
1 9 7
37574
26 74
26 75
2 792
56314
44 45
44 45
26645
65213
67669
67670
5024
70456
1519
72905
/ 61741
I 72904
/ 10299
32950
20703
72667
30
30
39
39
30
31
33
37

37
30
31
33
s37
30
31
33
37
27
24
33
26
25
24
24
26
2
21
24
25
32
36
36
30
30
34
34
34
10
20
24
36
Davs, C. R.
Davs, ohn
Davs Reguator Co
Nonaoquescenee pubshed n Cumuatve uetn III-1 (1934), wthdrawn.
cquescence reates to queston whether deducton for depeton n connecton wth deveopment
e penses was propery before the oard under mandates of the court.
state ta decson nonaequescence pubshed n Cumuatve uetn -2 (1931), revoked.
state ta decson.
1 cquescence reates to deductons for addtona royates and offcers saares and drectors fees.
Nonaequescence (reatng to communty property agreement) pubshed n Cumuatve uetn
-2(1936), paees27 (Docket 71 11), 29 (Dockets 91-17, 10202, 10755). 31 (Dockets 10299.32950 34 (Dockets
4017, 53 9, 62029, 65577. 6 324), 35 (Docket 109 0), 36 (Docket 37369), 3 (Docket 169S5), 39 (Docket 7435),
41 (Docket9290), 45 (Dockets45065,3725,12231), 46 (Dockets61669,6S335), and50 (Docket 7359), wthdrawn.
G
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10
Ta payer.
Day, Chares, estate of
Deeds, Chares W.
De orest, ate R.
Deaware udson Co. .
Deone, Chares
de Me, Cec .4.
Dennett, Car P. -
Dennett, Mare G.
Denns, rank ., estate of
Denns, Merry M., e ecutr
Denny, Regnad
Derby Reatv Corporaton . -
Detrot Trust Co. ct a., e ecutors
Dckey, Water S., estate of.
Dcknson, bert G._
Descher et u ., Samue . _
Descher et u ., ug st P. _
Don, erbert L
Drksen, nna L., e ecutr
Drksen, Theodore ., estate of
Dttmar, mmy
DockweUer et a., Isdore ., e ecutors and trustees .
Doernbecher Manufacturng Co.
Dohme, fred R. L
Doese Shepherd Co., Syndcate No. 3.
Dombrowsk, Leesa
Dome Co
Domestc Management ureau, Inc..
Domnon Natona ank
Donney, Catherne, estate of
Donney et a., Garrett ., e ecutors.
Dorc partment Co
Dougas Co., ohn
Downs, Phcbe Warren Mc ean
Drake, rancs
Docket
oard of Ta ppess
No.
oume.
Page.
75103
34
11
f 1663
73 3
37
293
372 4
27
373
| 50553
50629
26
520
77 65
34
1139
f 52995
1 61291
) 65122
31
1161
I 71951
71 5
30
49
72023
30
49
50263
26
1120
50263
26
1120
49516
33
73S
1213
35
335
35472
25
340
51643
32
12S3
f 35015
1 43176
23
1211
5715
36
732
5716
36
732
1 5 025
I 592 0
32
1254
17717
24
1152
17717
24
1152
63931
32
349
50 2
30
1136
( 34 53
43527
46421
1 50607
30
973
6362
I 71534
6 159
31
671
41136
30
1171
7 617
35
102.
41 7
26
967
f 77693
75 6
3
640
52165
26
421
56443
31
577
56443
31
577
44655
32
11 7
3 726
23
1307
679
36
1129
46 04
30
475
1 state ta decson acquescence reates to deducton of attorneys fees n connecton wth the admn-
straton of the estate whch has been estmated and contracted for but not yet pad.
Gft ta decson.
Nonacquescencc pubshed n Cumuatve uetn I-2 (1932), wthdrawn.
Nonacquescencc pubshed n Cumuatve uetn -2 (193G), page 31, wthdrawn acquescence
reates to communty property agreement.
cquescence reates to deductbty of osses sustaned by pettoners upon aeged saes of stock to
each other durng the ta year.
state ta decson.
I cquescence reates to ssue nvovng deducton of operatng e penses of aeropane and deprecaton
thereon and whether amounts e pended for costumes, make-up, and wgs are deductbe as ordnary and
necessary e penses.
Nonacquescencc pubshed In Cumuatve uetn 1937-1, page 33, wthdrawn.
cquescence reates to ssue nvovng gan from nventons and patents e changed for cash and stock.
G
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11
cquescence3 Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Dravo, rancs R., estate of1
Dravo, Raph M., estate of1
Dravo et a., anne M., e ecutors of the estate of
rancs R. Dravo 11
Dravo et a.. ane M., e ecutors of the estate of
Raph M. Dravo11
Dressehuys, Lorrane Manve Goud
Dresser Manufacturng Co
Drc e Packng Co - --
Droge, Chrstan
Duff, Robert C.4
ke, nger
ec, nthony N -
Ice Trust, Dors, estabshed by ames . Duke..
Duncan, T. P
Duncan, Mrs. T. P
Dunham, Water
Dunne, ney Peter
du Pont, Lammot
du Pont, Perre S.
Durkhemer Investment Co
.
age Pass Pedras Negras rdge Co.
ageton, Mark D
asterwood, r., W.
astcrwood, r., Mrs. W. .
aton, Cyrus S.
dwards, . .
dwards Drng Co.7
ggerman Investment Co
nsten, Robert
sendrath, dwn W
sendrath et a., dwn W.,
sendrath, Maron
sendrath et a., Rose L., trustees
sendrath, Wam
sendrath, Wam N., estate of..
drdge, ce .
drdge, . S.
ectrc Storage attery Co
even ssocates, Inc
e ecutors..
094
9366
094
9366
094
9366
094
9366
7
4795
294
20775
79632
37552
79942
79943
75945
65921
65924
6630
54444
79749
26996
3290
42460
79553
401 1
63416
401 2
63417
6912
9944
75931
79013
754 9
36726
36724
36727
3672
36725
36724
64779
6477
63010
60971
49302
40
40
40
40
40
40
24
35
23
3
3
40
31
31
27
29
36
1
36
23
35
2
2
37
39
35
36
36
2
2
2
2
2
2
30
30
39
36
31
gn Compress Co.
I |rstc t decson
cquescence reates ony to the Issue Invovng the deductbty from gross estate of toe stpuated
vaue of tho remander Interest nurng to chartabe organzatons, of a certan trust.
Oft ta decson.
cquescence reates to ssuo 1 of decson.
Nonacqucsccncc pubshed n Cumuatve uetn I -2 (1930), revoked.
cqucsccnco reates to the foowng, ssues: (a) Deductbty of oss on transfer of securtes and cash to
Industra Shares, Inc., for capta stock and assumpton of notes of pettoner by sad corporaton. (6)
W hether the market vaue of 12,500 shares ostock of the Centra oy Stoe Corporaton consttuted ta abe
net ncome when receved durng 1929.
Nonacquesconco pubshed In Cumuatve uetn 1037-1, page 34, wthdrawn.
1 cquescence reates to ssue whether dvdends decared n 1929 consttuted ncome to the pettoners
In 1929 or 1930.
G
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12
Ta| payer.
oard of Ta .
oume.
ott-Grante Lnen Corporaton
more Mng Co
mmons, Isabe ey, estate of Thornton mmons,
admnstrator
mmons, Thornton
nameed Metas Co
nns Ice Co.
psten, acob
rb et a ., Ray L., e ecutors 1
vans, . T
vans et a., nson, trustees
vans, Gordon M
vans Products Co
vergreen Cemetery ssocaton.
.
acker, ohn D
ason, . M.
atoute, Moses W
ack, e ander D
as Cty Ice everage Co.
amc Cannng Co
armers ducatona and Cooperatve State Unon
of Nebraska
armers Lfe Insurance Co.
armers Loan Trust Co., trustee
armers Unon State change
awsctt, Chares
awsett, Chares .4 -------
edera Street Peasant aey Passenger Ry. Co.
ehrman, Wam ., estate of 4
erguson, arod G
dety Natona ank Trust Co. et a
dety Savngs and Loan ssocaton.
dety Trust Co., coe ecutor of estate of Chares
. Goden
dety Unon Trust Co., e ecutor
fth venue ank of New York, e ecutor
ncke, Regnad 7
rst Ctzens ank Trust Co
rst Natona ank of oston, admnstrator
4 212
4676
52972
212
213
212
213
19011
22021
22022
26259
421 4
70099
29260
64397
62664
261
43044
30726
9253
1324
23 7
20452
67636
20774
10596
1S105
27194
3174
43317
29465
1 105
64474
72057
2975
77 3
70463
5644
564
14 62
31 01
39406
45215
91452
92021
69193
69166
5679
71599
/ 3643
465 3
26
27
39
39
25
24
36
29
30
29
3
29
25
39
34
3
26
27
24
30
27
26
30
31
30
24
3
34
37
23
39
33
32
39
32
1 cquescence reates to market vaue of o and cas eases on March 1,1913.
Nonacquesccnce pubshed n Cumuatve uetn -2 (1935), page 33. wthdrawn.
1 cquk scenee reates to ssue n connecton wth opton payment receved for purchase of and.
Nonacquesccnce pubshed n Cumuatve u etm -2 (1934) wthdrawn.
Nonacqueseonee notce pubshed In Interna Revenue uetn 193 -36, 1, wthdrawn.
state ta decson.
Pror nonacquesccnce pubshed In Interna Revenue uetn 1939-24, page 1, wthdrawn.
G
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)

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2
0
1
3
-
0
1
-
2
2

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4
:
5

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5
0
7
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6
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13
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Pago.
3
1244
26
370
30
632
39
2
35
76
32
2
36
534
29
1299
34
3 4
36
773
37
10 5
25
676
37
473
39
71
25
599
33
1229
33
1229
33
1229
33
1229
30
9
27
63
25
154
32
745
26
132
25
414
25
414
30
451
32
613
27
115
37
471
26
914
32
266
30
37
190
32
222
rst Natona ank of raddock
rst Natona ank of ey West
rst Natona ank n Mobe
rst Natona ank of Portand, e ecutor of estate
of L. . Stearns
rst Natona ank of Skowhegan, Mane
sher, Chares D., estate of
sher, Mram, estate of1
tch, orence
emng, Lamar L.
emng, Margaret . .
nn et a.- Cara Louse
orence Manufacturng Co
ower ct a., enry C. trustees.
ye, Louse . estate of 1
ok, .
ord, yn .
ord, Lna.
ord, Robert
ord, Sara C
ordyce et a., Wam C, trustee.
orest Products Ctcmca Co
orres, Lord
orrester, W.
oster, L. .
oster, N. C, estate of
oster et a., Ward, e ecutor
o , ontane 7
rancke, Chares
rank, m
rankn, erbert
rankn Teegraph Co
rankn Tte Trust Co.1.
rschkorn Deveopment Co..
rost, oseph
uhage, fred .
451 6
63732
922
77165
6 33
74 26
51670
7 362
7 416
44 3-
4491
153 3
26079
5649
4321
3101
6 707
7073
6 707
70739
6 704
77740
6 705
5 647
46621
40229
43973
73591
430 6
329. 4
329 4
710 4
5643
50224
7 673
29695
51947
60107
67 05
30496
35170
42452
73712
61754
state ta decson.
1 cquescence reates to Issue nvovng Incuson n Income nterest on the decedent s share of partner-
shp capta and ncuson n ncome the decedent s share of certan commssons earned by the partnershp.
cquescence reates to vauaton date for cost purposes of securtes acqured by pettoner undor w
of her father.
1 cquescence reates to a Issues e cept whether pettoner-benefcares are ta abe on dstrbutons
made on anuary 4, 1933.
cquescence reates to a Issues e cept that nvovng tho appcaton of secton 102(g) of the Revenue
ct of 1926 to a group fe pocy Issued to the company of whch the decedent was an empoyee.
cuesccnco reates to Issue regardng fng of separate return for 1925.
cquescence reates to deducton for deprecaton on premses and ncuson n year 1930 n pettoner
o s ncome, 7,400 representng renta vaue of premses occuped by hm.
9 cquescence reates to ssue nvovng deducton of commssons pad on sae of mortgage notes.
1 cquescence reates to ssue whether ta payer s entted to toe statutory persona e empton as the
bead of a famy.
G
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1
3
-
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1
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2
2

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14
TapRyer.
Docket
N o.
oard of T 1
oume.
G.
Gaffney, ames ., estate of1
Gaery et a., Dane ., admnstrators of the estate
of ohn . McCarthy 1
Gamb, .
Gambe, Cec L, e ecutor1
Gambe, ames N., estate of
Gambe, Mary ., estate of1
Gambe Stockton Co.2..- -
Gardner, Chares
Garron et a., Isabe . ., e ecutors1
Gassner, Lous
Gaston, Wam
Gay, D.
Gay, . C
Geeseman, Debert
Genera Industres Corporaton
Genera Outdoor dvertsng Co., Inc.
George, erome R
George Machnery Co., R.
Gessner, erman
Gbbs, G. Wdy
Gbbs udson, Inc
Gespe, .
Gette Rubber Co.-
Gmbe, Dane
Gnsberg, bert
Gnsberg Nathan
Grard Trust Co., trustee.
Gven, T. ., estate of
Gadstone Co., Ltd
Gancy, Inc., . R
Gobe Constructon Co.
Godwn, rthur M
God Stock Teegraph Co
Godberg, arry S.4
Goden, Chares ., estate of
Goden, Dea ., e ecutr of the estate of zabeth
. Goden
Goden, dward
3151
91196
47902
60 40
55595
60 40
42707
3 575
47705
4017
52163
62309
5 7 7
5 7
1736
79069
66511
45240
6121
77506
31329
746 3
9442
43052
50073
4542
5476
2762
27629
75740
76 41
54556
79155
62062
4343
51694
53310
6156
70407
29470
53 9
91452
92621
91451
27625
36
610
3
1211
26
995
33
94
32
92
33
94
26
794
25
1351
26
292
4
1071
34
57
31
5 0
31
5 0
3
25
35
615
32
1011
27
765
26
594
32
125
2
1
35
205
3
673
31
4 3
36
539
24
1
24
1
34
1066
29
1161
35
764
31
236
25
146
34
4 5
26
914
4
1073
39
676
39
676
24
1
1 state ta decson.
cquescence reates to Incuson In consodated Invested capta of capta stock Issued for a te and
brck manufacturng pant, etc.
cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchased.
Nonacqueseonce (reatng to communty property agreement) pubshed In Cumuatve uetn
-3 (1936), pages 27 (Docket 71 11). 29 (Dockets 9447, 10202, 10755), 31 (Dockets 10299, 32050), 34 (Dockets
4017, 53 9, 62029. 65577, 6 324). 35 (Docket 109 0), 36 (Docket 37369), 3 (Docket 169 5), 39 (Docket 7435),
41 (Docket 9290), 45 (Dockets 45066.3725,12231), 46 (Dockets 61669.6 335), and 50 (Docket 7359), wthdrawn.
cquescence reates to ssue whether pettoner reazed gan on transfer of certan of ts assets to Centra
Outdoor dvertsng Co. for stock of that company.
N on acquescence pubshed n Cumuatve uetn I -2 (1935), page 31, wthdrawn.
G
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1
3
-
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15
c tr sc NC S Contnued.
Ta payer.
oard of Ta ppeas.
No.
oume.
Page.
91451
39
676
30302
24
915
749
36
779
59722
29
04
574 3
29
275
22332
27
377
22333
27
377
2614
39
237
2014
39
237
10 0
36
202
3953
30
1290
4252
2
41
91193
40
6
46019
27
632
7570
37
623
7571
37
623
230 5
22
1124
2574
36
1233
51794
30
102
62029
1
65577
29
760
6 324
2177
35
239
672
37
44
56540
64004
33
512
71114
132
36
2
7639
37
25
343
37
734
53647
24
719
437 6
46373
26
1017
634 7
1
SI IS5
34
1209
14 4
34
1209
47376
27
53
3 577
25
1351
63354
30
52
4249
25
1292
2624
37
317
43074
25
1292
66345
36
1109
6 62
33
537
75 5
3
727
77324
36
14
55352
27
754
Goden, zabeth ., estate of
Godman, Ma we -
Godrnp, ohn arnest
Godsmth, Ma
Gordon, fred W
Gordon, zze 1
Gordon, Ma L.1
Gordon, Nathan ., estate of -
Gordon et a., Sarah ., e ecutors of estate of Na-
than . Gordon - -
Gordon, Wam S. -
Gore ros., Inc.
Gotteb Reaty Co.
Goud, r., bert
Graeper, W.
Graham, George D -
Graham, Neva
Grand Rver Grave Co
Grant, C. T., estate of.
Grant, arry ohnston
Grant, een . .
Grant, osephne C, Trust
Graunan s Greater oywood Theatre, Inc..
Great Southern Lfe Insurance Co
Green, Cavn C
Green, rank O., estate of .
Green, Robert D.
Green, W. S.
Greenwood, dna M
Greenwood, . P
Grey u Corporaton
GrfTs, Stanton ..
Grffths, va Lavno
Grffths, George
Grffths, ohn
Grppn, Mnne T
Grswod Co
Groves, George S
Groves, Waace
Guaranty udng Loan Co
and to mtaton ssue.
1 cquescence n ssue nvovng oss on account of bad debt owng aw frm.
Nonacquesccncc (reatng to communty property agreement) pubshed In Cumuatve uetn
-2 (1036), pages 27 (Docket 71 11). 20 (Dockets 9447,10202, 10755), 31 (Dockets 10299, 329.r0), 34 (Dockets
4017, 53 9, 62029. 66677, 6 324), 35 (Dockot 109 0), 3 (Docket 37309), 3 (Docket 169 5), 39 (Docket 7435),
4 (Docket 9290), 45 (Dockets 450 5,3725,12231), 46 (Dockets 61669,6 335), and 60 (Docket 7359), wthdrawn.
cquescence n ssue nvovng deductbty of nterest pad on matured coupons surrendered.
1 stato ta decson.
1 cquescence reates to transactons 1, 2, 3, and 4.
cquescence reates to Issues regardng aocaton of tota cost between common and preferred stocks
purchased.
cquescence reates to fraud Issue.
G
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16
cqoescenoes Contnued.
Ta payer.
Docket
No.
oard of Ta pp a .
oume.
Gudeon, Water T
Guggenhem, Dane, estate of 1
Guggenhem, orence, e ecutr of estate of Dane
Guggenhem 1
Guf Coast Irrgaton Co. .
Guett, C.
Guett, W.
Gummey, rank .
Gurnee, ugustus Coe, estate of _
Gutmann, Dane N
aberand, Pau.
afner, fred...
ahn, arry W., estate of
aev-OIa Coa Co
a, esse G...
a, dward T
aadav, Sarah P
aowe 2d, Rchard P
amburg, r., Sam
ammonds, Mame S
andy, rankn Mer.
anna, R. ., estate of
anna, rgna W., e ecutr
anscom, dward ., estate of 1
anscom et a., Meve, e ecutors 1
arbeson Lumber Co., W.
arkness, dward S.
arness, Mary S
arnschfeger, enrv, estate of 1
arnschfeger et a., Mare ., e ecutors
arper, . T
arrah, Mare
arrah, Wam
arrs, en
arrson, Inc., . M
art, ohn
artford- mpre Co.
54739
60229
77675
77675
33694
400 1
41343
52517
5251
61056
42619
5212
32
39
39
24
31
31
26
24
3
292S9
25
1370
4 3S9
57132

33
90310
3
3
30962
24
95
66 25
36
1109
111
36
39
26754
25
513
4777
39
50
30304
24
915
7 210
3
4
66 10
)
67671
30
1271
74406
1
6271
31
1126
6271
31
1126
44992
24
173
44992
24
173
33076
51012
1
542
65169
71310

1100
71311
31
1100
69636
31
224
69636
31
224
627 4
31
1126
25269
27
1305
21643
27
1305
109 0
10
1374
50594
30
455
52795
60115
27
52
2995
41736
26
134
53600
7 769
40
491
637 9
29
163
nartze, mer W
astngs, Cve, estate of
1 state ta decson.
cquescence reates to a ssues e cept affaton Issue.
onacqucscencc pubshed n Cumuatve uetn II-1 (1933), wthdrawn.
state ta decson nonacquescence pubshed n Cumuatve uetn -2 (1931), revoted.
Nonacqcsceneo (reatng to communty property agreement) pubshed n Cumuatve uetn -2
(193C , paces 27 (Docket 71 11), 29 (Dockets 9447, 10202, 10755), 31 (Dockets 10299, 32950), 34 (Dockets 4017.
53 . 62029,55577,6 324).35 (Docket 109 0), 36 (Docket mm, 3 (Docket 169S5), 39 (Docket 7435), 41 (Docket
0290). 15 (Duckets 45065, 3725, 12231), 46 (Dockets 61609, ( 335), and 50 (Docket 7359). wthdrawn.
Nonacqueseunce pubshed n Cumuatve uetn II-1 (1933), page 17, wthdrawn.
G
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1
3
-
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1
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2

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3
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1
5
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3
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2
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#
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e
17
cqoescencks Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
astngs, .
astngs, rederck .
atfed, . T
avana ectrc Raway, Lght Power Co.
avard, Chares
awk, enry C, estate of_
awk, Ida W., e ecutr ...
awke, . R...
awkns, . C
awkns, Mavme 1
ay, W.
ayes, ohn ., estate of.
ayman Co.,
ays et a., ugene ., estate of
azard, Laura Peton, estate of
azard et a., Wam Tden Peton, e ecutors of
estate of Laura Peton azard
azewood, N.
eadoy, a Prce and Geneveve M
eca Mnng Co
ess, Chares
ock, dwn
emph, Cfford
enke Trust, Mrs. Catherne. ..
enke, enry, estate of
ennngsen, Water
erder, George, estate of4
erder, Mary
erff Dttmar Land Co
ervey, W. R
esbacher, da L
ess, Nathane
ettman, Water .1
euser, Mare da
euser, Php I., estate of
ewtt, rskne
att, nna ee
att, P. -----
berna Natona ank n New Oreans, The,
e ecutor of estate of Dr. Chares efferson Mer
ckman, anne Snyder -
63790
3 64
727
40304
42570
47339
32 41
60690
60690
76507
7650
1323
1325
37499
7665
16552
7 71
7942
0 59
96 4
96 5
96 4
96 5
61334
174
69916
74 13
1179
1997
56161
3 573
63321
63321
5666
62 45
4051
4052
60729
6 21
46 06
7 424
33279
22341
632
632
57032
63141
2569
256
94006
16253
29
27
32
34
25
29
29
35
34
34
25
35
25
34
40
40
29
37
35
36
32
25
33
33
30
36
36
32
25
39
24
27
3
3
30
35
35
40
24
1 Nonaequcscence pubshed n Cumuatve uetn -2 (1930), page 35, wthdrawn.
1 state ta decson.
purchased.
cquescence reates to ssue nvovng accrua of Interest.
cquescence reates to that part of decson hodng that Water . ettman s not abe as a transferee,
and to mtaton
G
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)

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1
3
-
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1
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2

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4
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13
Ta payer.
oard of Ta ppeas.
No.
oume.
Page.
37369
27
07
62676
31
1126
62676
31
1126
4172
I
42769
26
641
450(1.3
633
3
26
7399
3
1061
477 1
26
1351
27352
26
241
27351
26
241
33374
24
22
33375
24
22
73092
36
972
79 62
35
1 3
64127
29
1272
542 2
27
621
29461
26
1359
42771
52661
33
774
51303
2
1091
53797
29
605
3745
3
3 7
93571
39
244
93572
39
244
9033
39
922
29445
26
1359
29444
26
1359
29446
26
1359
29465
26
1359
12052
22
51
13104
2200
22
51
22009
22
51
63321
33
73
22007
22
51
52163
62309

67
63 7
67569
30
619
63 37
30
619
63 7
30
619
67569
30
619
54774
39
1075
5220
36
654
90 01
39
0
90 02
39
0
67335
32
124S
66325
35
1042
26
41 /
ckman, oward C.1
man, . D., estate of .
man et a., udson McCntock, admnstrators..
mehoch ros. Co.
ndes, oseph ., estate of
nes, Wam .
res Co., Chares
obbs, enry
obbs, Teck. -
offcr, nta Owens
offer, T.
offman, acob ., estate of
oander, doph, estate of 1
oday, ohn
ongsworth, .
oster, George ue
oy Deveopment Co
omby Corporaton
omes, George W
oover, Dane P., estate of
orme, George .1
orme, ay C. .
ort, Water M -
oughton, anson
oughton, r., mory, estate of
oughton, rthur
oughton, Chares ., estate of
ouston ros.4
ouston, George T.4
ouston, orace .4
ouston Land Trust Co., trustee.
ouston, Php D.4.
oward et a., ohn -
ubbard, dward, estate of
ubbard, Mdred M
ubbard, Mdred M., formery e ecutr .
ubbard, Mdred M., transferee
udson, enry
udson-Duncan Co
uffman, Laura
uffman, M. D
ughes, . .
unt, orence W
unter, C. W., e ecutor - -
unter, George ., estate of
1 Nonscquescence (reatng to communty property agreement) pubshed In Cumuatve uetn -
(1030), pages 27 (Docket 71 11), 29 (Dockets 6447. 10202, 10756), 31 (Dockets 10299. 32950), 34 (Dockets 4017
63 9.62029,65577,6 324). 36 (Docket 109 0). 36 (Docket 37369). 3 (Docket 169 5). 39 (Docket 7435), 41 (Docket
290), 45 (Dockets 45065, 3725,12231), 46 (Dockets 61669, 6 336), and 50 (Docket 7359), wthdrawn.
1 state ta decson.
cquescence reates ony to the ssue Invovng the ta abty of the ncome of severa trusts whch s
payabe to the grantor s wfe for fe.
cquescence reates ony to deducton for busness epenses n 1920 and to number of feet of tmber cut
durng 1919.
G
e
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U
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1
3
-
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1
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2

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3
9
0
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5
0
7
6
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3
1
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9
2
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19
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
unter, r., Thomas .1
untngton, enry ., estate of.
untngton-Redondo Co
untngton, Samue L.
unttng, enrv R
ur)t, . M_ _
urt et a., Mrs. . ., e ecutors.
urt, oe, estate of
utchns, Chares P.
utchng, Lena C.4
uyer s, Inc
yman, rthur U. _
Inos Centra R. R. Co.
Inos Power Lght Corporaton.
Inos Rura Credt ssocaton ..
Income Syndcate, Inc
Independent Ice Coa Co
Indana Lamp Corporaton
Industra Loan Investment Co.7.
Ingas, Chares C, estate of 3
Ink, Mary
5 490
245429
5 47552
2366
7 916
75304
717
2 099
2 099
49070
49069
Inand nance Co. - -
Insu, Margaret
Insu, Samue
Insu, r., Samue
Internatona Cgar Machnery Co
Internatona Mortgage Investment Corporaton.
Internatona Ocean Teegraph Co
Internatona Shoe Co.
Interstate Reaty Co.
29154
39 41
79557
62023
62991
56299
596 7
505
321
67639
52761
20664
57 35
75731
29916
396 6
6 002
6 504
0 003
6 503
6 001
6 505
71331
762 5
7 741
295 5
2264
2265
3607
7162
46272
509 1
7 4 9
79044
33
2
36
36
35
32

30
30
34
34
24
30
34
33
3
37
27
2
17
2
35
23
32
32
32
36
6
26
3
25
36
37
Irvng Trust Co
Irwn, Roya W
1 cquescence In ssue as to whether pettoner receved a ta abe dstrbuton from Marsha ed Co.
on anuary 5, 1927, n the amount ut 1,11 .51.
cquescence reates to ssue regardng oss from operaton of a farm n 1925 and 1926 and ssue regardng
Increasng defcency for 1925 by amount of nterest accrued on bonds e changed for art ob|ects.
state ta decson.
cquescence wth respect to hodng that pettoner was not a transferee.
cquescence reates to ssue whether pettoner s entted to deduct osses from sae of securtes whch
were purchased by pettoner s wfe and oss from bad debt owng to aw rm o( whch pettoner was a
member.
Nonacqucscenee pubshed In Cumuatve uetn II-1 (192 ), wthdrawn.
Nonacquesccnco pubshed n Cumuatve uetn I -2 (1930), wthdrawn.
Nonacquescence pubshed n Cumuatve uetn -2 (1931), wthdrawn.
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20
Ta payer.
Isenberg Trust, een L__
Isenbcrg Trust, Pau Otto.
Itcn scut Co
Iverson, I. C
Iverson, Ruphane
ackson, G. M
ames, rthur Curtss
ames, Wam L
ameson ssocates, Inc
ens, Laura
ohnson, Chrstopher W
ohnson, r., et a., . Carter
ohnson, orence D., estate of
ohnson, orence Lndsay, estate oL
ohnson, Wam Perce, estate of
ones, Chester ddson 1
ones, Durham
ones, R. D
ones, Inc., T. R
ones et u ., Wam
ordah Co., Inc
.
ahn, arry
ahn, oseph
ammerdner,
ansas Cty Leasehod 4 Improvement Co.s.
ansas Cty Memphs arms Co
ansas Cty Southern Raway Co. and affated
companes 3
arger, Marks, estate of.
arger et u ., Manasse.
asch, d
asch, Theodora
aua Termna, Ltd.
e, rank
e, Mrs. rank
e, oe
e, We May
Docket
No.
71373
71374
16429
20 99
4 3
4 37
990
1S395
7027
75717
75492
75493
92 7
75909
57 90
53634
540 3
50206
477
69 5
77 71
4779
595 1
2 61
2 60
/ 41643
1 46555
3571
51060
2266
35527
3552
35529
35530
35531
70659
6633
70661
7175
6632
6634
4 293
4 293
7664
69677
6967
696 1
696 5
oard of Ta ppeas.
oume.
35
35
25
29
29
30
31
30
37
3f
36
40
33
35
35
31
39
29
3.
31)
35
3
3
25
17
2.3
22
3
3S
25
25
36
31
31
31
31
1 cquescence as to ssue whether pettoner shoud be aowed to fe hs return on communty property
bass.
cquescence rotates to Mnrch 1. 1013. vaue for purposes of cacuatng ran or oss upon sae of and at
ersaes. Mo.: whether the nvested capta of the Smcoe Reaty Co. shoud be ncreased for 191 and
the March 1, 1913, vaue for amortsaton purposes of a easehod beongng to ansas Cty Leasehod
Improvement Co.
cquescence reates to the foowng ssues: Deducton of contrbutons to Y. M. C. ., Prests of Paace,
nd ssocaton of Raway ecutves: and amortsaton of commssons and e penses ncurred n sae
of bonds.
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21
cquebcences Contnued.
Ta payer.
Docket
No.
oard or Ta ppeas.
oume.
eey, . orence
eey, erbert W
eey, ohn P
eey, oshua C
ey, Ore R. and Grace .-
ennedy, zabeth arhart.
9 7
9 77
ent, verett
esser, . M
bee, O. .
ng County Insurance ssocaton
ng, enretta M., estate of
ngsbury, . R
nnear, Roy
nney Co., Inc., G. R
rby, Lea S. - --
rchner, uus C
rk et a., zabeth S., e ecutrces and e ecutor
of the estate of C. enderson Suppee
rtand, Sdney Wamson
eberg et a., Robert ., e ecutors
eeden, Mark
ecman, rthur S
nght, . D
no , Seymour .
oher, G. . ., estate of
oher, ohn _ -
oher, Mary
ohsaat, dward C -
oppe, Morrs D
raumer, Samue
ru, rancs 5
9 76
79959
1 0
39576
425 9
46064
52640
24 2
016
52632
563 2
0103
31397
73753
2542
9363
000
601
52632
730
6 41
56 65
2450
7620
79607
79606
91723
92169
uhn, Ida L
unau et a., Oscar . C, trustees
L.
Lard, Roy
Lard, Wam Wnder, estate of
Lake Chares Nava Stores
Lambert, zabeth G., e ecutr of estate of W-
ton . Lambert
Lambert, Wton ., estate of
37 22
169 5
32609
40267
64 15
79760
51654
34630
940
/ 346:
369
92119
92119
3
3
26
3
36
3
26
31
27
37
31
31
36
35
27
39
39
31
3
35
2
36
37
37
37
40
35
25
10
24
27
35
3
25
40
40
and to mtaton ssue.
cquescence does not reate to Issue nvovng bass for computng ta abe gan n 1927, 192 , and 193
from the sae of bonds of the rby Lumber Co.
Gft ta decson.
cquescence reates ony to the Issue, Dd the Commssoner err In Incudns, for gft ta purposes,
the entre vaue of certan sngo premum poces nstead of one-haf vaue thereof
Nonacqucsccnce (reatng to communty property agreement) pubshed n Cumuatve uetn -
63 9,62029,65577.6 s21), 35 (Docket 109 0),36(Docket 37369),3 (Docket 169 5),39 (Docket7435), 41 (Docket
9200), 15 (Dockets 45065, 3724, 12231), 46 (Docket 61o6 , 6 335), and 50 (Docket 7359), wthdrawn.
state ta decson.
cquescence reates ony to the ssue, Is the estate entted to addtona deducton for atornoys fees
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22
cqt|esce ces Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Lambeth, Chares
Landers, Dougas ., estate of 1
Lang et a., orence O. R., e ecutors
Lang, enry, estate of 1
Lang, uus C, estate of 1
Langwort.v, Mar|ore C
Lansk, Samue
Lawrence, Gadys G
Law son, ohn
Lea, een Sperrv
Leadbetter, red W. ... -
Leanngton ote Co
Lehman et a., an S., e ecutors, estate of arod
M. Lehman 1
Lehman, arod M., estate of1
Ledesdorf, Samue D
Leonard odng Corporaton, George ., estate of.
Letts, r., rthur
Levn, bert
Levne, yman 5
/cws, Sr., . S
Ley, George W.
Ley, Mary C.
Lberty arms Co
Lberty osery Ms
Lchtcr, ohn
Ldo udng Co., Inc -- -
Lenfcd, uus
Lncon, Robert Todd, estate of 1
Lppncott et a., . ertram, e ecutors 1
Lppncott, Water, estate of 1
Ltchfed, Pau W - --
Lttauer, ugene, estate of7
Lttauer et a., Lucus N., e ecutors 7
Ltte, C.
Lvng unded Trust of arry . Lyman
Uoyd-Smth, Mar|ore emng
Loyd, S. Rose
Loyd, Water -
Locb, r., et a., Wam, trustees
Loge, oseph
Longyear, r., ohn M
779 9
35443
71117
71117
6 316
71961
49347
75494
40232
712 7
5
4 413
6 29
6 29
4 305
4 71
62106
60969
7435
56163
22336
22337
26717
29 99
66546
75490
533 5
7929
39107
49233
49233
97169
51 5
51 5
61 21
7 200
3575
75765
440 9
34161
37762
40071
47117
56027
62410
3
21
32
32
34
30
34
33
25
35
39
26
39
39
26
26
30
36
32
27
27
22
31
36
31
35
24
27
27
39
25
25
27
36
40
32
30
26
24
2
state ta decson.
1 state ta decson acquescence rotates to deductbty of fu amount of 1,041. 9 addtona ncome
ta es accrued on decedent s separate ncome ta return for 1927.
cquescence reates to reorganzaton ssue.
4 cquescence reates ony to the ssue: Was the pettoner durng the ta abe years domced In the
State of Oregon or the Stae of Washngton
Nonacquescence (reatng to communty property agreement) pubshed n Cumuatve uetn -2
(1936), pages 27 (Docket 71 11). 29 (Dockets 9447, 10202,10755), 31 (Dockets 10299, 32950), 34 (Dockets 4017,
3 9. 0202 ), 65577,6 324), 35 (Docket 109 0). 36 (Docket 37369), 3 (Docket 169 5), 39 (Docket 7435). 41 (Docket
290), 45 (Dockets 45065, 3725,12231), 40 (Dockets 61669, 6 335). and 60 (Docket 7359), wthdrawn.
cquescence reates to that part of decson hodng that Water . cttman s not abe as a transferee
and to mtaton ssue.
state ta decson acquescence reates to Issues 4, 5, and 7 of decson.
cquescence, whch reates ony to the Issue Invovng a deducton of 6,969.92 for offce e penses, s as
to resut ony
cquescence reates to queston whether the vaue of rghts to subscrbe to certan bonds consttutes
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23
Ta payer.
Longyear, Mary ., estate of
Loughborough Deveopment Corporaton.
Loure, Davd
Lowe, erbert G., estate of 1
Luhrg Coeres Co
M.
MacCaum Gauge Co
Mackubu, George
Mackubn, Maude P
Magee Trust, dth Grant
Mata Tempe ssocaton s
Manhattan Lfe Insurance Co
Manhattan Mutua Lfe Insurance Co
Manstque Lake Superor R. R. Co
Marbara Corporaton
Markham Irrgaton Co.s
Marow et u ., rnest W
Marsh et u ., ohn
Marston, dgar L
Martn, C. .
Martn ote Co. and affated corporatons
Martn et a., . are, trustees
Martn, T. S., estate of
Martns, ndy
Marvn, Water S.s
Mar , my
Mar , o eph ., estate of
Mar , Leonard
Mar , et a., Leonard, trustees u/w oseph . Mar .
Mar , Regna
Mason, rank
Mason, Mary S., estate of14
Mason, Pau
Matagarda Cana Co.
Matchette, rankn
Matt he ws, . P
Mauch, Russe C. and esse
Maudn, I. M
May, oe
Mayer, Mark
Mc rthur, R.
Mc ufTe, gnes
McCahan, Rena S
McCa, orence 1
McCarter, Uza
Docket
No.
3643
465 3
51064
27630
9144
4004
70437
3671
3671
217
29476
32940
1 21
35337
67 70
41344
7400
7401
1527
61961
61735
16275
445 3
445 3
22334
3 57
3 32
595
594
3 31
594
47 0
4133
5 413
400 2
41345
40710
26250
72269
26239
91 74
7 9 0
731
49071
79039
47702
69193
oard of Ta ppeas.
25
29
24
3
26
32
36
36
35
16
32
37
29
36
24
3
3
29
34
24
24
24
27
25
39
39
39
39
39
39
3
33
24
26
22
35
22
39
36
3
29
35
26
33
state ta decson.
Nonacqaesceneo pubshed In Cumuatve uetn III-2 (1929), wthdrawn.
cquescence reates to a Issues e cept affaton ssue.
4 cquescence reates to that part of decson hodng that Water . ettman s not abe as a trans-
feree and to mwton ssue. ... . . .
4 cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchasod.
cquescence reates to s
estate of her mother
Dd
hare more than a fe nterest n the
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24
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
McCarthy et a., ohn ., estate of 1 ...
McCung , Louse Pepper, admnstratr of Georga
nna Pepper 1
McConne, Stea
McCoo, ess
McCormack, rederck C
McCorrnck, L. amton, estate of 1
McCov, zabeth C, e ecutr of estate of George
. McCoy --
McCov, George W., estate of1
McDonad, L. G...
Mc wan, nna _.
Mc wan ct a., nna ., e ecutors
Mc wan, .
Mc wan, Lan G
Mc wan, W. ., estate of._
McGrcw, zabeth W - -
Mcnerney, ohn ., estate of
Mc ee, rthur G
Mc eon, ohn
McLaughn, Thomas
McLennan, . R
McMan, Wam Northrup, estate of1
Mc ae, Louse C, e ecutr 1
McRae, Php, estate of 1
Mead Coa Co., C. .
Mehern, P. W.
Mebank Corporaton
Meon, . W.
Meon, R. ., estate of, Unon Trust Co. of Ptts-
burgh et a., e ecutors
Memphs Memora Park
Mente, ugene W
Mcnte, . G-.- - --
Mente Co., Inc
Merau , L.
Merau , Mrs. L. .
Mercante-Commerce Natona ank n St. Lous
et a., e ecutors and trustees 1
Mercante Trust Co. of atmore et a
Merkra odng Co., Inc
Merr, Isaac L
Messer, Rchard ., estate of1
Metropotan dson Co
Metropotan Propertes Corporaton
Meyer Shoe Co., .
91196
9903
4347
46059
630
951
7 952
7 952
25427
25996
25997
25995
25994
25997
26753
3276
61121
5516
597
26730
45966
32303
32303
4271
42719
51060
1035
000
76499
74241
49259
5345
54701
5470
51305
2461
2462
35443
6 33
05 3
61722
42513
57S69
45032
91260
3
39
29
24
3
3
39
39
27
26
26
26
26
26
25
35
37
39
29
25
27
30
30
2
35
3
36
3
2
29
29
29
3
3
21
32
39
31
27
35
24 220
39 444
1 state ta decson.
state t decson: acquescence, e cept In so far as concerns the queston of stus.
1 cquescence reates to dvdend ssue.
cquescence n oard s acton wth respect to the foowng: (a) That |ont account of . W. Meon
and . . Meon was not a partnershp (6) deductons of osses resutng from saes to scaot company
(e) that ta payer s return was not fase and frauduent (d) that ta payer was not durng 1931 the owner of
bank stocks (e) that ta payer s share of payments made n settement of Corbett cam shoud be subtracted
from fna step n Unon qudat on n computng ta abe gan therefrom: (/) that March 1, 1913, far market
vaue of common stock of MeCntc-Marsha Constructon Co. was 300 per share ( ) that ta | ayer mad
deductbe contrbutons to . W. Meon ducatona and Chartabe Trust.
1 cquescence reates to a ssues e cept the ssue wth respect to the dsaowance of 1, 00 as an aeged
oss from the wreckng of an automobe n 1931.
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25
oard of Ta ppeas.
No.
oume.
Page.
19930
2
437
42513
27
556
93029
39
1154
22021
22022
26259
40
421 4
51394
31
443
33177
24
53
4444
3
4 7
94006
40
13
31330
2
1
54092
35
141
7411
34
177
20772
24
376
5 241
623 6
29
401
90710
90711
3
133
74 05
37
1
41610
2
767
416 0
27
.
41 74
101
54673
77016
1295
35
12
41026
23
543
42062
757 2
36
747
5542
37
232
5 720
33
10
774 5
37
37
9464
39
0
5 720
33
10
25 53
22
5
57045
2
253
76660
35
230
9104
40
12
79652
34
433
5277
3
265
2212
37
459
59747
32
696
59747
32
696
3757
35
93
Mchgan Centra R. R. Co.1
Mchgan Trust Co. et a., e ecutors .
Mdfed O Co
Mby Dow Coa Mnng Co.
Mes Reaty Co.
Mgrm ros., Inc., . _
Mer, aver C, estate of
Mer, Dr. Chares efferson, estate of
Mken, Sae Gbbs-.
Mton, osephne ohnson.. ---
Mnneapos, St. Pau Saut Ste. Mare Ry. Co.
Msssspp Packng Co., Inc
Mssour State Lfe Insurance Co.
Mtche et u ., .
Mtche, ohn T. ., estate of
Mtche, L. C
Mtche, Oscar
Mobe ar Pots ssocaton
Mobe Lght Raroad Co. ..
Monroe Sand Grave Co., Inc.
Montgomery, Robert . and Los C
Moore, dward W., estate of
Moore, rank .
Moore, Geneveve
Moore, Louse C, e ecutr
Moorehead, Wam
Moorshead, O
Morgan, r., dwn D.
Morgan, rank ., estate of 1 -.
Morgan, atherne untngton, estate of.
Morrs, So
Morton, Mary, estate of
Mossman, . Pau
Mossman, Wam ., estate of
Mountan ew Cemetery ssocaton
cquescence reates to the foowng Issues: Whether amount pad by New York Centra R. R. Oo. to
State of Inos n connecton wth ssuance of bonds was a ta or fee savage recovered from ore docks
credt representng deprecaton on property retred n 191 .
state ta decson.
Nonacqucsccnce pubshed In Cumuatve uetn I -1 (1935), wthdrawn.
4 cquescence reates to ssue 1 of decson.
cquescence does not reate to foowng ssues: Deducton for reserve set up to meet abty upon
matured coupons ad|ustment of ncome for renta of space occuped n home offce budng and deprecaton
upon such budng.
cquescence reates to ssues regardng assgnment of earnngs of ron mnes n payment of ega servces
end deducton of amount pad to son for aeged servces rendered.
cquescence reates to foowng ssues: 1. Whether payments receved by a trustee on behaf of pet-
toner n the ta abe years In accordance wth a wrtten agreement entered Into by and between pettoner
and another n 1906 consttute ta abe payments of rent or nonta abe payments on the seng prce of
assets. 2. Whether pettoner sustaned statutory net osses for 1924 and 1926 whch can be deducted from
Its Income for 1925 and 1926, respectvey.
state ta decson acquescence n hodng that the commuted vaues of the Instament poces In
the frst two groups shoud be ncuded n the gross estate.
20 190
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26
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Mount ope Cemetery ssocaton...
Moyer, Water W
Muchnc, . ., admnstrator
Munroe, Grace ohnson
Murchson, Mrs. .
Murphy, Mae . eey
Murray, dward
Murray, . dward
Murray, Rebecca
Murtha Schmoh Co
Musgrove, oyd L --
Mutua ssurance Socety of rgna.
Mygatt, enry D
Mygatt, Roand
N.
Na et a., R. ., e ecutors
Natona ank of Commerce of Seatte
Natona Capta Insurance Co. of the Dstrct of
Coumba
Natona Casket Co., Inc. ..
Natona Contractng Co
Natona M Suppy Co
Natona Packng Corporaton
Natona Te Co
Ne, ames4 - -
Neon ectrca Products Corporaton, Ltd., Caude.
Neracher, George ..
Netcher, Chares, estate of
Netcher, Gadys Over, e ecutr
Netcher, Irvng
Netcher, Townsend
Newavgo Portand Cement Co
Newbock O Co. of Te as
Newbury, Moe Netcher
Newbury, Moe Netcher, trustee -
Newcomb, Leonard M., estate of11
Newe et a., Sterng, e ecutors4
New ngand Power Co.
Newman, eage I
Newman Carey Subway Constructon Co
f
76039
76040
25
7119
637 9
7f 942
62 3
3 222
40176
5 5
629
40174
5 57
17911
42591
43911
76657
67564
53014
9720
5674
50320
24520
7 2
37001
3166
33971
64013
9290
756 5
74411
3 053
3 053
3 052
3 050
36319
2 045
3 049
3 052
92 3
57 35
1 593
29105
7 5 0
775
37
35
29
32
2
26
2
3
2
17
27
24
35
27
40
2
29
25
37
23
24
30
35
32
26
26
26
26
27
26
26
26
39
25
25
37
37
1 cquescence reates ony to the Issue, Is the pettoner ta abe In 1934 on recoveres of a porton of debts
charged off n 1933, n whch year thore was a net oss In e ces3 of the debts charged off
cquescence reates to deducton of corporaton e cse ta es.
cquescence n oard s decson that pettoner ad the rght to aocate overhead e penses to each
contract on competed bass and that formua used by pettoner was permssbe and ssue reatve to
neggence.
Nonacquscenee (reatng to communty property agreement) pubshed In Cumuatve uetn
(1936), pages 27 (Docket 71 11), 29 (Dockets 9447, 10202, 10765), 31 (Dockets 10299. 32950), 34 (Dockets 4017,
53 9,62029,65577,6 324), 35 (Docket 109 0), 3 (Docket 37369), 3 (Docket 169 5), 39 (Docket 7435), 41 (Docket
9290), 46 (Dockets 45065, 3725, 12231), 46 (Dockets 61669, 6 336), and 50 (Docket 7359), wthdrawn.
Nonacqucscenco pubshed In Cumuatve uetn I-2 (193:
1 state ta decson.
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3
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2
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27
Ta payer.
Docke
No.
oard or Ta ppeas.
oume.
Newman et a., Rose, e ecutors .
Newman, Samue, estate of
New Market Investment Co.1
Newton, sabeth O
Newton, oseph R., estate of
New York Centra R. R. Co. _.
New York, Chcago St. Lous R. R. Co
Nagara Share Corporaton of Maryand
Nbey-Mmnaugh Lumber Co
Nchoson et u ., T. G
Ncodemus, r., . C.4
Nppert et a., fred ., e ecutors and trustees...
Noonan state Trust, . R
North Sde Lumber Tmber Co
Northern Coa Co.
Norton, dward L., estate of
Noyes, ansen
O.
ssocaton.
Oak Woods Cemetery
Oakey, Rchard
O Connor, Martn P
O Donohoe, ohn -
O Donohoe, Mrs. ohn .
Okahoma Contractng Corporaton
O Laughn, . C, estate of
Od Coony Trust Co., e ecutor of Lous . ye 1 ..
Od Pont Natona ank, The, e ecutor of estate
of Leonard M. Newcomb 1
Ods, Margaret .
Omsted, George W. _
Omsted, Iva C. .
5959
5959
35719
47703
47705
19932
34437
62040
21047
70 13
17527
9 92
9 93
52326
62569
55595
62664
34924
34945
451
3 574
77321
0932
4577
743 3
696 6
696 0
77 71
4319
6966
4321
92 3
4906
44090
45715
4 121
54714
60746
440 9
45746
4 143
54713
C0745
31
31
17
26
26
2
23
31
32
3
26
32
29
27
24
40
25
3
24
35
31
31
35
3
39
39
34
30
30
331
state ta decson.
cquescence reates to March 1, 1913, vaue (or purposes of cacuatng gan or oss upon sae ot and at
ersaes, Mo. whether the nvested capta of the mcoe Reaty Co. shoud be ncreased for 191 and the
March 1,1913, vaue for amortzaton purposes of a easehod beongng to ansas Cty Leasehod Improve-
ment Co.
cquescence reates to the foowng Issues: Whether amount pad by New York Centra R. R. Co.
to State of Inos n connecton wth ssuance of bonds was a ta or fee savage recovered from ore docks
credt tepresentng deprecaton on property retred n 191 .
Nonacqucseence pubshed n Cumuatve uetn -2 (1932), wthdrawn.
cquescence reates to nventory ssue.
purchased.
cquescence reates to a) ssues e cept that nvovng the appcaton of secton 302(g) of the Revenue
ct of 1926 to a group fe pocy ssued to the company of whch the decedent was an empoyee.
1 cquescence wth respect to hodng that pettoner was not a transferee.
cquescence reates to queston whether the vaue of rghts to subscrbe to certan bonds consttutes
ncome.
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2
cquescenceb Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Oympa arbor Lumber Co
Ontaro Reaty Co.1
O Rear, . C. -
Oregon Casuaty ssocaton
Ortz O Co.
Osborne, Owen, estate of -
P.
Pacfc tantc Teegraph Co. of the Unted
States
Pacfc Coast scut Co. et a.s
Pacfc mpoyers Insurance Co
Pacfc Natona ank of Seatte, The, e ecutor of
estate of rank . Morgan
Package Machnery Co
Page, De Wtt
Pane et a., rancs Ward, e ecutors
Pane, Wam ., estate of
Paadum musement Co
Pam each Mather Co
Pamer, radey W.
Pan mercan Lfe Insurance Co.
Parke, Davs Co
Parker, Cara ., e ecutr
Parker, George D., estate of
Parker et u ., arod G ---
Parker, Wm. ., estate of
Parkand Ice Coa Storage Co
Parrott, . .
Patterson, zabeth P -
Patterson, rank ., estate of 11
Peabody, Mary S
Peavy- yrnes Lumber Co
Peavy-Moore Lumber Co
Peavy-Wson Lumber Co
64272
35721
32335
6401
6112
59957
295 6
715
7 000
9104
54334
7 907
34113
34113
79746
43 50
62652
463
62717
5 604
5 604
90260
031
67640
309 9
7605
765 0
79907
15 24
16354
259 4
15 23
16355
259 6
15 22
1(1356
259 5
30
17
2
37
37
29
26
32
36
40
2
34
25
25
37
24
32
3
31
31
31
39
3
27
2
33
36
3
25
25
25
cquescence reates to March 1,1913, vaue for purposes of cacuatng pan or oss upon sae of and at
ersaes, Mo. whether the nvested capta of tbo Sncoe Reaty Co. shoud be ncreased for 101 : and
the March 1, 1913, vauo for amortzaton purposes of a easehod beongng to ansas Cty Leasehod
Improvement Co.
cquescence reates to ssue as to aowabe deducton of cost of operatng automobe party used n
ta payer s busness n 1924.
1 cquescence reates to foowng Issue: Whether respondent ened n ncudng In pettoner s gross
ncome certan sums receved by nrre and Moncref and by the trustees of the gore Independent
Schoo Dstrct from o produced from propertes operated by pettoner.
Nonacquescence pubshed n Cumuatve uetn III-1 (1934), wthdrawn.
1 cquescence wth respect to deducton of e pense Incdent to amendment of pettoner s charter.
state ta decson.
cquescence reates to ssue whether stock rghts were capta assets where the stock n respect of whch
they were ssued had been hed for more than two years pror to sae of the rghts.
1 cquescence reates ony to the ssue nvovng the deductbty of 9,2 2.31 and 257. as nterest
In connecton wth certan fe poces and trust agreements, respectvey.
cquescence reates to a questons wheren decson was not whoy In favor of Commssoner e cept
decson regardng e stence of partnershp of George D. Parker Co.
cquescence reates to rght of overrdng royaty owners to beneft of secton 211(b), Revenue ct
of 191 .
u state ta decson acquescence reates to Issue whether transfer was made n contempaton of death.
G
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29
cquesces ces Contnued.
Peck, Cara S., estate of
Peck et a., remont C, e ecutors.
Pegg, bert 0. .-
Penn, anche G.
Penn Mutua Lfe Insurance Co
Pennsyvana Indemnty Co
Pennsyvana Investors Co
Pennsyvana Water Power Co..
Peopes Lfe Insurance Co.
Peopes State ank
Pepper, Georga nna, estate of
Perata, ohn M
Perkns, bert T
Perkns et a., acob
Perkns et a., Thomas N.6.
Perry, oward -
Perry, Raymond ., estate of.
Pershouse, ce
Pershouse, Mabe
Peters, ndrew .
Phps, C.
Phoen Insurance Co
Pctora Revew Co
Pggy Wggy Corporaton
Ptkn, George P
Pttsburgh thetc Co. .
Pttsburgh rewng Co.
Pttsburgh Metng Co..
61520
61521
61520
61521
2233
90760
52577
59670
71992
20766
56720
66969
71744
91697
9903
57923
754
2 701
57 4
5 305
5 306
5 443
5 475
5 770
5 772
5 904
5 905
5 906
5 907
5 917
5S I I S
5 925
69 55
63645
26749
2674
54050
47901
4 67
43995
25126
43 60
65173
60569
66964
67422
33 6
626
44 5
31
31
27
39
32
30
24
36
31
3
39
33
36
25
33
33
32
25
25
2
26
21)
26
2
31
27
37
30
1 cquescence reates to that part of decson hodng that Water . Uettman s not abe as a trans-
feree and to mtaton Issue.
1 cquescence reates to a ssues e cept that nvovng the effect of capta osses sustaned by a trust
upon that part of the Income of the trust ta abe to the grantor under secton 167 of the c venue ct of 1934.
cquescence reates ony to treatment of renta vaue.
state ta decson.
cquescence reates to the foowng Issues: Is any part of the defcency as to astern Carbon ack
Co., Thompson O Co., O. . M. Co., and Davs ros. Co. duo to fraud wth ntent to evade ta Dd
the shares of Interstate as Co. stock receved by . . M. Co. as a dvdend from astern Carbon ack
Co. consttute n part a qudatng dvdend
Nonacquescence pubshed In Cumuatve uetn II-2 (1933), revoked.
G
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30
Ta payer
oard of Ta ppeas
oume
Pttsburgh West rgna Ry. Co.
Ptzman Methudy Trust
Pztz Dry Goods Co., Lous
Pant, enry radey
P-M- Petroeum Co.
Poar Ice Coa Co
Ponvert, Lusa Terry, estate of
Pope, Ove R--
Porter, . Staney - - ---
Portand Co-Operatve Labor Tempe ssocaton.
Powe, T. I. are4
Powe, en|amn I
Powe, oseph W
Prare O Gas Co
Preston, ohn W
Preston, Sara R
Prce, Laura M
Prce, W. -
Prophyactc rush Co_
Prosperty Co., Inc.
Prosser, Constance
Provdent Trust Co. of Phadepha, e ecutor
Prudenta Loan Co
Putnam Trust Co
Putty, Mrs. Macom
Pyeatt, . S
unn, van
unn, orence M.
unn, Martn M__
unn, Pau
.
ans, Ruth ...
Ramsh, doph
Ramsh, Inc., doph
Rand, rank C
Rand, esse ., estate of1
72157
7215
1750
465 5
43 9
4 9 4
52094
55059
60923
50576
54779
6763
156
29274
2425
9276
93304
64464
503 0
73763
57117
74560
74559
40659
41072
32996
47 45
47 46
5496
26752
59957
7 69
34743
696 3
92125
93279
544
0005
59
574
6469
3956
395G9
91795
19 4
32
36
22
30
24
27
35
25
36
39
27
26
34
29
35
35
24
24
25
27
25
29
37
26
31
39
26
35
26
26
3
30
30
40
36 I
cquescence reates to queston whether certan dvdonds receved by the pettoner from the Or-
wod Company are sub|ect to ta nonacqucscence as to ths ssue pubshod In Cumuatve uetn 1U-.
(1934), page 33, wthdrawn.
cquescence reates to thrd Issue of decson.
1 state ta decson nonacqucscence pubshed n Cumuatve uetn 1037-1, page 4 , wthdrawn.
Nonacquescence pubshed In Cumuatve uetn II 1 (1933), wthdrawn.
1 cquescence reates to deducton of oss resutng from qudaton of one of ts subsdares.
1 Nonacqucscence pubshed In Cumuatve uetn 1II-1 (1934), wthdrawn.
r cquescence s as to resut ony.
1 state ta decson.
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31
c r sc NC a Contnued.
Ta payer.
Randa, George W., estate of
Randa, Mar|orc G.
ands, Inc
Rands, Wam C
Rapp, ohn W., estate of.
Rathborne, George W
Rathborne, . Corneus
Raugh Reaty Co
Ray O Co.
Raymond, nna L.4
Raymond, Raph Lese
Rea, enry Over
Reardon Sons Co., ohn
Record Petroeum Co
Reese, ugusta ss
Remco Steamshp Co
Rew, George Campbe, estate of.
Reynard Corporaton
Reynods Catte Co
Reynods, Mare ., estate of 7
Rhea, Isaac T
Rhea, Mrs. Isaac T
Rhodes, erman M
Rato Mnng Corporaton
Rchards rschfed, Inc
Rchardson, my S., e ecutr
Rchardson, Chares W., estate of
Rchmond, redercksburg Potomac R. R. Co. .
Rdgway, Robert
Rggs Natona ank
Rtter Lumber Co. et a ., W. M.
5 50
6765
3 971
74942
6206G
6 46
2 61
3106
3105
4655
32 22
34332
6709
79130
0265
20773
50962
62424
5772
41404
673 6
70795
6 445
71463
1060
54960
54959
54 99
Roach Studos, Inc., a.
Roberts et u ., .
56 77
21715
64023
64023
6 76
77666
30903
42 33
42 34
42 35
42 36
43604
43605
43606
4 749
57319
57320
57321
57322
61750
0697
oard of Ta ppeas.
oume.
27
34
34
24
37
37
26
2
40
34
35
24
32
29
30
34
30
31
3
29
29
34
25
24
31
31
33
35
17
30
33
31
36
Nonacquesccnco pubshed In Cumuatve uetn -2 (1931), page 99, wthdrawn
cquescence n that part of decson reatng to deductbty of oss sustaned In 1924 from sae of
resdence.
cquescence reates to Issue whether pettoner was ta abe n 1923 as a trust or as an assocaton.
1 cquescence s as to resut ony.
Nonacqucsccnce pubshed In Cumuatve uetn -2 (1936), page 44, wthdrawn.
cquescence reates to deducton for deprecaton on premses and ncuson Id year 193(1 n pettoner
o s Income, 7,400, representng renta vaue of premses occuped by nm.
r state ta decson.
1 cquescence reates to Increased deducton for oss on retrements of roadway property.
Nonacquescence pubshed n Cumuatve uetn -2 (1931), wthdrawn.
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32
cquesce nces Contnued.
Ta payer.
oard of Ta ppeas.
oume.
Robertson, Cae
Robertson, Cordea dde, genera guardan of
the property of nthony N. Duke
Robertson, R. R
Robson, Lester L
Robson, Cara P., estate of
Rocky Mountan Deveopment Co
Rocky Mountan O Co.1
Rodeo- ae|o erry Co.1
Rodewad, . ngsey
Roeker, Mccnt Ture
Roerch, Nchoas s
Rogers, rown Crocker ros., Inc.
Rogers et u ., Chares
Roande, Guano 4
Rosenberg, Lous
Roserboora nance Corporaton _.
Ross, Ove
Rosshcm, Irvng D.
Roth, Gorton
Roth, enry, estate of
Roth, W. .
Roy Ttcomb, Inc.-
Roya Insurance Co., Ltd
Rudman, I.
Rudman, Rose
Ruz, M
Rushmore, Chares ., estate of
Russe, bert W
Russe, C. C
Russe, Mrs. C. C
Rutedge, T. W
S.
St. ohns Investment Co
St. Lous Unon Trust Co., et a., cotrustees..
St. Lous Unon Trust Co., e ecutor 10
St. Lous Unon Trust Co. et a., trustees,
ohn I. eggs
u/w
42496
79943
42497
53 7
26645
3 49
79421
36411
4 52
76659
1230
3065
675 1
61 1
57479
672 6
27626
3577
40903
319
57503
2256
776
45065
2913
3632
5S 6
5 7
67097
77164
73423
46060
46061
5 152
50613
65675
45966
94213
94214
2
3
2
33
25
3
36
24
35
39
3
32
3
33
24
24
37
31
26
37
22
24
3
36
36
30
36
35
24
24
37
30
30
27
40
635
1264
635
1107
949
1303
365
936
230
967
567
207
16
43
1
763
92
57
631
1163
5 7
969
955
03
03
746
506
506
1135
973
370
31S
165
1 cquescence reates to Incuson In Income of o payments reserved by and pad to pettoner s assgn-
ors, for purposes of computng ta abe Income and aowabe depeton,
cquescence reates to deducton of contrbuton to ctory ghway ssocaton.
cquescence reates ony to the Issue nvovng saary anc per dem aowance receved by pettoner
from the Unted States Government In 1934.
cquescence reates to reducton of proft of members of syndcate by the 2W percent commsson o
syndcate manager and whether porton of the syndcate Income consstng of dvdends shoud be tuedte
the Indvduas ony at surta rates.
cquescence reates to hodng of oard that dstrbutons receved from oseph . nch Co. were
not parta qudatng dvdends.
cquescence reates to ssue whether pettoner reazed addtona compensaton on sae of stock of
Warner ros. Pctures, Inc., n 192 .
Nonacqucscencc (reatng to communty property agreement) pubshed n Cumuatve uetn -I,
(1936), pages 27 (Docket 71 11), 29 (Dockets 9447, 10202, 10755), 31 (Dockets 10299. 39250),34 (Dockets 4017,
63 9.62029,65577, 6 324), 35 (Dockot 109 0), 36 (Docket 37369), 3 (Docket 169 5), 39 (Docket 743S). 41
(Docket 9290), 45 (Dockets 45065, 3725, 12231), 46 (Dockets 61669, 6 335), and 60 (Docket 7359), wthdrawn.
1 cquescence reates to foowng ssues: Incuson n ncome of o payments made to assgnors drecty
by ppe ne companes doductonof cost for cement used In drng o we deducton of drng cost uaa
e pense.
state ta decson.
state ta decson acquescence, e cept In so far as concerns the queston of stus.
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33
Tapayer.
Docket
No.
oard of Ta ppeas.
oume.
Saomon, Loon 1
Sanders, W. C.
Sanford, Lsa W., estate of .
San Marcos Compress Co
San Martnez O Co
Sanson, arod R., estate of
Sappngton, G. Rdgey
Savngs eature of the Reef Department of the
atmore Oho R. R. Co
Sa e, rank ., estate of
Scatena, vra
Schepp Co., L
Schermerhorn, arret Puman
Schumacker, . P
Scofed, Maron, estate of 1
Scov Manufacturng Co -
Gross R
Maran P
Scruggs Investment Co
Scun, ohn, estate of
Seaboard Securty Co
Seaboard Sma Loan Corporaton
eacon net Coa Co.
Seares Rea state Trust
Seasde Improvement Co
Second Natona ank of Phadepha
Securtes Co - -
Securty rst Natona ank of Los ngees et a.,
e ecutors
Securty- rst Natona ank of Los ngees, trus-
tee.
Sebert, Ltd
Ses Sportng Goods Co.
Shaffer, C. .
Shand, Gadsden
Shapro, Samue
Sharp et u ., . Rodney.
Shaw, Davd, estate of
3725
12231
26651
3466
49304
37447
43121
5192
51944
/ 594 6 1
61156
79276
63920
4290
43145
59612
062
29 54
3023
33610
3 711
46270
75524
79970
79971
1 0 9
244 9
7701
76 25
40553
45429
6064
57059
20771
29259
2623
6515
4259
4260
6704
6705
34499
4
25
3
31
25
36
25
32
37
32
25
26
32
3
25
24
24
24
36
3
3
24
25
37
33
25
2
36
29
24
29
22
29
3
24
Nonacqueseence (reatng to communty property agreement) pubshed n Cumuatve uetn -2,
(1930), paaos27 (Docket 71 11), 29 (Dockets 9447, 10202, 10755). 31 (Dockets 10299. 32650), 34 (Dockets 4017,
63 9, 2029, 65577, 6 324), 35 (Docket 100 0), 36 (Docket 37369), 3 (Docket 169 5), 39 (Docket 7435), 41
(Docket 9290), 45 (Dockets 45065, 3724, 12231), 46 (Dockets 61609, 6 335), and 50 (Docket 7359), wthdrawn.
state ta decson.
state ta decson acquescence reates to the foowng Issue: Shoud there he Incuded In the gross
estate the vaue at the date of decedent s death of certan property whch he had transferred n 192 to a
trustee In trust to pay the ncome to hm for fe, wth remander over of the corpus to certan named
benefcares
Nonacqueseence as to one ssne, pubshed In Interna Revenue uet n 193 -31, page 1, wthdrawn.
cquescence reates to Issue nvovng Incuson of far market vaue of rghts to buy bonds n pettoner s
Income.
cquescence reates to tho Issue Invovng the aowance of a deducton from gross estate of 1,000 pad
to the onta Schoo pursuant to promse made by decedent.
cquescence roates to ssue regardng oss from operaton of a farm In 1925 and 1926 and Issue regard-
ng Increasng defcency for 1925 by amount of nterest accrued on bonds e changed for art ob|ects.
cquescence reates to market vaue of o and gas eases on March 1,1913.
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34
Ta payer.
Docket
No.
oard of Ta
oume.
Shea, R. P -
Sheets, Leveret T., estate of 1
Shepherd, Cette G., estate of 1
Shverck, ane
Sege, e ander
Sberbatt, Soomon
Ss, Mton, estate of 1
Smcoe Reaty Co.
Smmons, II, et a., dward C, e ecutors.
Smmons, dward
Smmons, George W.( estate of
Smmons et a., Rchard W., e ecutors
Smmons, Waace D., estate of
Smms, . .4
Smms O Co.5
Smms Petroeum Co.
Sncare et a., een ., e ecutors
Sncare, onry P., estate of
Sncare, r., enry P., estate of
Sncare et a., Murrary, e ecutors
Sncare, Regnad
Sncare, Wam, estate of
Sou as Meta Cuvert Co
Spes, asper
1620 roadway Corporaton
Skewes-Co , dth Page
Sack, . ., estate of T
Sack, r., Wam
Sos , atte echt
Smathers, . ., estate of
Smathers Power Typewrter Co
Smth et a., zabeth D., e ecutors
Smth, I. N., estate of
Smth, esse, e ecutr
Smth, Mrs. esse
Smth, Lous, estate of
Smth, Wam
Smoot, Lews
state ta decson.
1 Nonacquescence pubshed n Cumuatve uetn II-2 (1933), page 25, wthdrawn.
1 cquescence reates to March 1, 1913, vaue for purposes of cacuatng gan or oss upon sae of and
at ersaes, Mo. w bother the nvested capta of the Smcoe eaty Co. shoud be ncreased for 191 and
the March 1, 1913, vaue for amortzaton purposes of a easehod beongng to ansas Cty Leasehod 4
Improvement Co.
cquescence reates to ssues 3, 5, and 7 set forth n syabus of pubshed decson.
cquescence reates to bass for computng deprecaton on assets acqured by Smms O Co. In I S
from Cayton O Refnng Co.
Nonacquescence (reatng to communty property agreement) pubshed n Cumuatve detn -:
63 9,62029,65577,6 324), 35 (Docket 109 0), 36 (Docket 37369), 3 (Docket 169 5), 39 (Docket74351, 41 (Docket
9290), 45 (Dockets 46065, 3726, 12231), 46 (Dockets 61669, 6 335), and 60 (Docket 7369), wthdrawn.
7 cquescence n ssue Invovng deducton of attorney s fees pad by decedent.
cquescence reates to the foowng queston: Dd pettoner receve a dvdend from echt roadwty
37 35
40034
75223
69166
4442
2 63
46335
64737
35720
47210
47211
47212
47212
47210
19175
19791
61497
61496
37703
29252
.37520
37520
37 64
37703
41070
72605
7 36
61669
6 335
72404
7 525
77004
64 35
29260
4396
39291
4966
39291
4966
1 76
22313
1 76
90703
3257
24
79
35
220
32
20
37
454
39
60
2
73
35
15
17
213
32
320
32
320
32
320
32
320
32
320
2
9 S
2
1106
2
1106
26
1359
26
1359
26
1359
26
1359
26
1359
26
1359
26
1324
31
709
36
149
29
167
35
271
36
105
33
30
29
1350
2
327
25
291
25
291
24
07
24
07
24
07
3
317
25
103
Corporaton n 1929 n the amount of 1,603
cquescence reates to market vaue of on and gas eases on March 1,1913.
11 Pror nonacquescence pubshed n Interna Revenue uetn 1939-3, pag
, page 1, wthdrawn.
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35
cqukscences Contnued.
Ta payer.
Sneed, r., . T
South Memphs Land Co
Southard, enne
Southern tantc Teegraph Co.
Sou
thern Raway Co. et a. .
Southern Securty Co
Spanger, Georga M
Sponger, . W_-
Sperry, dward G
Spcrry, mer ., estate of
Sperry, r., mer
Spcrry, Zua ., estate of
Sprague-Ses Corporaton
Sprague Son Co., C. .4
Sprunt Son, Inc., e ander -
Stacy, Mar|ore pe
Stamer, ohn ., estate of
Stamer, Rose ., ndvduay and as e ecutr of
estate of ohn . Stamer
Standard eef Co
Standard Conveyor Co.
Standard Isand Creek Coa Co.
Standfer Constructon Corporaton, G. M.
Stanton, George
Starr, rank C-
Stauffen, Theodora ...
Stearns, L. ., estate of.
Stearns, Robert L
Stcege, W.
Steee, Chares .
geman, .
Stegeman, r., bert .
Stegeman, anne L
Stegeman, . M
Stegeman, . R
Stegeman, Mabe
Stegeman, Wam L
Stephenson, Ida
Sternberg, erman
45694
44500
42592
29694
214 1
29951
37 7-
37 9
79972
79973
56320
56321
74297
74296
7429
74299
42006
42434
34946
3 40
7 477
9134
9134
20770
33159
40 73
35260
35617
51636
62100
69259
26756
922
37573
6709
5694
6 7
6 0
26643
26650
26644
26647
26646
26649
2664
62 25
5575
1 30
1121
33
47
27
97
27
554
26
914
27
673
3
560
29
263
29
263
35
243
35
243
35
243
35
243
30
1165
24
307
24
599
37
7 6
40
56
40
56
24
376
25
2 1
2
690
30
1 4
36
112
31
671
25
513
39
2
24
1013
30
746
3
5 9
25
949
25
949
25
949
25
949
25
949
25
949
25
949
33
252
32
1039
cquescence reates to oard s hodng that bonuses shoud be ta ed as separate or communt y property,
In accordance wth the cassfcaton of the propertes under the ease and ssue n connecton wth assess-
ment of defcency for 1925.
1 cquescence reates to Issue nvovng deducton for depeton from advanced royates or bonuses.
cquescence reates to foowng Issues: 1. Dd pettoner reaze ta abe ncome from unrefunded por-
tons of amounts deposted by shppers for constructon of factes for use of such shppers 2. Where
bonds were sod at a premum pror to March 1, 1913, s the amortzed porton of such premum ta abe
ncome7 3. Dd Commssoner erroneousy e cude from ad|ustment for matera and suppes an amount
equvaent to Infaton contaned n book vaue of such materas and suppes as were not used durng 1920T
Oft ta decson.
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36
cqoescences Contnued.
Ta payer.
Stevens, ohn
Stevenson Consodated O Co.1
Stewart, ames R
Stewart, Maco, e ecutor
Stewart, Nee spcrson
Stewart, Theodore
Stfe, rthur C.s - --
Stefe, dward W.
Stefe, enry G. -
Stock Yards ank of Cncnnat
Stockhan, |ah --
Stone ct a., Irvng ., e ecutors and trustees .
Stone, Irvng Lee, estate of
Stoneman, Davd
Storey, . M -
Story, atherne .4
Story, r., Neson, estate of 4
Story, Thomas .4
Story, Water P.4
traube, . L. G
Street, Raph W
Stromeyer, Irene
Stromeyer, Wam
Strong, arod C. --
Stryker, Ma
Stuart, Chares
Stuart, r., Woughby -.
Sugar Creek Coa Mnng Co
Suvan, ugene C -
Summer-fed Co
Summer Tubng Co.
Sunburst O Refnng Co ---
Suppce, C. enderson, estate of47
Swenhart, ames.
Symngton, zabeth L
Symngton, se
Symngton, my
Symngton Son, Inc., et a., T. _.
Docket
No.
296 5
43416
9950
63645
6 7 1
70297
6073
60739
60740
410 5
22569
43 30
43 30
27627
62 13
66961
66963
66962
60960
56 67
72609
55341
55342
3 576
2516
53796
73 69
7375
293 9
5 711
74070
45979
9363
547 4
62234
6222
62161
4 7 6
4 7 7
4 7
4S7 9
4N.S 9
4 90
oard of Ta ppeas
oume.
24
52
23
610
39
7
32
442
35
406
32
600
29
1145
29
1145
29
1145
25
964
26
631
26
1
26
1
24
1
31
1126
36
239
36
239
36
239
36
239
29
516
36
391
2
472
2
472
25
1351
36
326
29
605
32
573
31
344
26
1359
29
77
36
347
23
29
39
902
29
1179
35
711
35
711
35
711
35
711
23
792
37
19
3
551
32
641
39
0
3
593
Tabot, . . 36191
Tarafa v rmas, ose M., estate of4 2656
Tayor Co., Inc., W. 9597
Teagne, . 73034
Terr, Nna II 90S03
Terry, nna Davs, estate of4 9925
1 cquescence reates to ssues regardng reducton of ncome for fsca year endng November 30, 1P24,
by oss sustaned for 11 months endng November 30, 1922, and ncuson n ncome (or a years o( 1 par
vaue of capta stock of Sunburst O Gas Co. receved by pettoner as a premum.
1 Nonacqucscencepubshed n Cumuatve uetn M 1 (1U34), page 30, wthdrawn.
3 state ta decson acquescence reates U ssue nvovng deductons from gross estate.
state ta decson.
purchased.
Gft ta decson.
cquescence reates ony to the Issue, Dd the Commssoner err n Incudng, for gft ta purposes, the
entre vaue of certan snge premum poces nstead of one-haf vaue thereofT
1 cquescence reates to oss ncurred n sae of a boat.
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7
Ta payer.
Te as Irrgaton Co.1
Thacher et u ., Thomas C, r
Thatcher state Co., the M. D. -..
Thee, Water
Thompson, dward W -.
Thompson, W. L
Three Rvers Securty Corporaton.
Thrft Reaty Co.
Tchcnor, rthur L. -
Tchenor, Chares O
Ternan, Martn ., trustee, Martn . Ternan
trust for Martn T., Chares W., ohn W., nn
C, and Mary ., Ternan et a.
Tfft, Chares.
Tfft, Lews .
Tes, Cap ndrew
Tmes-Pca3-une Pubshng Co.
Tobey, Maurce
Tocrton Warfed Co.4
Torrens, ames .
Tracy, Davd ., estate of
Tracy, Wam Lee
Tracy, Wam R
Tracy et a., Gertrude emer, trustee.
Transcaforna O Co., Ltd..
Tresner, my...
Trcou, Sae S.
Docket
No.
oard of Ta ppeas.
oume.
400 3
41346
47 1
7974
67506
51103
51104
44 57
44 0
50053
7 425
7 423
3167
3169
3171
3173
3175
3177
4276-1
4279
4291-
4294
31029
33464
42340
45957
31030
33465
42341
4595
6505
4 92
49539
27624
45320
5377
54 2
629 2
9304
45513
54 2
629 2
73111
66703
2 093
4025
24
39
3s
32
2
2
30
2 )
39
39
37
25
26
3
27
24
23
31
30
39
25
30
37
30
31
33
37
25
1 cquescence reates to a ssues e cept affaton Issue.
1 Gft ta decson.
1 cquescence reates to the ssue, Is the ncome of a trust ta abe to the donor where the trust nstrument
provdes tht the trust ncome may be used for support and educaton of the donor s chdren, but was
never so used
cquescence reates to Issue regardng deducton of oss sustaned by pettoner durng nonaffated
perod.
cquescence n oard s decson n so far as t hods that pettoner was not ta abe on any part of tha
proceeds of the 100 shares preferred stock pven by hm to hs four sons n
cquescence reates to queston whether deducton fo depcton n connecton wth deveopment e -
penses was prope y before the oard under mandates of the court.
G
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3
Ta payer.
Doeke:
No.
oard of Ta |
Trnty Drng Co.1.
Tro, nne
Trosk, George
Trost, dward .
Trout, . W
True, dward C.
Turbeve, e M.
Turner, atheen M ...
Turrsh, enry
Twn e O Syndcate-
Twnng, dmund
U.
Uster Deaware R. R. Co
Unon Lard Corporaton
Unon Pacfc R. R. Co.1.
Unon Pacfc R. R. Co. et a.4.
Unon Peopes Natona ank of ackson et a.,
admnstrators
Unon Trust Co. of Pttsburgh, trustee
Unted utographc Regster Co
Unted States Trust Co. of New York, trustee
6149
61215
70256
77204
73 4
39020
6 501
43733
47900
55553
64334
I 64560
22340
44742
2951
70296
2S927
20769
51530
701 3
70219
35639
35649
356 4
356 5
40060
40061
40062
70456
61009
303 4
26747
26757
aant, the Netcher...
aey Waste Dsposa Co.
an ken, nne Louse..
an Scken, rederck W., estate of s.
ermont ydro- ectrc Corporaton-
rgna Iron, Coa Coke Co
oge, R. red, estate of
on Gunten, Chrstan W.9
3 051
6371
76 94
79334
2545
5963
51576
561 2
6137
2

35
34
27
n
31
27
24
26
32
25
109
24
376
32
3 3
20
30
29
27
25
26
3
35
35
29
29
cquescence reates to bass for computng deprecaton on assets acqured by Smms O Co. In 1925
from Cayton O Refnng Co.
cquescence reates to tbat part of decson hodng that Water . ettman s not abe as a trans-
feree and to mtaton ssue.
1 cquescence reates to ssues wth respect to oss sustaned by O. W. R. R. Co. on e change of and
n Seatte n 1925 amount of oss sustaned by O. W. Raroad Navgaton Co. In 1925 on sae of bud
In Mutnomah County, Oreg.: contrbutons to hospta departments n 1924, 1925. and 1926
of dscount on bonds ssued pror to March 1,1913, and commssons unrefundabe (
wth pettoner n connecton wth constructon of branch ne.
cquescence reates to donatons Issue amortzaton of dscount on bonds ssued pror to 1913
ton of ta for 1920.
state ta decson.
Nonaoquescence pubshed n Cumuatve uetn II-2 (1933), page 27, wthdrawn.
) porton of depost
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39
cqcescences Contnued.
Ta payer.
Docket
oard of Tu ppeas.
No.
oume.
Page.
2077
3
1225
44 56
30
636
76762
34
9 3
7359
4
915
92240
40
225
30992
24
9 9
53039
1
53040
26
1225
59190
62510
31
1126
7533
39
56
3712
36
74
43912
25
576
733 1
33
20
733 0
33
20
733 3
33
20
733 2
33
20
53414
27
463
9671
3
1026
49144
26
761
56442
32
613
63916
31
627
62126
30
47
7 29
34
315
90 97
40
97
4992
40
92
37 06
2
611
37 05
2
611
0017
1
5219
37
06
7196
76367
35
1031
521
37
06
1 0
24
307
61552
29
670
76661
35
230
37927
26
212
40233
25
154
46371
27
6 0
93626
39
9
66915
29
92
4001
36
934
29273
25
1161
6 7 9
31
6 0
w.
Wagegro Corporaton
Waker Products Corporaton.
Waker, R. D.
Wa, rank .1
Ward, Chrstopher L.
Ward ros. Co
Warner Co. .
Warner, Raph C
Warren Servce Corporaton.
Washngton, Sr., George
Washngton Market Co
Waterbury, Charotte M.4.-.
Waterbury, Donad N.4
Waterbury, ugene W.4
Waterbury, Whtford N.4
Watson, r., ohn
Wayne County ome Savngs ank
Weddng, G. G
Weeks, anson
Wes, Samue W
Wes, Thomas .
Weworth Reaty Co
Wheeer, Lena P. (formery Curtss)
Wheeock, R. L
Wheeock, Mrs. R. L
Whtcomb, nna S.T.
Whtcomb Coca-Coa Syndcate, N. . .
Whtcomb, . .7
Whte Oak Transportaton Co.
Whtman, Ward Lee Co
Whtney, Rchard
Whtney, Ward M
Whtson, Thomas
Wco , C.
Wem, M.
Wams, r., ford
Wams, ma
Wams, a
Wams, L.
1 Nonacquescence (reatng to communty property agreement) pubshed In Cumuatve uetn -2
(1 30), pages 27 (Docket 71 11), 29 (Dockets 9447, 10202, 10755), 31 (Dockets 10299, 32950) 34 (Docket 4017,
53S9, 62029.65577,6 324), 35 (Docket 109 0), 36 (Docket 37369), 3 (Docket 169 5), 39 (Docket 7436), 41 (Docket
9 290), 46 (Dockets 450 5, 3726, 12231), 46 (Dockets 61669, 6 335), and 50 (Docket 7359), wthdrawn.
cquescence reates ony to the Issue Invovng the status of a certan trust, part of the Income of whch
s requred to be accumuated, the corpus of whch may revert to the grantor durng hs fetme upon acton
of adut benefcares of three-ffths nterest.
1 Nonacquescence pubshed n Cumuatve uetn II-1 (1933), wthdrawn.
cquescence reates to ssue as to basc vaues of stock.
4 Nonacquescence pubshed In Cumuatve uetn I-2 (1932), revoked.
ft ta decson nonacquescence pubshed n Cumuatve uetn -1 (1936), page 4 , wthdrawn.
7 cquescence reates to the foowng ssue: Where husband and wfo, resdents of the State of Mchgan,
own reaty as tenants by the entrety, may they dvde equay and deduct n ther separate ncome ta
returns osses resutng from the renta of such reaty
Pror nonacquescence pubshod n Cumuatve uetn 103 -1, page 60, revoked.
cquescence reates to ssue nvovng accrua of Interest,
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3
9
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5
0
7
6
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3
1
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2
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40
Tapayer.
Docket
No.
oard of Ta
oume.
Wams, R. L.1
Wams, W. W._
Wamson, e ander
Wamson, rchbad (Lord orres)
Wamson, esse C
Ws, Mary -
Wson, enton.
Wson Co., Inc., of Caforna
Wson Co., Lee
Wson Commsson Co
Wson urs, Inc
Wson, George S., estate of
Wson Shpbudng Co.
Wnsow, Mary N
Wof, . C -
Wood, red T
Wood Lumber Co., .
Woodard, ohn S. _
Woodward, rthur P -
Work, orace ., estate of ---
Wray, za
Wrght, George M
Wrght, Leonard Marsha
Y.
Yazoo Msssspp aey Ry. Co
Young, the P
Yukon aska Trust
Z.
Zmmerman, ohn
Zmmerman, Sarah .
Znsser Co
4000
46062
40231
43972
40229
43973
0545
6671
52 94
2076
33 26
20767
5705
50 2
34337
76059
56439
3 0
23605
24156
71962
54741
60227
1027
25 1
25 54
4550
62023
62991
3 6
34161
2491
24
5242
36
934
24
506
25
154
25
154
34
66
30
615
31
1 7
33
441
5 37
3 7
33
649
24
376
25
40
24
376
29
319
30
1136
25
1 2
33
57
32
613
27
162
25
1013
30
1216
32
100
34
741
24
94
22
5
26
21
30
1107
34
1
24
15
26
635
36
36
21
1 cquescence reates to Issue nvovng accrua of nterest.
1 cquescence reates to capta net ean ssue as to stock sod In 1933.
3 cquescence reates to queston whether deducton for depeton In connecton wth deveopment
e penses was propery before the oard under mandates of the court.
state ta decson.
cquescence docs not reate to Issue S of decson.
1 cquescence reates to reorganzaton ssue.
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41
The Commssoner has wthdrawn hs acquescence n the foowng
decsons of the Unted States oard of Ta ppeas:

oard of Ta ppeas.
Ta payer.
Docket
No.
oume.
Page.
Mchenny, ohn D., estate of
4500
22
1093
Mchenny et a., rances Pumer, e ecutors 1
4500
22
1093
Wade, eptha ., estate of 1
43164
21
339
43164
21
339
1 state ta decson acquescence pubshed n Cumuatve uetn -2 (1931).
The Commssoner does NOT acquesce n the foowng decsons
of the Unted States oard of Ta ppeas:
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Page.
beson Reaty Co., Inc.
beson s, Inc
ckerman, Irvng C.
ameda Park Co
amtos Land Co
bcrs, Wam .1
brecht et a., atherne ., e ecutrces .
ker, era M. ohcr
en, Dorothy . D.3
en, Nathan R
ed urrers Corporaton
mercan rck fe Te Corporaton
mercan Centra Lfe Insurance Co.4.
mercan Gas ectrc Securtes Corporaton..
mercan Idea Ceanng Co
mercan Raways Co
mercan Refrgerator Transt Co
mercan Seatng Co.1
mes, r., Ward ---
ngo- mercan Drect Tea Tradng Co., Ltd..
partment Corporaton
ppeby, rancs S
rabo Manufacturng Co
rchbad, dward
53792
53793
30311
31634
4094
40949
355
4 07
74759
41295
36116
569
1654
50059
29994
30133
3199
56024
63436
62604
49205
67662
647 2
67602
72 61
14676
49 17
4529
42024
730 9
504 9
61660
65064
1
24
6 6
24
6 6
24
512
25
50
40
353
33
373
27
1091
25
243
3
71
3
160
24
457
22
1121
30
11 2
33
245
30
529
30
939
31
465
14
32
27
624
3
711
26
49
31
533
26
106
27
37
Nonacquescence reates to Issue concernng oss on sae of stock of . Nash Co.
state ta decson nonacquescence reates to State nhertance ta ssue.
Gft ta decson.
Nonacquescence reates to ssue whether certan funds denomnated Insured s persona beneft fund
were reserve funds requred by aw and ssue whether the pettoner s abty on outstandng unsurren-
dered unpad coupons consttutes a reserve fund requred by aw.
cquescence pubshed In Cumuatve uetn III-2 (1929), wthdrawn.
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42
Nonacquescentes Contnued.
Ta payer.
Docket
N o.
I or Ta ppeas.
rchbad, oseph
rchbad, r., oseph .
rk e, Wam Cark
rmstrong, Wam M._
shton, Ward
tas Lfe Insurance Co.
uto Strop Safety Razor Co., Inc.
yer, enry S., estate of 1
.
abson, red
abson, Gustavus
abson, enry
anger, esse M., e ecutr .
angur, Water ., estate of1..
atmore Oho R. R. Co.1...
ank of Caforna, Natona ssocaton.
ankers Trust Co., trustee
arbour, rederck --
arradae, . Morgan -
artett, . emp
ashford, Raymond I -
ass, rancs M
ateman, . L
ay, Robert P.. -
ebb, Rchard ., estate of
ebbe, unus, trustee -
ebbe, Marcus, estate of
echte, enneth ._
echtc, Stephen D
edford, dward T., estate of
ehan, Thomas W
ekns, atherne, estate of
efast Investment Co. .
e, rederc D., estate of
e Sons, Samue.. --
enaga, rthur and se
eresford, ven een de a Poer, estate of
erkeey a Schoo, Inc -
erozhemer, fred C
erozhcmer, dwn M. -_-
geow, ce ., e ecutr of the estate of erbert
M. geow 1
geow, erbert M., estate of 1 -
ndey, Mary M., estate of.
61661
65062
61673
65063
4 12
40419
3914
40544
40751
67199
/ 555
606
79152
I 79153
52224
52223
52222
32177
32177
37239
55537
99
32159
91943
77376
63632
71565
73626
47772
66014
41295
52707
52707
75-1 5
754 6
90104
7542
7675
1912
69534
3 056
41647
45616
763
67259
47415
9259
9267
2659
2659
5 71
27
27
3
25
2
29
2
27
27
27
23
23
30
30
24
39
34
2S
33
30
34
2
27
26
26
34
34
39
32
3
17
31
32
22
36
31
31
40
40
39
39
state ta decson.
Nonacqueseence reates to deductbty at crpcnse for year 1920 of amount for mantenance of way
and structures.
state ta decson nonacqucscence reates to State Inhertance ta Issue.
Nonacquescence n Issue as to whether pettoner Is entted to deducton for amortzaton of the Le
tract warehouse for 191 .
1 Nonacuutoseence reates o ssue nvovng reorgansaton.
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43
Nonacqutescences Contnued.
Ta payer.
ngham ct u ., arry Payne.
rkemer, Dan
smarck Trbune Co
ar, Cec Chares
ar, dward T
ss, Sydney R
ss, aentne
ock, Meer S
um, e6se
um, Davd
umentha, arry S
oard of re Underwrters of the Cty of Duuth..
oca Cega Deveopment Co
ochrnger, Rudoph 1 -
oeng, Wam .
oekman, Smon
onwt, Pau
oo, S. -
ooth, en S -
oston evated Ry. Co.
oston Safe Depost Trust Co. et a., e ecutors
oswe, Wam D., estate of4
owen, dwn L.
owman- tmore otes Corporaton
owman ote Corporaton.
rackman, . W
radbury, I. C
rnsmade, enry N., estate of
rnsmade, Pau S., e ecutor, estate of enry N.
rnsmade
rskey Co
rtsh- mercan Tobacco Co., Ltd
rokaw, George Tutte, estate of 1
rookyn Cty R. R. Co
rookyn ueens Transt Corporaton
rookyn Rado Servce Corporaton
rooks, Regnad
rown, rank ., estate of
rown, . C-- -
rown, arry
rown, Pear ., e ecutr
rownng, ohn N
rownng, S. P
2160
9615
59660
69 03
42313
63741
55902
53422
4 73
52221
75143
43150
40446
49 91
167
21 5
53661
64691
70951
1961
76751
77244
49272
1 11
629 5
41472
43629
10651
24912
2 971
3 006
45714
457 0
6046
6047
6046
6047
60 99
41224
90091
20353
20353
61229
6 560
47677
33343
4 136
47677
72713
72714
oard of Ta ppeas.
oume.
Page.
3
913
39
1072
33
2 1
29
1096
31
1192
26
962
26
732
37
945
29
5 0
29
5 0
34
994
26
60
25
941
29
37
17
3
541
33
507
34
1011
36
141
37
494
30
679
37
970
33
20
24
1193
24
1193
24
259
23
1351
39
195
39
195
29
9 7
27
226
39
7 3
27
77
27
77
31
269
31
70
26
901
25
631
26
901
26
901
31
927
31
927
1 state ta decson.
1 Nonacquescence pubshed n Cumuatve uetn 193 -1, page 36, n so far as It pertans to the trust
ssuo, wthdrawn.
Ths notce, whch was orgnay pubshed In Interna Revenue uetn 193 -25, page 1, Is beng re-
pubshed for tho reason that t was erroneousy Incuded In the st of cases acquesced In pubshed n Cu-
muatve uetn 193 -1, page 4.
Nonacquescence reates to ssue nvovng reorganzaton.
Nonacquescence reates to ta abty of a transfer under subsectons (a) and (c) of secton 302, Revenue
ct of 1996.
Nonacquescence reates to ssue whether gans on sae of stock of the Watcrbury Chemca Co. wen
ta abe to pettoners or to trusts created by them.
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44
Nonacquercences Contnued.
Ta payer.
uchsbaum, Wam
uck, ohn ., estate of
uck et a., Mary M., e ecutors .
uckhardt, ugust
uffao Unon Iron urnace Co.2..
ungton et u ., Robert McCarthy..
uock, George 3
unge North mercan Gran Corporaton.
urdette, Cara
urey, anche ., e ecutr
urr, dward L
urrows, Waters .1
usness Rea state Trust of oston.
uter- etch Co.
Cabot, Inc., Godfrey L
Cadwaader, Mary een
Cadwaader, r., Rchard M.
Cambra Deveopment Co. ..
Campbe, Mar|ore .9
Carey, Robert.
Carey bre Products Co., merson.
Carey-Reed Co
Carey Sat Co
Carson, Chares T .
Carro, .
Carro, Lena Carter
Carson state Co..
Carson, ohn ..
Carson, ose L
Carter, . L
Carter, . L., admnstrator.
Carter, Mrs. . L
Carter, . ... -
Carter, Le N
Carter, Maude II., estate of.
Carter, r., W. T
Case, Montgomery
Docke
No.
74 6
325 4
4416
446 4
325 4
44153
446 4
76255
16075
16076
9 06
31209
47 00
37321
44909
5 795
77 7
33469
426 1
50305
45169
45170
91665
46327
71 00
75411
4639
54033
60432
67415
363 1
3936
363 2
7564
51 0
51 1
47444
534 9
45393
45392
51 2
47669
51 3
51 4
51 5
47669
51 6
75 16
oard of Ta .
oume.
36
25
25
32
23
3
23
27
25
26
26
3
25
23
40
27
32
34
39
31
26
36
26
39
27
27
31
2
2
27
27
27
27
27
27
21
7 0
7 0
1272
439
754
710
150
692
615
1401
236
191
953
366
107
1157
1155
916
39
675
36
675
1 5
65
65
607
236
236
65
65
65
65
65
65
65
state tan decson: nonacqucscence reates to deducton of amount of a cam fed aganst the estate
and aowed by probate court.
1 Nonacquescenee reates to Issue regardng deducton from gross ncome of fsca year ended pr 30
1919. of reserve for roUnng bast furnaces.
Nonacgueseenee reates to ssue 1 of decson.
1 Nonacgueseenee reates to the Issue, deductbty of tbe amount pad for a second mortgage as a bad
debt.
1 Nonacnucsccnco reates to Incuson n cost of rea estato ots the estmated cost of future e
for contractua Improvements.
Nonacf escence reates to a Issues e cept the ssue: Whether certan bonds sod one day and 1
purchased the foowng day were substantay tbe dentca securtes.
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45
Nonacqotescbnces Contnued.
Casses, Robert
Centra Market Street Co.1..-
Centra Unon Trust Co. of New York, e ecutor
Centra Unted Natona ank
Cerea Products Refnng Corporaton
Champon, Davd .
Champon, T. Perre
Chander, Constance
Chander, arrson Gray
Chander, een
Chander, Maran Ots
Chander, Norman
Chander, Php
Chapman, C.
Charavay, Marus
Chemca Natona ank of New York
Chenowth, . C
Chcago Dock Cana Co
Chcago North Western Ry. Co.
Chdaw, arry
Chshom, rchbad M., estate of4
Chrstensen, Nes
Cark, ward
Cark, Percy II
Cark Thread Co. -
Caude Neon Lghts, Inc.
Ceand state Co., Inc., enry .
Ceveand Trust Co., trustee of dth . Tmken
et a. Trust
Covs, C.
Coastwse Transportaton Corporaton
Cobegh, Margaret dwards, estate of
Cochrane, Davd
Coorado 4 Southern Ry. Co.10
Coumba Pacfc Shppng Co
Coumbus rck Te Co.
5 793
24 37
31736
69212
71063
653
55569
63 1
5556
67471
67470
67475
6746
67473
67476
52496
70005
71592
45604
3 349
4 26
36343
697 2
5255
72424
94259
65177
3S903
47974
59391
335 5
40 90
51197
561
6 433
39916
40765
6042
21974
5096
42707
26
25
25
33
39
27
27
32
32
32
32
32
32
2
29
30
26
32
22
29
37
33
40
31
2
35
29
30
32
2
24
26
36
29
26
1401
499
757
5
92
1312
1312
720
720
720
720
720
720
53
1255
17
301
231
1407
1096
167
79
333
10 2
1127
424
436
113
646
725
176
1167
124
964
794
1 Nonacquescence reates to Issue regardng oard s |ursdcton of subsdares.
I Nonacquescence reates to ssue whether redempton of stock was equvaent to ta abe dvdend.
Nonacquescence reates to foowng ssues: Unuernantcnance proft and oss on bonds retred amor-
tzaton of bond dscount.
Nonacquescence reates to the foowng ssue: aue at whch fe nsurance poces, In whch the
decedent had eected durng hs fetme to have the proceeds pad to benefcares n nstaments, shoud
be ncuded n the gross estate.
Nonacquescence reates to ssue respectng deprecaton.
Nonacquescence reates to ssues (1) the acquston by pettoner of stock of the eows Corporaton
and the Caude Neon edera Co. (2) the Caude Neon Lghts of Maryand, Inc., transacton nvovng
the e change of property for stock.
Nonacquescence reates to bass for determnaton of gan or oss on the sae of property devsed sub|ect
to a fe estate.
state ta decson.
cquescence pubshed In Cumuatve uetn II-1 (1933), revoked.
Nonacquescence reates to the foowng ssues: Dd pettoner and affated corporatons make e -
pendtures n 1920 to rehabtate ts propertes for undermantenance durng edera contro, for whch
they were aowed 766,004 n fna settement wth the Drector Genera of Raroads, and f so are such
amounts deductbe n determnng ta abe ncome for 1920 and the computaton of net ta abe ncome for
the months of anuary and ebruary, 1920, sub|ect to the rate of ta appcabe to corporatons whch were
under edera contro.
II Nonacquescence reates to Incuson In consodated nvested capta of capta stock ssued for promts-
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46
Nonacqcescences Contnued.
Ta payer.
Dockc
No.
oard of Ta |
Commerca Garage Co
Commerca Investment Trust Corporaton
Commonweath, Inc
Communty ond Mortgage Corporaton..
Communty Mausoeum Co.1
Communty Teephone Co
Communty Water Servce Co
Cone, dward
Conney, ames . .
Conney, L. .
Conney, Mary .
Cont, Lucana
Contnenta Inos Natona ank 4 Trust Co. et
a., trustees u/w Marsha ed, Two- fths
Noncumuatve Trust und
Contnenta Insurance Co
Cook, zabeth
Cook, San
Cooper, . T.
Cosmopotan ond t Mortgage Co.
Coster, my Pe, estate of
Coughn, R. Lawrence and veyn W
Coursey, Sarah . W.
Coward, Mnne M
Crews, Chares W.
Crews, verett .
Crews, Raph W. .
Crews, Robert .
Cre, Grace Mc rde
Crspn, Mrs. gerton
Cronn, rnest . -
Crosby, Oscar T
Cross, Maurce
Cunard Coa Co. .
41646
43495
50051
264
437 4
703 4
7756
77560
5 777
440 1
45 33
46267
51967
60566
6694
440 3
45 34
440 2
79793
3341
92569
3 579
35014
3144
44617
90915
76106
71755
7465
66766
66767
66701
66702
43136
45267
279
51317
32735
26 74
26 75
2S792
5 545
4 33
22
2
36
27
33
32
32
26
30
30
30
35
40
40
25
25
7
30
39
32
33
39
37
37
37
37
26
2
37
27
24
26
26
2
Cuppa, erome C
Curee, Sheby ., trustee
Nonacquesccnce reates to deducton In 1026 of e cess of market vaue over sae prce of stock sod u
empoyees.
Nonacquescence reates to Issue whether the fna Instament on the sae prce of mausoeum crypts
to be retaned by a trustee as a perpetua care fund shoud be e cuded from the fu contract prce n com-
putng proft, the ta payer reportng on the accrua nstament bass.
Nonacquescence reates to ssue nvovng the amounts pad to stockhoders by . O. Curts Leather
Oo. upon canceaton of certan stock.
Nonacquescence reates to vaue of common stock of mercan Chan Co., Inc., and the bass of ao-
caton of cost between sad common stock and preferred stock of sad company acqured at the same tme
and under the same agreement.
cquescence pubshed n Cumuatve uetn II-1 (192 ), wthdrawn.
Nonacquescence reates to ssue nvovng commssons charged on rea estate oans.
1 state ta decson.
Nonacquescence reates to the foowng Issue: Computaton of ta abe proft to pettoner from sae of
and by the trust durng 1930 on the bass of the vaue of sad and as of March 1,1913.
Nonacquescence reates to Issue n respect of aowabe deducton for depeton.
Otft ta decson,
u Nonacquescence reates to e pendtures for mne equpment.
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47
Nonacquescences Contnued.
Docket
No.
oard of Ta ppeas.
oume.
Curren, ector McGowan.
Curts, Cyrus .
Cza|ke, I. T., transferee
Dah, Chester T., estate of
Daton, . G
Dana, Chares - -|t
Darng, rank W. and Mrs. rank W . .
Dashe, C. R
Davdson, Watson P
Davs, rederck
Davs, Thomas L
Day, Chares, estate of 1
Dean, Mason L
Dearng, Roy ., estate of
Dearng, R. ., estate of .-
Dearng Trust state, R. . 4
Dearng, Mrs. R. .1
Dearng, Ws R.
Dearng, Mrs. Ws R.
Degener, ohn P., estate of1
Degener, r., et a., ohn ., e ecutors
De Lsser, orace, estate of
de MUe Productons, Inc., Cec . _
de Me Productons, Inc., Wam C.
Dennett, Mare G.7
Dennston et u ., arod S-
Denny, Regnad
Depew, Ganson
des Cognets, stce
des Cognets, Lous, estate of
Des Mones Improvement Co.
Descher et u ., ugust P.10
Descher et u ., Samue .
D Manufacturng Co., The
Dstrct ond Co
1 26
6613
64639
19G2
64711
70953
76699
79254
75056
464 6
37324
37395
75102
61205
69 32
4195
4194
4193
4196
4192
4197
3S500
3 500
2459
52996
61290
65123
5310
61321
72023
9172
49516
50 60
70 92
70 9
573
5716
5715
95 3
970
944 6
2065
23969
60661
34
36
33
35
34
36
34
36
27
24
24
34
35
36
36
36
36
36
36
26
26
2
31
30
30
37
33
27
34
34
7
36
36
39
39
19
19
2
Dohrmann, ndrew . C
Doomte, Inc
state ta decson.
state ta decson nonacquescence reates to deducton of baance due on pedges made by decedent
durnc bs fetme to certan chartabe and educatona nsttutons.
Nonacquescence reates to ssue whether far market vaue of o payment contracts taken as compen-
saton for drng o and gas wes for others by a partnet shp, Is ta abe a ncome.
Parta acquescence pubshed n Interna Rovenue uetn 1P3S-16. page 1 wthdrawn.
state ta decson: acquescence pubshed In Cumuatve uetn -2 (1931), recaed.
Nonacquescence does not reate to the case of Constance . de Me, Docket 71952, whch was dsposed
of bystpuaton.
Nonacquescence reates to deductbty of 10,000 because of the fact that a bond In whch pettoner
had nvested became worthess n 1930, athough that fact was not ascertaned unt 1931.
Nonacquescence reates to deducton of amount e pended for denta brdge work and amount e pended
In keepng pettoner In frst-cass physca condton.
cquescence pubshed In Cumuatve uetn II-1 (192 ).wthdrawn.
u Nonacquescence reates to Issue whether wves of pettoners are onty abe for defcences when
ont returns are fed.
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4
Non acqcescences Contnued.
Ta payer.
Donney, Pau ., estate of 1
Donner, Carro ,
Donner et a., Carro ., e ecutors..
Donner et a., Carro ., guardans.
Donner, oseph W
Donner, r., oseph W..
Dort, . Daas, estate of1
Dougas, D. W...
Dougas, Wam
Dougass, oward W., estate of
Dravo, rancs R., estate of
Dravo, Raph M., estate of 1
Dravo et a., anne M., e ecutors of the estate of
rancs . Dravo 1
Dravo et a., ane M., e ecutors of the estate of
Raph M. Dravo
Drawoh, Inc
Drver, Sr., rank L., estate of
Drumheer, George
Duff, Robert C _
Dunnng, enry . ._
Dunham et a., Lucy ee, e ecutors
Dunham, Mary rgna, estate of 1
Dye, Carke
.
ast Coast O Co., S.
aton, Cyrus S.
ckhart, ernard ., estate of -
dson Securtes Corporaton...
dward Securtes Corporaton..
fert, ar C
nhorn, Ma
drdge, ce .s
drdge, . S.5
khorn Coa Co.
kns, ae D.
kns, Wam L., estate of
s, R. R-, estate of.-
y, zabeth Tayor
merson, Sgurd -
mery, Mary M., estate of
7103
60237
60236
60235
60236
60235
44735
7419
7420
40031
f 094
9366
f 094
. 9366
094
. 9366
/ 094
9366
45014
70574
41515
45752
37552
3459
46603
74911
5 1 0
6942
76443
52662
7120
457 1
73 93
64779
6477
49064
39255
56449
67967
76546
/ 77307 1
77309
40 99
3
32
32
32
32
32
26
37
37
30
40
40
40
40
2
36
27
23
36
26
33
31
37
33
29
30
23
36
30
30
34
24
2
34
33
35
state ta decson.
Nonacquesecnce eates ony to the ssue: Where two hrothers and ther wves transferred contem-
poraneousy certan property n trust, and not n contempaton of death, shoud a or any part of the prn-
cpa of the trusts be ncuded n the respectve gross estate of the brothers
Nonacquesecnce reates to ssue 2 of decson.
4 Nonacquosceuce reates to the foowng ssue: Whethor the Commssoner erred n usng as a bass W
securtes sod by the partnershp of Ots Co., of whch the pettoner was a member, the cost of sa d
securtes to the contrbutng partner.
Nonacquescence reates to deducton of oss n transfer of securtes to a corporaton n whch pettoner
owned a the stock e cept quafyng shares.
Nonacquesecnce wth respect to the hodng that there was a reorganzaton.
cquescence pubshed n Cumuatve uetn I-2 (1932), revoked.
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49
Nonacqt|escences Contnued.
Tapayar.
oard of Ta ppeas.
oume.
qutabe Lfe
States
ssurance Socety of the Unted
qutabe Trust Co., of New York, ancary admn-
strator 1
rb et a., Ray L., e ecutors
the D. Co
ustn, ugustus .
venng Star Newspaper Co
verhart, ames Wam
armount Cemetery ssocaton.
arsh, Lbbe Rce
arsh, W. S
arsh Co., W. S.-
armers Cotton O Co
armers Lfe Insurance Co.
edman, enry O
erree, C.
dety- ankers Trust Co
dety 4 Casuaty Co. of New York
dety Coumba Trust Co., trustee
dety-Phen re Insurance Co. of New York...
dety Unon Trust Co. et a., e ecutors 1
ed, Marsha --
ed, Marsha, cstato of, Two- fths Noncumua-
tve Trust und..
fth venue ank of New York, e ecutor.
fth Street udng.
rst- mercan re Insurance Co.
rst Natona ank n St. Lous
rst Natona ank of oston, admnstrator 1
rst Peopes Trust
sher sher, Inc
sher, Irvng
tzgerad, Thomas
tzpatrck, Wam T., estate of 1
aherty, Wam, estate of, and a
etmann, Wam M., estate of
etmann, r., et a., Wam M., e ecutors .
emng, Lamar LS
31110
33241
57 67
67259
29260
32032
71637
f 61 70
66 55
26675
30925
42 11
1145
1146
7 40
42679
43317
45359
61542
3421
92573
65041
65042
92571
72236
3690
3341
69534
16627
29264
45537
92570
4427
4 07
44746
45403
60929
61622
62075
90911
79397
2 449
2 449
7 362
33
31
29
27
30
2
26
25
36
36
3
27
27
2
32
37
40
30
40
31
26
40
31
32
24
40
23
25
26
32
30
29
39
35
22
22
34
state ta decson.
1 Nonacquescence reates to the foowng Issues: Redacton of cost basts (March 1,1913, vaue) of assets
sod by a partnershp n 1919 by deprecaton aowed n computng ncome for perod March 1, 1913, to
December 1,1915 computaton of 1919 partnershp proft on sae of assots by consderng as part of the soe
prce ta es of the partners pad n 1920 by the vendee.
cquescence pubshed n Cumuatve uetn TII-2 (1934), wthdrawn.
Nonaoquescence does not reate to Issue n connecton wth opton payment receved for purchase of
and.
cquescence notce pubshed n Cumuatve uetn -2 (1931), recaed.
Nonacquescence reates to ssue nvovng ncuson In Income the decedent s share of profts of a part
nershp of whch he was a member up to the date of hs death.
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60
Nonacq escence6 Contnued
Ta payer.
Doket
No.
oard of Ta
emng, Margaret . . _
emng, Wam
emng, Mrs. Wam
etcher, Saathe R
nn et a., Cara Louse
ntermann, Car . L., estate of .
omot Gn Co.
ye, Lous ., estate
oey, Thomas ., estate of
oger Co., .
oger state Co...
orest Gen Creamery Co
oster, Carone ., estate of
oster et a., Chares . W., e ecutors .
oster, L. .
ounders ssocates
o , ontane
o Rver Paper Co
rankn Tte Trust Co. .
ranks, ack M...
rost, Mary Rverson.
uhage, fred . ...
uer, van T......
urnture Corporaton of merca, Ltd.
Gae, mv
Gambe Stockton Co. .._
Gambr, Rchard an Nest
Ganopus, C. G
Garcn, dward
Gardner, Chares .
Garre, Dane T., estate of
Garvan, ohn oseph, estate of .
Gary, rgna ., e ecutr
7 416
61042
65676
61043
65677
33041
44 3
4491
75516
93102
4321
67217
22212
30721
31200
35147
51 33
46672
46672
430 6
626 4
710 4
20 7
51947
60167
67 05
536 5
9 1
61754
73759
72 00
72 01
61672
42707
1544
79 5
21657
3 575
31736
44746
40031
30
1
1
24
7
2
40
39
4
27
27
33
26
26
25
29
30
2S
32
32
3S
32
31
30
27
26
3
39
22
25
2.r,
25
30
1 Nonneouescence rotates to vauaton date for cost purposes of securtes acqured by pettoner from a
trust under her grandfather s w.
1 Nonacqucscence reates to ssue whether pettoner-benefcares arc ta abe on dstrbutons made on
anuary 4, 1933.
state ta decson.
Nonacquoscencc reates ony to the ssue Invovng: the appcaton of secton 302(e) of the Revenue ct
of 192(1 to a trnup fe pocy ssued to the company of whch the decedent was an empoyee.
Nonacqueacence reates to deductons n 1924 and 1926 on account of osses resutng from aeged saes
of seeurtks
Nonacquesccnce reates to Incuson n ncome of corporaton for years ended March 31, 1930, and
March 31, 1931, amounts representng renta of premses occuped by ts presdent.
7 Nonacquescencc reates to the queston whether rankn ond Mortgage Co. was entted to deduct
commssons pad on the sae of ts bonds nstead of proratng cost over the fe of the bonds.
Nonacqucscence reates to ssue whether redempton of shares of stock represents payment In parta
qudaton of a corporaton or a ta abe dvdend.
Nonacqucscence reates to ncuson n consodated Invested capta of capta stock ssued for prom s
aory notes.
Nonacqucscence reates to vaue of common stock of mercan Chan Co., Inc., and the bass of ao-
caton of cost between sad common stock and preferred stock of sad company acqured at the same me
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51
Nonacquescenceb Contnued.
Ta payer.
Genera Machnery Corporaton
Genera Motors Corporaton
Genera Outdoor dvertsng Co., Inc.1
Genera Securtes Co
Genera Uttes Operatng Co
Geneva Water Co.- -
Gerard, re --
Gerhartt, Php L
Gerach, Theodore R
Gerste et a., Mark L. -
Gbbs-Preyer Trust, No. 1
Grard Trust Co. et a., admnstrators
Gaddng, Mary D., estate of
G. M. S. Co-- -
Goet|en Metson Co
Goforth, Mary ---
Goforth, R. S
Godbenr, arry S. ---
Godschmdt, enry P., estate of
Godschmdt et a., Georgette, e ecutors -
Goodae, Water S
Goodan, May Chander. --
Goodman, uus.-
Gordon, ertha M. -
Gouder, erbert G
Graham, M.
Gransden Co., C. L
Gray, Raph L.
Great Southern Lfe Insurance Co.s.
Great Western Power Co. of Caforna.
Green, .
Green, Robert D.
Greeneaf Te te Corporaton
Gregory, veyn
Greser, ernard
Grescr et a ., So
Greve, Wam M
Grffs, Stanton .
Grffths, George W.
oard of Ta ppeas.
No.
oume.
Page.
70449
33
1215
52S24
35
523
66511
32
1011
21
3
330
52770
29
934
9249
37
5 2
45221
2
236
77375
34
1229
/ 3 042
1 41641

565
62 54
33
30
9917
39
492
75624
32
926
31435
27
3 5
163 3
26
223
17 75
26
223
52316
32
1206
52316
32
1206
53 9
4
1073
1613
14
1010
1613
14
1010
7 456
34
697
67472
32
720
7552
40
22
10 1
36
202
71
39
670
3 335
26
301
90134
39
9 5
/ 6940
6941
3
5 4
f 56540
64064
33
512
I 71114
4 617
30
503
74910
33
24
53647
24
719
46746
26
737
55299
27
223
9404
37
542
9403
37
542
7.-) s6
37
450
3 577
25
1351
2624
37
317
Nonacquescence In ssue Invovng counse fees pad In connecton wth tgaton.
Nonacquesconoe reates to the foowng queston: re pettoners entted to deduct, on ther ndvdua
returns the operatng and capta osses sustaned by rea estate syndcates of whch they were members
nd 19 reated dockets.
state ta decson.
cquescence pubshed In Cumuatve uetfn - (1931), wthdrawn.
state ta decson acquescence pubshed n Cumuatve uetn -2 (1931), recaed.
1 Nonacquescence n hodng that pettoner s not ndvduay abe for any part of defcency.
Nonacquescence n foowng ssues: Dd the ta payer rease nterest accrued upon a oan where t
forecosed ens on certan bonds pedged as coatera Dd ta payer reaze nterest as ta abe net ncome
where notes were e changed for new notes whch ncuded nterest and the new notes were not pad durng
the ta abe year Where ta payer acqured the assets and busness of three other Insurance companes
durng the ta abe year, was Income reazed upon the coecton of nterest that was accrued but not pad
as of date of purchase
Nonacquescence reates to transacton S.
Nonacquescence reates to vaue of common stock of mercan Chan Co., Inc., and the bass of ao-
caton of cost between sad common stock and preferred stock of sad company acqured at the same tme
sad under the same agreement.
Nonacquescence reates to ssue whether sae of 5,000 shares of stock of Oakrdge Cemetery Corporaton
Is a persona or corporate transacton.
G
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1
3
-
0
1
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2
2

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52
Ta payer.
Docket
No.
oard of Ta
Page.
Grosvcnor, Theodore P.
Gutar Trust state
Guf Coast Irrgaton Co. .
Guf, Mobe Northern R. R. Co. .
Gund, arone ., estate of
.
ackMd, ohann redrch, estate of4.
agerman, Staney
anes, Mary .5
ae, rnest
ae, R. __
ae, W. T
a, arry . R., estate of.
a, Martha M
aock, enry, estate of
ancock, G. an
anson, Chares C
arbson, Raph W.
arbson, Wam bert
ardwck, Mar|ory Tayor
aran, George
arrs, Smon
arrson, ames M
arrson, .
arrson, Lous -
art, uan
art, Wam .
artcr ank, The George D., trustee of Gbbs-
Preyer Trust No. 1
artey, Cavour, e ecutor
artey, G. G., estate of
auser, W.
awaan-Phppne Co
awey Investment Co
azetne Corporaton.
azeton Corporaton.
eath, arret
603 1
35102
33694
400 1
41343
24 7
42150
70 91
77997
7 023
7725
67105
67750
67751
70004
7159
64501
76 02
76 03
76927
36 67
1539
54346
.54347
76545
60500
31632
66193
45361
7553
75030
7 77
2652
9917
42343
42343
43301
43302
69619
45169
45170
42277
47011
51931
60313
61954
90599
31
25
24
22
34
34
37
33
32
32
29
31
34
25
23
26
26
33
30
24
30
2
40
37
36
39
27
27
26
35
23
32
674
1213
233
640
1020
115S
1013
504
356
356
1255
1013
675
607
249
04
512
966
236
22
360
1207
492
952
952
117
173
953
1 Nonacqueseonco reates to affaton Issue.
Nonacquescence reates to ssues nvovng award of Interstate Commerce Commsson In 1930 for
transportaton of Unted Sates mas n 1916 and 1917 and deducton n 1926 for deprecaton on ways and
structures.
Nonacqucscence appes to the entre decson of the oard In so far as It Is adverse to the Comms-
soner. Parta acquescence pubshed n Interna Revenue uetn I-2 (1932), revoked.
state ta decson.
ft ta decson.
cquescence pubshed In Cumuatve uetn II-1 (1933), wthdrawn.
G
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1
3
-
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2
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#
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53
Nonacqutescbnces Contnued.
Ta payer.
36
491
36
11 1
24
444
32
1232
34
5
25
259
25
1351
32
449
20
1133
2
1172
2
1172
2
1172
2
1172
36
934
36
934
27
409
29
216
29
216
24
269
32
760
32
760
2
792
25
127
3
1343
24
1144
37
7 2
40
376
24
1144
32
254
33
276
34
791
26
301
26
301
26
301
32
646
32
646
33
71
33
71
30
337
27
1229
27
660
ebert, Pau Octave, estate of -
eckscher, ugust
edrck, . T
effcfnger, rank T.
enz, oward
eer, . G
emph, Cfford . --
endrckson, oseph G., estate of
enn, . W._
enrtze, .
enrtze, Ne
enrtze, T. R
enrtze, T. W
erder, George, estate of
erder, Mary
ermann, ohn C
ertensten, reda M
crtensten, rederck
eronvmus, Car Rchard, estate of
ghands, vanston-Lnconwood Subdvson rst
ddton, Trust No. 1546, et a
ghands, vanston-Lnconwood Subdvson,
Trust No. 1521, et a
ghwav Traer Co
ghcv Co., .
gey Trusts, Merchants Natona ank of Cedar
Rapds, transferee and fducary 1
, D. ., estate of 1
, Louse G - ---
, Sherwn ., admnstrator of estate of ohn R.
McNaughton
et a., Pau ., e ecutors
nds, Water DeWtt, estate of
tte, ohn .
ochstetter, Raph
odges, gnes Wey, e ecutr
odges, W. L., estate of
odges, W. L., trustee
oge, rthur ., estate of
oge, anche C, e ecutr
oge, ames D., estate of
oge et a., the ., e ecutors
odng Corporaton, O. P. P
omes akery 4 Confectonery
omes, Car
323
2000
33533
41145
44 52
53 1
03407
69694
73479
79059
79450
40634
3 573
73029
37102
60609
60607
6060
60606
4051
4052
51959
5593
55936
4 930
74464
74465
44.56
51003
7 576
29399
04 3
92195
29399
49 60
70 20
76160
3 336
3 336
3 337
6 435
6 435
5 11
5 119
5 11
5 119
60074
/ 44943
52 61
51473
I
state ta decson.
a Nonacquesccncc reates to vaue of common stock of mercan Chan Co., Inc., and the bass of aoca-
ton of cost between sad common stock and preferred stock of sad company acqured at the same tme and
under the same agreement.
Nonacquescvnce n ssue reatng to nvountary converson.
G
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#
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54
NoN Ctr sc NC S Contnued.
Ta |ayer.
Docket
No.
of Ta ppeas.
oume.
omes, . ., trustee-
omes, Margaret .
ome Tte Insurance Co.
omok, W. L
ormc, .av C.1
ousehod Products, Inc..
ousman, Carence
ousman, rederck
ouston aseba ssocaton
ouston ros.
ouston, George T.
ouston, orace .
ouston, Php D. __
oward ote Corporaton
oyt, 2d, ton
uhurd, Chares ., estate of
uburd, De orest, ndvduay and as e ecutor
and trustee
umme-Ross bre Corporaton
umphrev, Dudey T -
unter, G. W., estate of
unter, r., Thomas .4
untngton, enry ., estate of .
utchson Coa Co
yde, ames
I.
Inos Lfe Insurance Co
Inos Ppe Lne Co
Impera evator Co
Impera Investment Co
Independent O Co
Indanapos, Crawfordsve Danve ectrc
Ry. Co -
Indanapos Northwestern Tracton Co
Ingram, Thomas
Irvng Trust Co., trustee
Irvngton Investments Co
Ieenberg, Otto rnst, estate of
Iten scut Co
Ives, Chares
Ives Dary, Inc
Iwck, . W., transferee.
44943
52 61
4 631
51570
53394
63737
55211
93572
44 09
5 79
5 774
439 5
45430
12052
13104
2200
22009
22007
7393
64710
70954
2202
2202
59 65
64376
33564
5 490
45429
34939
65495
69952
67201
74525
356
29291
67700
33 59
33 61
56943
4371
77557
74249
43667
45164
51527
39 73
64653
27
27
30
39
24
26
26
24
22
22
22
22
39
34
27
27
31
32
25
33
2
24
31
30
37
25
23
35
24
24
32
35
32
37
25
29
23
33
1 Nonacqucseence reates ony to the Issue Invovng the ta abty of the ncome of severa trusts n
were created for the use and beneft of the grantor s mnor chdren.
Nonacqucseence reates to March 1, 1913, vaue, and to the bass for the deducton for depeton and
for the computaton of gan or oss upon subsequent sae of the tmber.
1 state ta decson.
Nonacqucseence n Issue Invovng queston of reazaton of ta abe proft on e change of cass
eommon stock for cass stock.
Nonacqucseenee reates to ssue whether ta payer sustaned a net oss n any busness reguary carred
on n 1924 whch coud be carred forward and deducted from ta abe ncome n 192 .
G
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#
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55
Ta payer.
oard of Ta ppeas.
oume.
Page.
.
ackson astern Ry. Co.
ackson, Pau Wde, trust.
ackson et a ., Stonewa .
ackson, Wermch Trust
amson Coa Coke Co
ane odng Corporaton
anotta, Stea S.
efferson Standard Lfe Insurance Co
effres, ames ., estate of
ohnson, . M
ohnson, ames Lee
ohnston, . arod, e ecutor
ohnston, . M., estate of... - -
ohnston, ugh Mc rney, ndvduay and as e -
ecutor and trustee
ones, esse R
ones, Chester ddson
ones, red ., estate of4
ones, Loyd
unge, Caus, transferee -
ahn, ea...
ahn, Isdor..
ahn, Lenora.
.
ansas Cty Southern Ry. Co. and affated com-
panes
eener O Gass Co
eeys, dward L
ehoe, ohn
ehoe, Sarah
eer, nna M., estate of4
eer et a., Pus P., e ecutors of estate of nna M.
eer 4
ey, rancs ., e ecutor 4
ey, Rose ., estate of 4
3 295
42149
7492
72002
72119
72127
72244
73625
75762
7644 -
76455
769 0
32306
31690
340
7240
51172
43149
196
61345
2263
79029
79029
2202
5 2 5
50206
7203
90323
64637
73 95
73 91
73 94
2266
35527
3552
35529
35530
35531
607 9
45360
64609
64609
93221
93221
70 99
70 99
22
33
37
24
24
2
25
37
32
37
33
33
27
27
31
3
39
36
36
36
22
32
2
34
34
39
39
31
31
Nonaequescence reates to Issue nvovng deducton (or deprecaton on ways and structures.
1 Gft ta decson.
Nonaequescence as to ssue regardng deducton (or depeton,
ttate ta (
311
1004
150
554
960
39
1335
742
156
155
551
551
1123
171
55
220
531
564
954
954
954
949
1 6
236
59
59
1047
1047
941
941
tate _ ...
cquescence pubshed n Interna Revenue uetn 193 -37, page 1, wthdrawn.
Nonaequescence reates to the foowng Issues: Deducton o amounts e pended to restore
property notwthstandng the fact that the Drector Genera of Raroads made payment to
hs faure to mantan the property e cuson from gros9 ncome of ntercompany I
and suppes used n makng addtons and betterments to pettoner s property.
t charges on
G
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1
3
-
0
1
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2
2

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3
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7
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#
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56
Nonacqt|esctbnces Contnued.
Ta payer.
en co Cemetery
erbaugh, enry S
errgan, rthur L
ng, ohn M
rby, Lea S. -
rk et a., zabeth S., e ecutrces and e ecutor of
the estate of C. enderson Suppec 21
rkpatrck, ohn L
tseman, C. M., estate of
napp, tte .4
neeand, Yae, estate of s
noboch, Davd C
noboch, erman
noboch, Wesey
no , Seymour
och, arry
onnk|ke, N. ., oandsche Loyd 1
ountze, Chares T
ountze, Luther L., estate of
ountze et a., Chares T., e ecutors. --.
rause et a., rances ., e ecutors
rug, George --
La rcada ondhoders Commttee..
La rum et a., Catherne, e ecutors.
Lafayette Lfe Insurance Co..
Lard, Wam Wnder, estate of ..
Lang. uus C., estate of -
Langford Investment Co., trustee
Langford, r., et a., Perce P
Langworthy, Mar|ore C -
Lansburgh, Lester, estate of
Lashar, Water
Laube, ustus
Laughton, Chares
Laun, fred
Laun, .
Lazarus Co., . R - -
Leadbctter, red W.
Le Gerse, Cece, estate of
Le Gerse et a., dythe, e ecutors of estate of
Cece Le Gerse 5
76703
6 976
5 794
41549
73753
9363
67474
77 12
2775
7974
727
7275
7276
65203
5531
7 662
37323
37535
37535
49 60
46713
756 4
67217
41721
42663
51654
6 316
57203
57203
71961
14 0
37 3
70007
71595
104
45347
4534
694 1
69750
5
92103
92103
35
29
26
26
35
39
32
33
7
34
3
3
3
33
26
34
24
24
24
32
30
35
34
26
3
34
2
2
30
35
34
29
40
26
26
32
39
39
39
49
1014
1401
115
57
902
720
494
790
16
30
30
30
972
1025
30
405
405
405
254
137.5
0
25
946
926
337
222
222
1216
92S
76
1255
101
764
764
633
629
1134
1134
Nonacquescence reates to Issue Invovng the bass for computng ta abe gan In 1927,
from the sae of bonds of the rby Lumber Co.
Gft ta decson.
Nonacquescence reates ony to the Issue, Dd the Commssoner err n vaung, for gft
certan snge premum poces upon the bass of the premums actuay pad rather than the c
vaue
cquescence pubshed n Cumuatve uetn II-1 (192 ), wthdrawn.
state ta decson.
cquescence pubshed n Cumuatve uetn -5 (1936), page 13, wthdrawn.
7 Nonacqucscenco reates to the ssue Invovng the vauaton of certan shares of stock as of the tot of
the decedent s death.
state ta docson nonacquescence reates to deducton for funera e penses ncudng cost of erypC
Nonacquescence reates to queston whether dstrbuton of stock had the effect of dstrbuton of a
ta abe dvdend.
Nonacquescence reates to a Issues e cept the Issue: Was the pettoner durng the ta abe yean dom-
ced n the State of Oregon or the State of Washngton
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57
Nonacquesoe ces Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Lcary, Sr., .
Learv, Myra L -
Leepcr, rank ., estate of
Leeper, Pear
Leetona urnace Co
Lembcke, George
Leon Son, Inc., bert
Leonard, Stephen
Lews, Wadsworth R
Lberty Marne Insurance Co.
Lcht, Rose
Lebes Co.,
Lndernan, Wam S., e ecutor..
Lqudatng Co
Lttauer, ugene, estate of1--
Lttaucr et a., Lucus N., e ecutors 1
Lvngood, Chares ., e ecutor 1
Loyd, . Darse
Loyd-Smth, Mar|ore emng
Lovd, Water
Loffand, . M. .
Loffand, T. S.
Loughran, nnette
Lous, Cora
Lousve Trust Co. et a., trustees
Lucas, Mabee T
Luqure ura ssocaton Co., Inc., W.
Luqure unera omes Insurance Co., Inc.
Lustg, Davd L., estate of
M.
Mack, eanor L_-
Mack, ohn S.
MacPherson, Mac Recor
Madson Raways Co
Macrnee, D.
Manckrodt, r., et a., dward, trustees.
Macry, Otto T.. -
Maory, L. W., estate of
Maoy Co
Manchester Coa Co
Manhattan Lfe Insurance Co
Mann, George D
Mannng, Chares N
Mants, Muer 4 Co., Inc
7( 45
76 46
45266
45265
32272
75305
53440
65 05
75957
67263
6716
2 544
3503
5 71
60 50
51 5
51 5
40 99
71445
3575
4 120
13425
13426
9464
49179
65040
72933
7909
79097
705 2
6 56
9719
920 3
5121
63553
7913
7339
91535
33231
57906
33392
60 27
/ 54223
63370
34
2
2
23
33
29
36
34
32
37
23
2
33
25
25
25
33
40
30
10
10
40
29
30
34
36
36
33
37
39
39
36
31
3
40
27
33
24
2
33
) 1
state ta decson nonacquescence In respect to tbat part of decson whch hods that accrued nterest
pad on edera ncome ta es for 1927 and 192 from date of decedent s death to November 5, 1930. s a proper
aowabe admnstratve e pense.
cquescence pubshed In Cumuatve uetn I-2 (1932), revoked.
Nonacquescence reates ony to the Issue nvovng a deducton of 45,003.93 for ega and Incdenta
e penses.
Nonacqueseence reates to ssue nvovng the amounts pad to stockhoders by . O. Curts Leather
Co. upon canceaton of certan stock.
Nonacquescence reates to deprecaton aowabe under the Revenue ct of 1913: acquescence pub-
shed In Cumuatve uetn v (1929), wthdrawn In so far as It appes to ths Issue.
state ta decson.
Gft ta decson.
209196
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5
Nonacquesoences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas
oume.
Margay O Corporaton
Markham Irrgaton Co.1
Martnek, ee C. ershman, estate of
Marvn, Water S.
Marvn, Wam Genn, estate of
Maryand Insurance Co
Mason, Mary S., estate of 4
Matagarda Cana Co. ..
Mather, Samue, estate of
Mateson, ugh M
Mathews, Susan ., e ecutr
Mathews, W. ., estate of..
McCabe, en C.
McCabe, George ., estate of
McCabe, ames
McCabe, ames Roscoe
McCabe, Mton Mathew -
McCabe, Wam ohn
McCabe, r., Wam ohn
McCarter, Uza ., estate of
McCormck et a., Cyrus ., trustees
McCrory, Luke W., trustee --
McCurdy, Wam ., estate of
McGrath, ames W., and ntonctte
McGrath, Mare Louse
McGrath, Robert -
Mcvane et a., Wam ., trustees
Mc nney, Ida I
McLauchan, Wam, estate of.-
McLster, rank
McMan, Wam Northrup, estate of
McNaughton, ohn R., estate of
Mc ckar, Lansng
Mehern, Dora M
Mehern, P. W. -
Meon, . W. -
Menzcs, Chares M
Mcnzcs, Inc., C. M - -
Merau , Mrs. L. . --
Mercante-Commerce ank Trust Co. et a.,
admnstrators of Pau . Donney
Merchants Natona ank of Cedar Rapds, trans-
feree and fducary of gey Trusts
44 91
41344
79112
3 57
77017
92574
4133
400 2
41345
64712
71353
4320
4320
697 3
69779
6977
697 1
69777
697 0
697 4
69193
44139
32444
676 1
65040
65042
65039
52931
57226
45 23
62905
70952
4 562
45966
92195
77993
0422
1035
76499
7614
76147
2462
7103
7 576
20
24
3
25
34
40
3
24
34
31
33
33
29
29
29
29
29
29
29
34
26
25
31
30
30
30
29
32
34
27
27
40
37
35
35
36
34
34
3
3
Nonacquescence reates to affaton L
Nonacquescence reates to vaue of common stock of mercan Chan Co., Inc., and the hass of aoca-
ton of cost between sad common stock and preferred stock of sad company acqured at the some me and
under the same agreement.
1 state ta decson.
Nonacquescence reates ony to the ssue. Dd the decedent have more than a fe Interest In the eeta
of her mother
state ta decson nonacquescence as to queston of stus.
Nonacquescence n ssue wth respect to mmunty from edera ncome ta of compensaton of offcer
and empoyees of the oard of State arbor Commssoners of Caforna.
7 Nonacquescence n oard s acton wth respect to the foow ns: (a) Refusa of oard to sustan respond-
ent s affrmatve ssue wth respect to appcaton of secton 112 (c) to McCntc-Marsha Corporaton sn
Unon Constructon Co. qudatons (6) addton of 29,191.33 to ta payer s bass of McCntc-MarsM
stock after rather than before makng any aocaton of bass to Unon stock.
Nonacquescence reates ony to the ssue wth respect to the dsaowance of 1, 00 as an aeged to
from the wreckng of an automobe n 1931.
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59
NoN C C sr N O Contnued.
Ta payer.
Merner, Deght Ward
Merre, Irvng S - -
Metropotan ee Co.1... - -
Meyer, George L., transferee -
Meyer, Robert R.
Mchgan Centra R. R. Co. -
Mgetta, Oga -
Mer, bert -
Mer, dward
Mer M Co., T. R
Ms, . . Goadby
Mnnesota Tea Co
Msssspp Rver onne Terre Ry
Mssour State Lfe Insurance Co.
Mtche, Chares
Mtche, . .
Mtche, Oscar
Mtche, Wam
Mtten Management, Inc
Mod|esk, Raph
Monarch Lfe Insurance Co
Montague, Mes Co., Inc
Moore, da Sma
Moore, ma
Moore, dward W., estate of
Moore, G.
Moore, ohn R
Moore, Louse C, e ecutr
Moore read Co
Morgante rush Co., Inc
Moro Reaty odng Corporaton
Morrs, rthur .
Morrs et a., Lews Spencer, e ecutors of estate of
my Pe Coster 7
Morrss et a., ua L
Docket
o.
73406
70103
53936
69525
64654
44032
19930
36379
4536
50 3
2625
2 79
5 797
54227
42 2
5 241
623 6
74720
65 34
416 0
41 74
54673
5 799
42494
53990
61 61
49517
6 61
7441
7651
944
64790
6 219
5 720
3 351
64791
6 21
5 720
41645
26369
37406
44759
50490
64246
90915
41023
41024
45 63
45 64
oard of Ta ppeas.
oume.
32
33
32
3
27
2
25
2
7
37
26
31
39
29
2
33
27
26
29
2
3

9
30
33
26
30
3
22
24
25
3
9
23
cquescence pubshed In Cumuatve uetn I -2 (1935), wthdrawn.
Nonaccucscence reates to foowng ssues: Whether ma pay receved n 1921 consttuted ncome n
1920 renta Inte est receved on competed addton and betterments n fna settement wth the Drector
Genera.
Nonaequesconce reates to deducton for reserve set up to meet abty upon matured coupons ad|ust-
ment of ncome for renta of space occuped n home of oe budng and deprecaton upon such budng.
Nonacquesccnce reates to ssue regardng deducton from ncome of sprnkng ta .
Gft ta decson.
1 state ta decson: nonacqucscence n the concusons on the thrd group of poces that the proceeds
thereof shoud be e cuded from the gross estate.
state ta decson.
G
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1
3
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1
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60
Novacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta I
Motrn Reaty Co. Trust o. 1
Morrss Reaty Co. Trust No. 2
Morse, .mma R., estate of 1
Morse Syndcate N os. 1 and 2, Le.
Morton, Sopha P. O
Morton, Sterng--
Moser, Caroyn L
Mosser, Chares
Mott, Chares Stewart.
Mott, Dee urey -
Mueer, ar W
Mucahy, ohn ,1
Munson, Robert
Murphy et a., red T., trustees
Murphy Persona Property Trust
Mutua Lfe Insurance Co. of New York.
Myrck, uan S
N.
Nashve, Chattanooga St. Lous Ry
Natona ank of Commerce of Seatte 2
Natona Casket Co., Inc.
Natona Contractng Co.4
Natona Grange Mutua Labty Co
Natona ome Owners Servce Corporaton.
Natona Land Constructon Co
Natona Outdoor dvertsng ureau, Inc.
Natona Ppe oundry Co.
Nea et a., . enry, trustees.
Nems, rank aywood
Nems, Mrs. rank aywood
Netcher, Chares, estate of
Neuberger, arry
Newberry Lumber Chemca Co..
Newburv, Moe Netcher, trustee
New Oreans Cod Storage Warehouse Co., Ltd.
Newport Co
New York Centra R. R. Co.1.
New York Lfe Insurance Co..
41023
45 63
41024
45 64
44652
9531
9532
9257
6517
91705
55937
55399
515 5
57506
71903
45362
0769
949
43795
43795
9764
51526
63376
/ 65
70
23
23
27
3
3
3
3
29
27
30
35
2
34
39
25
25
23
29
33799
24
9720
40
50320
29
24520
25
73099
31
91445
39
40126
25
65252
70999
32
32997
19
45403
26
51 7
27
51
27
42435
31
7 919
37
(s , 11
33
42435
31
9451
40
35431
24
19932
1
34437
2
62040
24
1 state ta decson.
1 Non acquescence reates ony to the ssue. May the pettoner deduct n 19 4 certan bad debts pre-
vousy charged off by t In 1933 (a net-oss year e cusve of deductons for bad debts), but wthout orders
from any bankng authorty, upon an aeged determnaton of worthessness n 1934, but wthout makng
any charge-off n 1934
Nonacquescence reates to the appcaton of a net amount of operatng osses after appyng the profts
of a subsdary durng the perod of affaton to reduce the oss sustaned by a parent company on the
qudaton of a subsdary company.
Nonaequpseenee reates to Issue 1 of decson and ssne regardng deductbty of overhead costs n 1925.
cquescence pubshed n Cumuatve uetn I -2 (1930), revoked. Revocaton of pror acques-
cence and present nonacquescence are duo to the faure of tho oard s decson to mt the word
dstrbuted to the cash dstrbutons made to the stockhoders.
Nonacquescence reates to foowng ssues: Whether ma pay receved n 1921 consttuted Income tn
1920 renta nterest receved on competed addton and betterments n fna settement wth the Drector
Oenera.
G
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2
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1
3
-
0
1
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2
2

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4
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61
Nonacqcescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
New York, Ontaro Western Ry. Co.
Nagara re Insurance Co
Nbey-Mnnaugh Lumber Co
Nchos Co Lumber Co
Nchoson, ames
Ncoa, . -
Nesen Co., . .- --
North mercan Investment Co.
North mercan Utty Securtes Corporaton-
Northern Coa Co.1
North port Shores, Inc
Noycs, ansen
Nudeman, Chares W -
Oakman et a., Mame It.
O Donne, dth M.
O Donne, Thomas .
Ogden, ugh W_r
Od Coony Trust Co., e ecutor of Lous . ye 4.
Od Coony Trust Co., trustee
Od Msson Portand Cement Co
Od Natona ank n vansve, e ecutor
Onger Mortuary ssocaton
Over, Ove ume
Omsted, George W. .
Omsted, Iva C. .
Ostad, Oscar
Omaha Coca-Coa ottng Co.
O Rear, . C.
Oregon Mesab Corporaton
Oregon Termnas Co
Ortz O Co.
52693
92572
17527
23601
669G6
57417
99
301 3
75039
34945
64500
3 574
79126
42917
799 0
529 7
62979
23913
4321
7492
3 S53
676 1
36502
65640
44090
45745
4 121
54714
60746
440 9
45746
4 143
54713
60745
766 3
52041
32335
90392
Oswego as Corporaton.
6112
2 301
32673
34352
797 6
63149
63150
319 6
30
40
26
24
32
33
26
24
36
2
31
25
35
24
35
32
24
39
33
25
31
23
30
30
30
32
26
2
39
29
37
26
3
27
27
26
. mercan Chan Co., Inc., and the bass of ao-
stock of sad company acqured at the same tme
Owen, III, ohn
Owens, . T
Owens, Mrs. . T
Owens, O. O
1 Nonacquesccnce reates to statute of mtatons ssue.
1 Nonacquesccnce reates to vaue of common t
caton of cost between sad common stock a|
state ta decson.
I Nonacquesccnce reates ony to the Issue Invovng the appcaton of secton 302(g) of the Revenue
ct of 102f to a group fe pocy Issued to the company of whch the decedent was an empoyee.
Nonacquescence reates to ssue nvovng the amounts pad to stockhoders by . O. Curts ather
Co. upon canceaton of certan stock.
Nonacquescence reates to Issue regardng amount of oss sustaned by pettoner by reason of destruc-
ton by fre of hs resdence and furnture.
Nonacquescence reates to the foowng Issue: Whether respondent erred n computng the depeton
aowabe to pettoner by treatng as an e pense of operatng a certan property the cost of a dry hoe dred
thereon.
G
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d

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U
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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
5

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.
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/
2
0
2
7
/
m
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3
9
0
1
5
0
7
6
0
3
1
6
9
2
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62
Ta payer.
Docket
No.
oard of Ta
P.
Pacfc Coast scut Co. ct a 1
Pacfc Nash Motor Co --
Pacfc Rock Grave Co. -
Pamer, radey . -
Pamer, Stacy-Merr, Inc --
Pan mercan Lfe Insurance Co.3..
Park, Wam. - --
Parker, Cara ., e ecutr 4
Parker, George D., estate of4 --
Parker, erbert L., estate of6 --
Parker et a., my ng, trustees
Parrott, . .
Patrck Cudahy amy Co
Patterson, rank IL, estate of T
Peabody, Cornea aven, estate of 6
Peabody et a., Stephen, e ecutors 6
Peace, arvey W
Penn, anche G.
Pennsyvana Co. for Insurances on Lves and
Grantng nnutes, e ecutor and trustee
Perkns, my S 5
Perkns, Yoaude
Perkns et a., Thomas N. _
32
23
26
32
39
3
3
31
31
30
30
2
36
36
24
24
3
39
32
35
3
715
45169
45170
2 776
62652
7997
463
7423
90026
5 604
5 604
53320
53320
309 9
3436
765 0
39647
39647
7277
90760
73029
7 532
9905
57 4
5 305
5 306
5 443
5 475
5 770
5 772
5 904
5 905
5 906
5 907
5 917
5 91
5 925
1 Nonacquescence wth respect to deducton of amounts e pended n connecton wth
qudaton of a corporaton.
Nonacquescence n oard s decson hodng that the Superpower rghts were not dvdends.
1 Nonacquescence eates to the ssue nvovng the deductbty of an amount equa to per cent of the
mean of tsreservc for ncurred but not yet accrued dsabty benefts at the begnnng and end of the ta abe
year.
Nonacquescence reates to ssue regardng e stence of Oeorgc D. Parker Co. partnershp.
state ta decson.
1 Nonacquescence reates to nterpretaton of artce 1567, Reguatons 45, as apped to e change of stock
of Pttsburgh Te as O Gas Co.
1 state ta decson nonacquescence reates to foowng ssues: Whether transfer s ta abe as effectve at
death whether transfer s ta abe as one concernng whch decedent aone, or n con|uncton wth other per-
sons, had power at death to ater, amend, or revoke the trust.
Nonacquescence reates ony to the ssue nvovng the effect of capta osses sustaned by a trust udgs
that part of the ncome of the trust ta abe to the grantor unde secton 167 of the Rovonue ct of 1934.
9 Nonncf
33
.Nonacquescence reates to the foowng ssues:
Dd the statute of mtatons, at the tme of the mang of the defcency notces, bar I
.
coecton of the defcences as to Thompson O Co., astern Carbon ack Co., W. . Davs, L0
Davs, Matda M. Davs, ton N. Davs, mma Luette Davs, e ecutr , u/w O. L. Davs, Lue Davs,
and Davs ros. Co., where the ncome ta returns were fed wth a deputy coector
Dd the statute of mtatons, at the tme of the mang of the defcency notces, bar assessment, and
coecton of the defcency as to Thompson O Co., where a consodated return was orgnay fed and the
Commssoner ater rued aganst consodaton
Is U. . M. Co. entted to a deducton greater than 14,17 .75 as an addtona bonus to Its genera
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03
Ta payer.
Petauma Santa Rosa R. R. Co.1
Pheps et a., Lus ames, e ecutors
Phps, bcn ., estate of 3
Phps, Pampha ., estate of
Phps, Wam S
Perce, dward ...
Person Corporaton, L. D
Pttsburgh Lake re R. R. Co.4.
Pans Reaty Co
Pant, enry radey.
Pat, amma 5 --
Pestcheeff, Guendoen C
Pestcheeff, Theodore
Pettner, Maude rown
P-M- Petroeum Co.4
Pon, Morrs
Pontare, Mchae
Porter, e ander ., estate of1.
Portand urnture Manufacturng Co.
Post Shedon Corporaton
Pressnger, Mabe L., estate of
Prce, arry
Prester, . C. -
Proctor Shop, Inc. --
Prosperty Co., Inc.
Prouty, Ove
Prudenta Insurance Co. of merca.
Pryor Lockhart Deveopment Co.
Pupn, Mchae I., estate of
Purdy, Chares Wesey
Purse, ames N
oard of Ta ppeas.
No.
oume.
Page.
13 30
11
541
50336
27
1224
1 02
36
752
7519
36
1102
24446
31769

9
5 796
26
1401
74347
35
60
42764
2
259
4 977
1
65492
31
412
67197
43 9
4 9 4
52094
30
133
55659
60923
7 930
35
472
0026
35
50
0025
35
50
33345
25
631
50576
54779

360
7460
39
951
3199
35
72
79322
34
79
61 09
70367
30
7
56695
2
26
0550
34
124
7000
71596
29
1255
55195
33
230
5 909
6626
30
721
45 96
5946
27
2
57 29
30
106
56641
60 4
33
332
6723
3 72
4566
26
1054
51326
34
6 7
63523
92177
3
121
2421
36
572
54124
27
725
Nonacquescence reates to that part o( decson concernng purchase of ta payer s own bonds at ess
than par whch wore hod as an nvestment. cquescence notce as to ths ssue pubshed n Cumuatve
uetn II-2 (192 ), revoked.
state ta decson: nonacquescence wth respect to the trusts for the son and daughter.
3 state ta decson.
Nonacquescence reates to renta nterest queston and oard s decson wth respect to porton of ma
pay receved n 1921.
Nonacquescence n ssue wth respect to mmunty from edera ncome u of compensaton of offcers
and empoyees of the oard of State arbor Commssoners of Caforna.
Nonacquescence reates to frst ssue of decson.
cquescence pubshed n Cumuatve uetn III-2 (1934). revoked.
1 Nonacquescence reates to overstatement of oss sustaned as a resut of qudaton of subsdary.
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64
Nonacqoescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas
oume.
ueen Insurance Co. of merca.
unn, Porte
R.
Ranbow Gasone Corporaton-
Randoph, ranke Carter
Randoph, R. D
Randoph, rg P., trust
Ray O Co. .
Raymond, oward W
Reaty ssocates, as syndcate manager
Reed, Latham R
Reese, ugusta ss
Rehtam, Inc
Reybne, pheus, estate of
Rcybne, Martha ., e ecutr 3
Reynard Corporaton -
Rchardson et a., orrest, e ecutors 3
Rchfed O Co ---
Rchmond, redercksburg Potomac R. R.
Reck, dward
Rffe, enry 9 --
Rey, nna
Rey Stoker Corporaton ---
Rey, Thomas ., transferee
Ro Grande Land Cana Co
Ro Grande Reservor Dtch Co..
Robbns, arwood
Roberts, G. P -
Roberts, Water
Robertson, . G
Rockwood, George O
Rockwood, Wam M
Rocky Mountan O Co.7
Rodeo- ae|o erry Co.
Roerch, Nchoas
Rogers, May
Co. .
92996
67156
65152
72365
51 90
51 9
4 33
43123
45219
4 015
61554
5 544
27921
5 00
70410
45016
60660
60660
073 6
70795
44652
42921
6 76
79157
3576
61066
365 4
6463
71350
71351
67076
6 434
37534
49552
52370
72711
72712
79421
36411
4 52
3065
45051
40
31
31
27
27.
2
2
26
17
26
30
2
31
31
30
27
25
33
35
3
29
26
33
31
31
33
32
24
2
31
31
36
24
3
31
32
Nonncqucsccncc reates to Issue wbcther pettoner was ta abe for years 11)20 to 1929,
trust o as an assocaton.
cquescence pubshed n Cumuatve uetn -2 (1931), wthdrawn.
state ta decson.
Nonacquescenco reates to Incuson n ncome of corporaton for years ended March 31, 1930. and March
31, 1931, amounts representng renta of premses occuped by ts presdent.
Nonacqueseence reates to ssue Invovng the queston, rc payments made to hoders of f
stock desgnated n cetncatcs as dvdends deductbe as nterest
state ta decson acquescence pubshed n Cumuatve uetn -2 (1931), r
Nonacqueseence reates to reducton of gross neomo by ntangbe drng costs and overhead (
In determnng the 50 per cent mtaton on depeton.
1 Nonacqueseence reates to frst ssue of decson.
- Nonacqueseence reates to a ssues e cept ssue Invovng saary and per c
pettoner from tfcc Unted States Uovcrument n 1934.
G
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65
Nonacquescf.nces Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas
oume.
Roande, Guano
Rons, arry T.
Rons, Raph
Roosevet Son Investment und
Rorner. Lous
Rosenberg Investment Reaty Trust.
Rosenboom nance Corporaton 3
Ross, anche S.
Ross, Water L
Rosser, . M., e ecutor --
Rosshcm, Irvng D.5
Rudman, I.9
Rudman, Rose
Rust et u ., . L
Ruth, rederck S., estate of
S.
Sabatna, Rafae-
St. Lous Southwestern Ry. Co.
St. Lous Unon Trust Co., e ecutor .
San Caros Mng Co., Ltd.
San acnto Lfe Insurance Co
Sand Sprngs Ry. Co
Sanford et a., ugh W
SaremaL Wam
Sather Lease Thomas Sathcr Co
Sauk Investment Co
Scatena, vra
Schffer, ack W
Schmme, Chares, estate of ---
Schmme et a., Mary, e ecutors of estate of Chares
Schmme
Schesnger, nn n
Schesnger, atheen M
Schesnger, Rosa
Schmo s ssocated, Inc..
Schoen, Lous
Schoonmaker, Rebckah C
Schumacher Wa oard Corporaton
Schwartz- asser Improvement Co
57479
672 6
63954
6395
76196
5 50
1963
3577
40903
51171
732 2
40765
57503
5 6
5 7
9171
0 40
50134
13319
2776
3393
45966
39525
7534
3243
32439
3421
9616
31979
74642
63920
3249
1991
1991
75960
75961
73S92
7536
000
56776
92022
61602
69719
36 76
33
34
34
34
27
3
24
2
30
24
31
36
36
3S
3(
32
24
27
21
34
21
37
39
26
34
32
39
39
39
30
30
36
39
30
39
33
20
Nonacqnesccnco as to ssuero| rdhs ta abty In 1959 of dvdends decared In stock In 192 , certfcates
for whch were not devered unt 19 2y.
Nonacqucseence does not, reate to the oard s hodng that dstrbutons receved from oseph . nch
Co. were not parta qudatng dvdends.
Gft ta decson.
4 state ta decson.
Nonacqucseence reates to ssue whether Commssoner s entted to ncreased defcency as rased
by hs amended answer fed wth the oard.
Nonacquescenec reates to deducton of drng cost n computng aowabe percentage depeton.
T state ta decson nonacqueseence as to queston of stus.
cquescence as to ssue 2 and nonacqucseence as to ssue 1 pubshed In Cumuatve uetn I-1
(1932), wthdrawn.
1 Nonacqueseence reates to dvdend Issue.
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66
NoN C U SC NC S I
Contnued.
Ta payer.
Docket
No.
oard or Ta ppeas.
Scofcd, Maron, estate of 1 1
Scott, Thomas ., estate of --
Scott, Thomas S
Scove, Cnton ., estate of 1
Scrpps, Robert P
Scuy, nrqueta ngea 1
Seaconnet Coa Co.4
Seatree, Wam rnest
Securty rst Natona ank of Los ngees et a.,
e ecutors
Securty Savngs Commerca ank..
Seder, braham, estate of
Seder, Cea
Sega, ar , transferee -
Sewvn ddy Co
Shaffer, C. .
Shaffer, ohn C
Sharp et a., dth uggard, e ecutors
Sharp, Water P., estate of
Sheaffcr Pen Co., W.
Shepherd, rederck R., estate of 1
Shepherd, Mar|ore e, e ecutr of rederck R.
Shepherd 1
Shepherd Syndcate -
Shenker, Smon
Sbey et a., ohn R., e ecutors 1
Sbey, Rufus ., estate of 7
Smms, . .
Skaggs, L. L
Skff, rank .
Sack, . ., estate of 10 -
Sma s, Inc
Smathers, . ., estate of
Smey, bert
Smey, rancs G
Smth, C.
Smth, Mrs. Grant
002
50336
70
49272
77116
0244
1 0 9
22094
33640
45429
59523
4934
4934
2397
21612
29259
500 6
59511
4 317
4 317
36604
0961
0961
4 332
51327
5 01
24921
24921
19175
19791
90217
51173
72404
7 525
53791
29260
74424
74425
77417
43300
43305
43306
3
27
34
30
33
34
24
25
2
29
3
3
3
25
29
2
30
33
30
33
27
39
39
26
26
16
16
2
3
2
35
24
29
33
33
34
26
1 state ta decson.
1 Nonacquescenee reates to the ssue nvovng the ncuson n gross estate of decedent s remander
nterest n a tust created by decedent and her two ssters on November 12, 1927.
a state ta decson nonacquescenee wth res)ect to the trusts for the son aud daughter.
Nonacquescenee reates to statute of mtatons ssuo.
Nonacquescenee reates to ssue whether ta payer sustaned a net oss In any busness reguary carred
on n 1924 whch coud be carred forward and deducted from ta abe ncome n 1925.
Nonacquescenee reates to the foowng ssues: Reducton of cost bass (March 1,1013, vaue) of assets
sod by a partnershp n 1919 by deprecaton aowed n computng ncome for perod March 1, 1913, to
December 1, 1915 computaton of 1919 partnershp proft on sae of assets by consderng as part of the sae
prce, ta es of the partners pad n 1920 by the vendee.
cquescence pubshed n Cumuatve uetn I1T-2 (1929), wthdrawn.
Nonacquescenee reates to ssues 1 and 4 set forth n syabus of pubshed decson.
Gft ta decson.
Nonacquescenee In ssue nvovng queston of ta abe gan by reason of acquston of possesson of
property eased by hm.
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#
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67
Nonacqcesce ces Contnued.
Ta payer.
Smth, Mton
Smth, Mton, estate of
Smth, r., Mton, e ecutor
Smth, Sarah vs
Smth Transportaton Co
Smth, arvara Pupn, admnstratr of Mchae I.
Pupn 1
Smth, Wam dcn, estate of
Snced, r., . T.
Snyder, Inc., . S. M. W
Southern e Teephone 4 Teegraph Co
Southern Caforna Rock Grave Co
Southern Raway Co. et a. _
Spang, Chafant Co.
Spencer, George rnck, estate of .
Speyer, ames
Sptzner Son, Inc., C.
Sprague, CO. M
Sprague Son Co., C. .5
Sprng Cty oundry Co..
Sredes, Inc
Staney Co. of merca -
Stante Petroeum Co., trustee, Le Morse Syn-
dcate Nos. 1 and 2
Stayton, r., Wam
Stearns, Marsha, admnstrator..
Steee, Wam, estate of
Stern, Martha S-
Stern et a., Samue . ., e ecutors
Stetson, Ioa Wse -
Stevens, yam .
Stevens, Wam D
Stevenson Consodated O Co.7
Stewart, ohn
Stewart, Wam Rhneander, estate of
Stewart, r., et a., Wam Rhneander, e ecu-
tors
Docket
No.
77414
52132
52132
77416
77415
92177
56465
45694
366 6
70 7
30S9S
214 1
29951
37 7-
37S9S
5 790
72236
56435
0744
65 33
34946
21169
45015
31516
33142
40023
9531
9532
71 67
4 930
73347
90 33
2459
41743
70006
71593
70009
71594
43416
57531
67776
67770
oard of Ta ppeas.
oume. Page.
34
2
2
34
34
3
34
30
26
34
26
27
31
31
30
37
33
24
25
2
26
3
32
24
34
39
2
26
27
29
29
23
29
31
31
1 state ta decson.
Nonacqueaoenoe reates to Issue whether certan nterest In rea estate stuated In Te as was acqured
by pettoner pror or subsequent to hs marrage and that part of decson whch hods that deay rentas
receved are communty ncome not wthstandng that the ands from whch they arse may be the separate
property of ether spouse.
Nonacquesccncc reates to Issues Invovng addtona compensaton, renta Interest on addtons and
betterments, and back ma pay for use of propertes durng edera contro.
cquescence pubshed In Cumuatve uetn 1 -2 (1 36), wthdrawn.
Nonacquescence reates to statute of mtatons ssue.
1 Nonacquescence reates to ssue regardng ncuson n Income for 1920 of 1 0, 23.35 receved upon
e change by pettoner of 250,000 shares of Sunburst O Gas Co. stock wth that corporaton.
state ta decson nonacquescence reates to far market vaue of an undvded or fractona nterest
n certan rea property.
state ta decson nonacquescence reates to far market vaue of 3.639 shares of stock of Rhneander
ea state Co. as of September 4, 1929. cquescence as to ths ssue pubshed In Interna Revenue
uetn I -7 (1935), wthdrawn.
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Ta payer.
Docket
No.
oard of Ta .
oume.
Stmson Corporaton, . S
Stne, Doe M
Stne, M. osephne
Stockhom nakda ank
Stone, . C, estate of
Stone, Mrs. . C, e ecutr -
Stone et a., Irvng ., e ecutors and trustees 1
Stone, Irvng Lee, estate of 1
Straub, Teca M -
Straus, aron -
Strayer, Water
treefkerk, Mrs. S
Strong, arod C -
Sturgcon- ubbard Trust
Sturgeon et a., Ron S., trustees
Suffok Co., Ltd.
Suvan, oseph
Suncrest Lumber Co
Suppee, C. enderson, estate of
Swartz, Inc., dward G
Swft, Marv Dodson, estate of
Swsky, Toby W
Swss O Corporaton - --
T.
Taft, nna S., estate of .
Taft, Robert ., e ecutor
Taft, Robert ., trustee
Tabot, rederck C, estate of
Tabot, . . ._.
Tabot et a., Susan D., e ecutors
Tabot, Wam ., estate of
Tant, Water ., transferee
Tanzer, Laurence rnod
Tayor, . Sedon, estate of
Tayor, r., et a., II. Sedon, e ecutors
Tayor, esse Carter -
Tavor, udson L
Ton yck, Peter G -
Tennessee Co., The
Tennessee Consodated Coa Co
Termna Raroad ssocaton of St. Lous
Termna Reaty Corporaton.
3705
62694
62695
55755
3 336
3 336
43 30
43 30
55935
65091
4 564
45363
3 576
37095
37095
1 17
56671
33244
9363
36650
44909
42032
60177
61002
630
7099
77923
77923
76 13
20411
36191
20409
20409
2434
1355
64444
64444
51 91
51 92
6 197
91137
333 3
49 32
53429
63699
43766
50762
60596
71157
3
32
32
25
26
26
26
26
29
27
27
2
25
25
25
37
33
25
39
25
26
25
32
33
33
34
27
23
27
27
3
37
27
27
27
27
29
40
24
33
32
1 state ta decson nonacqueseence reates to ssue nvovng property transferred by trust agreement.
Nonaccuesceace reates to vaue of common stock of mercan Chan Co.. Inc., and the bass of ao-
caton of cast f etween sad common stock and preferred stock of sad company acqured at the same tme
0 ff ta decson.
ona quesceuee reates ony to the ssue, Dd the Commssoner err n vaung, for gft ta purposes,
certan snge premum poces upon the bass of the premums actuay pad rather than the cash surren-
der vaue
state ta decson.
Nonacquescece reates to deprecaton aowance n computng oss n sae of a boat.
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69
Nonacques ences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Terrace Corporaton
Terre aute, Indanapos astern Tracton Co.
Terre aute Tracton Lght Co
Terry, nna Davs
Terry, r., . T
Te as Irrgaton Co.1
Te as Ppe Lne Co
Te te Ms Securtes Corporaton.
Thatcher Son, ohn
The ub, Inc
Theman, Mrs. Leo
Thra, dna May
353 Le ngton venue Corporaton.
Tde Water O Co
Ternan, Martn ., trustee, Martn . Ternan
trust for Martn T., Chares W., ohn W., nn
C, and Mary . Ternan eta
Totson Manufacturng Co
Tmken eta. Trust, dth ., Ceveand Trust Co.,
trustee - _ -
Tte Guarantee Trust Co., e ecutor of estate of
dward T. edford.
Tte Trust Co.. -
Ttus, C. Dckson
Ttus, Inc., C. W
Todd, Ws
Toerton Warfed Co
Torrens, ames .4 -
Towers Suvan Manufacturng Co
Townsend, .
Townsend, W. S
Toy, arvey M
Transatantc Shppng Co., Inc
Traveers ank Trust Co
Traveers re Insurance Co.
Traveers Indemnty Co.
Tresner, my _
Tro|an O Co..
05 4
33 5
33 60
45446
65 35
400 3
41346
59457
75423
56
65545
4629
65041
52449
55546
650 9
39936
3167
3169
3171
3173
3175
3177
4276-
4279
4291-
4294
44167
561
90104
737 5
20705
4226
37536
45320
5377
4050
731 6
74541
72932
61932
62 34
71349
62 33
7134
57916
62 32
71347
66703
33757
37
263
24
197
24
197
26
141
33
06
24
95
32
125
3
623
30
510
26
1201
30
562
31
994
32
1176
27
762
29
120
37
104
27
913
39
113
39
1039
33
25
24
36
33
92
24
405
23
92
31
7 7
25
922
32
940
32
940
34
77
31
93
31
507
31
507
31
507
37
3 7
26
659
ated
cases create
1 Nonacquescence reates to affaton Issue.
Nonacquescence reates to the ssuo, Dd the s trust Instruments In the:
a sn c trust or a mutpe of trusts
Nonacquescence reates to Issue regardng deducton of oss sustaned by two affated companes
durng fsca year ended anuary 31,1924, and the ta abe perod ebruary 1 to pr 25, 1921, n computng
the consodated net Incomo for ta abe perod pr 26 to December 31, 1924, and the year 1925.
Nonacquescence reates to the trust and dvdend ssues.
Nonacquescence reates to ssue n respect of aowabe deducton for depeton.
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70
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Trustees of Lumber Investment ssocaton.
Turney, W. W
Turney, Mrs. W. W
Tuth, r., orace S
Tutte, Car ._
Twn e O Syndcate
Tyer et a., Sdney ., trustees.
Tyng, Lucen
Uhen, oseph
Umann, manue Soomon
Umann, r., oseph
Umann, Samue, estate of
Umann et a., Theresa, e ecutors
Unon Guardan Trust Co., admnstrator
Unon Guardan Trust Co., e ecutor 1
Unon Pacfc R. R. Co. .
Unon Pacfc R. R. Co. et a. .
Unon Trust Co., trustee
Unted Natona Corporaton.
Unted O Co
Unted States Trust Co. et a., e ecutors of estate of
George Tutte rokaw 1
.
an Camp Packng Co., Inc
ancoh Reaty Co
an Schack, George S., Superntendent of Insur-
ance of New York, qudator ---
an orst Co., C. ...
aughan, Wam W
oebe, acob, estate of 4
oebe, Water W., e ecutor 4
ounteer State Lfe Insurance Co.
onnegut ardware Co
52274
6525
65257
5244
7055
45052
56449
74 5
51234
56470
56471
56472
56472
75516
44735
51530
701 3
70219
35639-
35649
356 4
356 5
40060
40061
. 40062
42917
67949
3 0 2
42922
51622
90091
46131
52340
67263
70366
67 43
6009
6009
54176
6905
0 51
44940
I
35
31
31
31
32
31
26
2
36
30
30
30
30
30
32
26
32
26
24
33
25
39
26
33
32
30
31
7
7
27
35
2
state ta decson.
1 Nonacquescence reates to the Issues regardng cost of Intercompany transportaton of matera used
In constructon of capta assets sae n 1926 of bock 394, Seatte Tdo Lands sae of and to ansas Cty
Termna Raway Co. ad|ustment for deprecaton sustaned pror to anuary 1,1909, of equpment retred
n 1924.
Nonacquesccncc reates to Issue regardng renta Interest and Issue concernng net oss of Lo |
Sat Lake . R. Co. for perod anuary 1 to pr 30,1921.
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71
o acquescekces Contnued.
Ta wyer.
Docket
No.
oard of Ta ppeas.
oume.
w.
Waggoner, a
Waggoner, W. T
Wat, . Russe
Wat, atharyn..
Waker, Tabot C
Waters, enry, estate of
Waters, ohn W
Ward, Chrstopher L.
Ward et a., Da.sy M
Wardman, arry
Warfed, C. Grffth.
Warner Coeres Co. of Deaware.
Watab Paper Co.
Waterbury, Charotte M. -
Waterbury, Donad N.
Waterbury, ugene W.
Waterbury, Whtford N.
Watson-Moore Co -
Wayburn, Ned --
Weser, Wam, e ecutor of estate of Wam T.
tzpatrck 1
Wes argo ank Unon Trust Co., admnstrator.
Wes, ames
West rgna-Pttsburgh Coa Co
Wester, Mar|ore ., estate of
Wester, W. L.
Western Power Corporaton
Wethcr, Robert, estate of 1
Wheeer, Dwght C
Wheeer, P. L -----
Wheeng Mod oundry Co. (De.).
Whppe, rank
Whtcomb, nna S.4
Whte, uet C
Whte Oak Transportaton Co.1
Whte, Rta M. oher
Whte, Sdney .
Whtng, Dwght
Whtng, George N.1
33517
33516
75772
75773
20407
77674
70010
71597
92240
/62644-
62649
2234
9170
34679
24773
2 0 2
3 6 5
41733
46076
513 7
733 1
733 0
733 3
733 2
62179
7434
90911
20411
6291
20337
25030
67037
67146
67036
67145
72943
6 62
7133
6902
23410
57532
5219
7196
5 775
1 0
36112
5 776
7 532
24
24
35
35
27
35
29
40
29
24
3
26
27
33
20
33
20
33
20
33
20
30
1197
32
13
39
1144
27
29
29
222
24
234
37
29
37
29
34
61
36
1259
32
909
32
917
27
929
29
09
37
06
26
1401
24
307
25
243
6
1401
35
100
1 state ta decson.
1 Nonacquescence reates ony to the ssue nvovng the status of a certan trust the corpus of whch w,
n any event, revert to the grantor at the end of 10 years.
Nonacquescence reates to ssue whether gans on sae of stock of the Waterbury Chemca Co. were
ta abe to pettoner or to trust created by them.
Nonacquescence reates to the foowng ssue: Where the pettoner, who s the benefcary of a trust,
makes an assgnment, revocabe upon notce of a year and a day, of a porton of her dstrbutve share of the
future ncome from the trust, s the pettoner ta abe on the ncome pad to the assgnee under such assgn-
ment
Nonacquescence reates to statute of mtatons ssue.
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72
Nonacquescencbs Contnued.
Ta payer.
Docket
N o.
oard of Ta ppeas.
oume.
Whttc Co., Inc., George-
Wco Sons, .
We, dwn
Wams, ma 1
Wams et a., rank G., e ecutors-
Wams, R. L. _-
Wamson, esse C
Wamson, Ruth Chander-
Ws, Mary ..
Wshre O Co., Inc
Wson, ngs
Wson, ohn P
Wson et u ., oseph
Wson, Luke ., estate of
Wson, Peter ., transferee
Wson Shpbudng Co.
Wnne, Water G.
Wnsow, Sdney, r, W
Wnston ros. Co
Wnthrop, eekman
W. . odng Corporaton.
Wobber ros
Wobbers, Inc
Wopert, Urban
Wood, en yer
Wood urnture Co., .
Wood, r., . O.
Wood, eremah
Wood, Meredth
Wood, Stuart, estate of..
Wood, Ws D.._
Woodruff, nne Stevens.
Woodruff, Stevens
Woodward, ohn S.T
Woodward, George
Wooey, Dane P
Wrghtngton, Sydney R.
Young, Du os
Young, dythe C, e ecutr , estate of Wam .
Young, r.
Young Corporaton, .
72414
40619
54451
4001
33564
4000
0545
6746
6671
67179
73955
77377
52931
57226
661
6619
32444
64655
34337
60900
605
59270
79 50
1216
36 75
773 7
36 74
4 563
65211
40565
65 32
74090
746
426
75624
69 44
797 4
797 5
71962
42279
72 5
91371
7 345
90414
74321
34
2
31
36
25
36
34
32
37
35
34
29
3
25
33
2
27
39
29
36
3
26
35
26
27
29
21
33
31
37
32
33
3
3
3
34
39
35
Nonacqucscenco reates to the tust and dvdend ssues.
N on acquescence n ssue reatng to nvountary converson.
Nonacquescence n ssue whether bass for pan or oss on subsequent sae wthn meanng of secton
113(a)5, Revenue ct of 1932, was tme of actua dstbuton or date of court order of dstrbuton.
Nonacquescence reates to ssue n respect of aowabe deducton for depeton.
Nonacquescence reates to ssue 5 of decson.
Pror acquescence pubshed n Cumuatve uetn II-1, pnpe 13 (1933), wthdrawn.
1 Nonacqt scenoe reates to queston whether dstrbuton of stock had the etfect of dstrbuton o a
ta abe dvdend.
1 cquescence pubshed n Cumuatve uetn -2 wthdrawn.
state ta decson
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1
3
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4
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73
on acquescence Contnued.
ord of Ta ppeas.
Ta payer.
Docket
No.
oume.
Page.
Young, Wam .. r., estate of 1
90414
1224
f 2 149
I 35511
/ 7404
1 9595
39
36
230
633
Young, Wam M. ___
Youngs town Sheet Tube Co

1246
1460
Z.
3
Zeger, bert W
46291
46292
71145
45352
45353
76120
23
23
31
2
2
33
1091
1091
Zeger, Cfford
Zmmerman and wfe, Cavn
754
236
236
324
Zobeen, George
Zobeen, Mrs. dward
Zukor, doph
1 state ta decson.
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INCOM T RULINGS. P RT I.
. INT RN L R NU COD ND R NU CT O 193 .
C PT R I. INCOM T .
SU C PT R . G N R L PRO ISIONS.
P RT II. COMPUT TION O N T INCOM .
S CTION 22(a). GROSS INCOM : G N R L
D INITION.
rtce 22(a)-: What ncuded n gross ncome. 1939-31-9929
( so Secton 22(b), rtce 22(b) (4)-4.) L T. 3301
INT RN L R NU COD .
Treatment for edera Income ta purposes of nterest from
Unted States savngs bonds hed by husband and wfe as co-owners.
When Unted States savngs bonds are regstered n the names of
two natura persons n the aternatve as co-owners, for e ampe,
Mr. ohn ones or Mrs. Mary ones, the nterest therefrom s n-
cudbe for edera ncome ta purposes n the ncome of the person
who contrbuted the purchase prce of the bond. If the purchase
prce was contrbuted n part by both persons, the nterest s ncudbe
n the ncome of such persons proportonatey, provded that co-
owners who are husband and wfe domced n States havng com-
munty property aws shoud ordnary return one-haf of the nterest
from the bonds n each spouse s ncome f the bonds are hed as
communty property.
husband and wfe may, therefore, own as co-owners savngs bonds
havng a maturty vaue of 10,000 ssued n one caendar year, and,
f the purchase prce of 7,500 has been contrbuted equay, each
spouse may cam e empton wth respect to bonds havng a maturty
vaue of 5,000, the cost or prncpa amount of whch, however, s
ony 3,750. ach spouse s not entted to e empton on a prncpa
amount of 5,000 wth respect to savngs bonds ssued n one caendar
year and hed n co-ownershp for the reason that a natura person
must ncude any such bonds regstered n hs or her name as co-
owner n determnng whether the mtaton has been e ceeded, and
such ncuson woud resut n each spouse ownng bonds havng a
maturty vaue n e cess of 10,000 ssued n one caendar year.
(75)
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22(a), rt. 22(a)-14.
76
rtce 22(a)-14: Canceaton of ndebtedness. 1939-4 -10103
( so Secton 22(a), rtce 22(a)-1 Secton T. D. 49M
22(b), rtces 22(b) (9)- and 22(b) (9)-2
Secton 113(b), rtces 113(b)-3, 113(b)
( )-, 113(b) (3)-2.)
TITL 20 INT RN L R NU . C PT R I, SU C PT R , P RT 9, SU -
P RT U SU C PT R . P RT 466, SU P RT INCOM T -
Rpguatons 101 as made appcabe to the Interna Revenue Code
amended.
cuson of ncome attrbutabe to dscharge of Indebtedness.
Reducton of bass.
Treasury Department,
Oftce of Commssoner of Interna Revenue.
Washng ton, D. C.
To Coectors of Interna Revenue and Others Concerned:
In order to conform Reguatons 101 Part 9, Subpart , Tte 26.
Code of edera Reguatons, 1939 Sup. , as made appcabe to the
Interna Revenue Code (53 Stat., Part 1) by Treasury Decson 4 5,
approved ebruary 11 1939 C. . 1939-1 (Part 1), 396 Part 465,
Subpart , of such Tte 26 , to secton 215 of the Revenue ct of
1939 (Pubc, No. 155, Seventy-s th Congress, frst sesson), approved
une 29, 1939, such reguatons are amended as foows:
(1) rtce 22(a)-14 secton 9.22(a)-14, Tte 26, Code of edera
Reguatons, 1939 Sup. , as made appcabe to the Interna Revenue
Code, s amended by addng after the frst paragraph thereof the
foowng paragraph:
or e cuson from gross ncome of Income attrbutabe to dscharge of ndebt-
edness of a corporaton n an unsound fnanca condton, see artce 22(b) (9)-
secton 9.22(b) (9)- .
(2) rtce 22(a)-1 secton 9.22(a)-1 , Tte 26, Code of edera
Reguatons, 1939 Sup. , as made appcabe to the Interna Revenue
Code, s amended by addng at the end thereof the foowng new
paragraph:
or e cuson from gross ncome of ncome attrbutabe to dscharge of ndebt-
edness of a corporaton n an unsound fnanca condton, see artce 22(b) (9)-
secton 9.22(b) (9)- .
(3) Immedatey precedng secton 22(c), reatng to nventores,
whch appears mmedatey precedng artce 22(c)- secton 9.22
(c)-, Tte 26, Code of edera Reguatons, 1939 Sup. , as made
appcabe to the Interna Revenue Code, nsert the foowng:
Sectons 215 (a) and (c) of the Revenue ct of 1939 provde:
Sec. 215. Dscharge op Indebtedness.
(a) Income rom Dscharge of Indebtedness. Secton 22(b) of
the Interna Revenue Code (reatng to e cusons from gross ncome)
s amended by addng at the end thereof the foowng new paragraph:
(9) Income from dscharge of ndebtedness. In the cose of
a coporaton, the amount of any ncome of the ta payer
attrbutabe to the dscharge, wthn the ta abe year, of any n-
debtedness of the ta payer or for whch the ta payer s abe
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77
22(a), rt. 22(a)-14.
evdenced by a securty (as herenafter n ths paragraph defned)
f
( ) t s estabshed to the satsfacton of the Commssoner,
or
( ) t s certfed to the Commssoner by any edera
agency authorzed to make oans on behaf of the Unted States
to such corporaton or by any edera agency authorzed to
e ercse reguatory power over such corporaton,
that at the tme of such dscharge the ta payer was n an unsound
fnanca condton, and f the ta payer makes and fes at the
tme of fng the return, n such manner as the Commssoner,
wth the approva of the Secretary, by reguatons prescrbes, ts
consent to the reguatons prescrbed under secton 113(b)(3) then
n effect In such case the amount of any ncome of the ta payer
attrbutabe to any unamortzed premum (computed as of the
frst day of the ta abe year n whch such dscharge occurred)
wth respect to such ndebtedness sha not be ncuded n gross
ncome and the amount of the deducton attrbutabe to any un-
amortzed dscount (computed as of the frst day of the ta abe
year n whch such dscharge occurred) wth respect to such n-
debtedness sha not be aowed as a deducton. s used n ths
paragraph the term securty means any bond, debenture, note,
or certfcate, or other evdence of ndebtedness, ssued by any
corporaton, n e stence on une 1, 1939. Ths paragraph sha not
appy to any dscharge occurrng before the date of the enactment
of the Revenue ct of 1939, or n a ta abe year begnnng after
December 31, 1942.

(c) Ta abe Teaks to Whch ppcabe. The amendments made
by ths secton sha be appcabe to ta abe years begnnng after
December 31, 193 .
rt. 22(b) (9)-. Secton 9.22(b) (9)-, Tte 26, Code of edera Reguatons,
1939 Sup. Income from dscharge of ndebtedness. Secton 22(b) (9) provdes
a method whereby a corporaton may eect to have e cuded from ts gross ncome
the amount of ncome attrbutabe to a dscharge, wthn the ta abe year, of ts
ndebtedness or of ndebtedness for whch t s abe as, for e ampe, n the
case of a debt arsng from an assumpton of abty of another corporaton.
To be entted to the benefts of the provsons of secton 22(b) (9) a corporaton
must (1) fe wth ts return for the ta abe year a consent to the provsons of
the reguatons, n effect at the tme of the fng of the return, prescrbed under
secton 113(b)(3) (see artces 113(b) (3)- and 113(b) (3)-2 sectons 9.113
(b) (3)- and 9.113(b) (3)-2 of such Tte 26 , reatng to ad|ustment of bass),
and (2) estabsh that t was n an unsound fnanca condton Immedatey
precedng the dscharge of the ndebtedness.
The e stence of an unsound fnanca condton, for the purposes of secton
22(b)(9), may be estabshed (1) by satsfyng the Commssoner of such con-
dton upon a presentaton to hm of a facts pertnent to the fnanca condton
of the corporaton or (2) by havng presented to the Commssoner a certfcaton
of such condton by any edera agency (c. g., the Reconstructon nance
Corporaton) authorzed to make oans to such ta payer on behaf of the Unted
States, or by any edera agency (e. g., the Interstate Commerce Commsson)
authorzed to e ercse reguatory power over the ta payer. Such a certfcaton
w be deemed to be concusve upon the Commssoner. The certfcaton shoud
accompany the return.
corporaton may be n an unsound fnanca condton, wthn the meanng
of secton 22(b)(9) and ths artce, even though the far market vaue of ts
assets e ceeds ts abtes or t s abe to meet Its current abtes as they
mature. Thus, hghy ndcatve (but not concusve) of an unsound fnanca
condton woud be the fact that bonds of the ta payer are seng n a free market
at prces substantay beow ther ssue prce and beow the market prce of
smar Issues of smar busnesses.
s used n ths artce ndebtedness means ndebtedness evdenced by a
bond, debenture, note, or certfcate, or other evdence of ndebtedness, n e st-
ence on une 1, 1939, and ssued by ether the ta payer corporaton or any
other corporaton. Thus, for e ampe, f a corporaton obtans a dscharge of
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22(a), rt. 22(a)-14.
7
ts Indebtedness represented ony by open account book entres, secton 22(b)(91
and ths artce are nappcabe. If, however, a corporaton obtans a ds-
charge of ts abty (evdenced by ts wrtng) arsng from an assumpton of
a debt of an ndvdua or a dscharge of ts abty (whether or not evdenced
by a wrtng) arsng from the assumpton of the ndebtedness of another cor-
poraton, secton 22(b)(9) and ths artce are appcabe.
If as a resut of the dscharge of ndebtedness there remans unamortzed
premum or unamortzed dscount, the amount of the ncome attrbutabe tosocb
premum s to be e cuded from gross ncome and the amount of the deducton
attrbutabe to such dscount sha be dsaowed as a deducton. The unamor-
tzed premum and unamortzed dscount, as the case may be, s n each
Instance to be computed as of the frst day of the ta abe year n whch the
dscharge of Indebtedness occurred.
The provsons of secton 22(b) (9) and ths artce are nappcabe In the
case of any dscharge occurrng (1) In a ta abe year begnnng before an-
uary 1. 1939 (2) before une 29, 1939 (3) n a ta abe year begnnng after
December 31, 1942 or (4) n any proceedng under secton 77 of the ank-
rnptcy ct of 1N9 , as amended, or under Chapter , I, or of such ct
rt. 22(b) (9)-2. Secton 9.22(b) (9)-2, Tte 26, Ode of edera Regua-
tons, 1939 Sup. Mung and fng of consent. consent to have the bass ot
ts property ad|usted n accordance wth the provsons of the reguatons, n
effect at the tme of fng of the return, prescrbed under secton 113(b)(3
(see artces 11 (b) ( )- and 113(b) (3)-2) sectons 9.113(b) (3)- am
9.113(b)(3)-2 of such Tte 20 sha be made by or ou behaf of the ta payer
corporaton n dupcate on orm 9 2, n accordance wth these reguatons and
the nstructons on the form or ssued therewth. The orgna and dupcate
sha be fed wth the return.
(4) Immedatey foowng artce 113(b)-3 secton 9.113(b)-3.
Tte 26, Code of edera Reguatons, 1939 Sup. , as made appcabe
to the Interna Revenue Code, add the foowng:
Secton 215 (b) and (c) of the Revenue ct of 1939 provdes:
(b) ass Reduced. Secton 113(b) of the Interna Revenue Code
(reatng to the ad|usted bass of property) Is amended by addng at
the end thereof the foowng new paragraph:
(3) Dschaboe of IND T DN SS. Where n the case of a corpo-
raton any amount s e cuded from gross ncome under secton
22(b) (9) on account of the dscharge of Indebtedness the whoe or
a part of the amount so e cuded from gross Income sha be
apped n reducton of the bass of any property hed (whether
before or after the tme of the dscharge) by the ta payer durng
any porton of the ta abe year n whch such dscharge occurred.
The amount to be so apped (not In e cess of the amount so e -
cuded from gross ncome, reduced by the amount of any deduc-
ton dsaowed under secton 22(b)(9)) and the partcuar prop-
ertes to whch the reducton sha be aocated, sha be determned
under reguatons (prescrbed by the Commssoner wth the ap-
prova of the Secretary) n effect at the tme of the fng of the
consent by the ta payer referred to n secton 22(b) (9). The
reducton sha be made as of the frst day of the ta abe year n
whch the dscharge occurred e cept In the case of property not
hed by the ta payer on such frst day, In whch case t sha take
effect as of the tme the hodng of the ta payer began.
(c) Ta abe Years to Whch ppcabe, The amendments made
by ths secton sha be appcabe to ta abe years begnnng after
December 31, 193 .
rt. 113(b) ( )-. Secton 113(b) (3)-, Tte 26, Code of edera Rep
tons, 1939 Sup. d|usted bass: Dscharge of corporate ndebtedness
cra rue. In addton to the ad|ustments provded n secton 113(b)(1)
artce 113(b)- secton 9.113(b)- of such Tte 26 , whch are requred to be
made wth respect to the cost or other bass of property, a further ad|ustment
sha be made In any case n whch there sha have been an e cuson fron1
gross ncome under secton 22(b) (9) on account of the dscharge of ndebtedness
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79
22(a), rt. 22(a)-14.
of a corporaton durng the ta abe year. Such further ad|ustment sha, e cept
as otherwse provded n artce 113(b) (3)-2 secton 9.113(b) (3)-2 of such
Tte 26 , be made n the foowng manner and order:
(1) In the case of ndebtedness ncurred to purchase specfc property
(other than nventory or notes or accounts recevabe), whether or not a
en s paced aganst such property securng the payment of a or part of
such ndebtedness, whch ndebtedness sha have been dscharged, the cost
or other bass of such property sha be decreased (but the amount of the
decrease sha not be more than the amount of the ad|usted bass wthout
reference to ths artce) by an amount equa to the amount e cuded from
gross ncome under secton 22(b)(9) and attrbutabe to the dscharge of
the ndebtedness so ncurred wth respect to such property
(2) In the case of specfc property (other than nventory or notes or
accounts recevabe) aganst whch, at the tme of the dscharge of the In-
debtedness, there s a en (other than a en securng ndebtedness ncurred
to purchase such property) the cost or other bass of such property sha be
decreased (but the amount of the decrease sha not be more than the
amount of the ad|usted bass wthout reference to ths artce) by an
amount equa to the amount e cuded from gross Income under secton
22(b) (9) and attrbutabe to the dscharge of the ndebtedness secured by
such en
(3) ny e cess of the tota amount e cuded from gross ncome under
secton 22(b) (9) over the sum of the ad|ustments made under (1) and (2)
sha ne t be apped to reduce the cost or other bass of the property of
the debtor (other than nventory and notes and accounts recevabe, but In-
cudng property covered by (1) and (2)) as foows: The cost or other
bass of each unt of property sha be decreased (but the amount of the
decrease sha not be more than the amount of the ad|usted bass wthout
reference to ths artce) n an amount equa to such proporton of such
e cess as the ad|usted bass (wthout reference to ths artce) of each
such unt of property bears to the sum of ad|usted bases (wthout refer-
ence to ths artce) of a the property of the debtor other than Inventory
and notes and accounts recevabe and
(4) ny e cess of the tota amount e cuded from gross ncome under
secton 22(b)(9) over the sum of the ad|ustments made under (1), (2),
and (3) sha ne t be apped to reduce the cost or other bass of nventory
and notes and accounts recevabe, as foows: The cost or other bass of
Inventory or notes or accounts recevabe, as the case may be, sha be
decreased (but the amount of the decrease sha not be more than the
amount of the ad|usted bass wthout reference to ths artce) n an
amount equa to such proporton of such e cess as the ad|usted bass of
Inventory, notes recevabe or accounts recevabe, as the case may be,
bears to the sum of the ad|usted bases of such nventory and notes and
accounts recevabe.
or the purposes of ths artce
( ) cept where the conte t otherwse requres, property means a of
the debtor s property, other than money
( ) The phrase Indebtedness ncurred to purchase ncudes (1) ndebt-
edness for money borrowed and apped n the purchase of property and (11)
an e stng Indebtedness secured by a en aganst the property whch the
debtor, as purchaser of such property, has assumed to pay
(C) The phrase amount e cuded from gross ncome under secton
22(b) (9) means the amount of ncome e cuded under that secton reduced
by any deducton dsaowed under that secton for unamortzed dscount
(D) d|ustments to bass sha be made
(1) n the case of property owned on the frst day of the ta abe year,
as of that day
() In the case of property acqured after the frst day of the ta abe
year, as of the day so acqured
regardess of the tme such property was subsequenty sod, e changed, or
otherwse dsposed of by the ta payer
( ) Whenever a dscharge of ndebtedness Is accompshed by a transfer
of the ta payer s property n knd the dfference between the amount of
the obgaton dscharged and the far market vaue of the property trans-
ferred s the amount whch may be apped In reducton of bass.
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22(a), rt. 22(a)-14.)
0
( ) Regardess of the amount e cuded by the ta payer from Us gross
Income under secton 22(b)(9) and so stated on orm 9 2, the ma mum
amount by whch bass may be reduced n res|ect of the dscharge of any
ndebtedness s the amount of ncome resutng from the dscharge of such
ndebtedness.
ampe (I): On anuary 1, 1939, the N Corporaton owned an offce bud-
ng, whch t sod n March, 1939. In une, 1939, It purchased a factory budng.
In October. 1939, the N Corporaton bought n ts outstandng bonds at ess than
ther face vaue. ssumng that there s a proper e cuson from gross ncome
under secton 22(b) (9), the bass of each budng sha be ad|usted under secton
113(b)(3) for the ta abe year 1939. ( ut see artce 113(b) (3)-2 secton
9.113(b) (3)-2, Tte 20. Code of edera Reguatons, 1939 Sup. .)
ampe (2): The M Corporaton has outstandng an ssue of bonds whch
t had sod at a premum and an ssue of bonds whch It had sod at a ds-
count. In uy. 1939, the M Corporaton purchased such outstandng bonds for
ess than face vaue. The amount of ncome attrbutabe to the dscharge of
the bonds Is 1,000 and the amount of unamortzed premum s 200. The
amount of ncome attrbutabe to the dscharge of the bonds s 1,000 and the
amount of unamortzed dscount s . 50.
If the M Corporaton under secton 22(b)(9) eects to have e cuded from
gross ncome the amount of ncome attrbutabe to the dscharge of both bond
ssues, the tota reducton n bass of the property of the M Corporaton sha not
e ceed 2,150. If the M Corporaton eects ody wth respect to the bonds, the
tota reducton n bass sha not e ceed 1,200 (or 950 f the eecton s wth
respect to the bonds). If the M Corporaton e cudes ony an amount of 500
wth respect to the bonds, the tota reducton n bass may nevertheess be
1,200 (or 950 f the e cuson s wth respect to the bonds).
rt. 113(b) (3)-2. fSecton 9.113(b) (3)-2, Tte 2 , Code of edera Regua-
tons, 1939 Sup. d|usted bass: Dscharge of ndebtedness. Speca cases.
rtce 113(b) (3)- secton 9.113(b) (3)- of such Tte 26) prescrbes the gen-
era rue to be foowed n ad|ustng bass of property where there s a proper
e cuson from gross ncome under secton 22(b)(9). The ta payer may, how-
ever, have the bass of ts property ad|usted n a manner dfferent from that set
forth n artce 113(b) 3)- secton 9.113(b) (3)- of such Tte 26 upon a
proper showng to the satsfacton of the Commssoner. aratons from such
genera rue may, for e ampe, nvove ad|ustng the bass of ony part of the
ta payer s property or ad|ustng the bass of a the ta payer s property, accordng
to a f ed aocaton.
request for varatons from the genera rue prescrbed n artce
113(b) (3)- secton 9.113(b) (3)- of such Tte 261 shoud be fed by the
ta payer wth ts return for the ta abe year n whch the dscharge of ndebt-
edness has occurred. greement between the ta payer and the Commssoner
as to any varatons from such genera rue sha be effected ony by a cosng
agreement entered nto under the provsons of secton 3760 of the Interna
Revenue Code. If no agreement s reached between the ta payer and the
Commssoner as to varatons from the genera rue prescrbed n artce
113(b)(3)- secton 9.113(b) (3)- of such Tte 26 then the consent fed on
orm 9 2 sha be deemed to be a consent to the appcaton of such genera
rue and such genera rue sha preva n the determnaton of the bass of
the ta payer s property, uness the ta payer specfcay states on such form
that t does not consent to the appcaton of the genera rue.
(5) The second sentence of artce 113(b)-3 secton 9.113(b)-3.
Tte 26, Code of edera Reguatons, 1939 Sup. , as made appcabe
to the Interna Revenue Code, s amended to read as foows:
In addton, whenever t appears that the bass of property n the hands of the
ta payer s a substtuted bass, as defned n secton 113(b) (2) ( ), the ad|ust-
ments ndcated n artces 113(b)-2, 113(b) (3)-, and 113(b) (3)-2 sectons
9.113(b)-2, 9.113(b) ( )-, and 9.113(b) (3)-2of such Tte 26 sha aso be made,
whenever necessary, after frst makng n respect of such substtuted bass a
proper ad|ustment of a smar nature n respect of the perod durng whch the
pro erty was hed by the transferor, donor, or grantor.
(Ths Treasury decson s prescrbed pursuant to the foowng
sectons of aw: Sectons 22 and 113 of the Interna Revenue Code
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/ 1 23(a), rt. 23(a)-10.
(53 Stat., Part 1) secton 215 of the Revenue ct of 1939 (Pubc, No.
155, Seventy-s th Congress, frst sesson) and secton 62 of the In-
terna Revenue Code (53 Stat., Part 1).)
Gut T. everno,
Commssoner of Interna Revenue.
pproved November 16, 1939.
ohn W. anes,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster November 20. 1939, 10.09 a. m.)
rtce 22(a)-1 : Sae and purchase by corporaton
of ts bonds.
INT RN L R NU COD .
mendment of Reguatons 101. (See T. D. 4954, page 76.)
S CTION 22(b). GROSS INCOM : CLUSIONS
ROM GROSS INCOM .
rtce 22(b) (4) -4: Interest upon Unted States obgatons.
INT RN L R NU COD .
empton of nterest from Unted States savngs bonds hed by
husband and wfe as co-owners. (See I. T. 3301, page 75.)
rtce 22(b) (9)-1: Income from dscharge of ndebtedness.
INT RN L R NU COD .
rtce 22(b) (9)-2: Makng and fng of consent.
INT RN L R NU COD .
S CTION 23(a). D DUCTIONS ROM GROSS
INCOM : P NS S.
rtce 23(a)-10: Rentas.
INT RN L R NU COD .
Spread of deprecaton or amortzaton for mprovements or cost of
ease over term of orgna ease and renewas. (See T. D. 4957,
page 7.)
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23(c), rt. 23(c)- .
2
S CTION 23(c). D DUCTIONS ROM GROSS
INCOM : T S G N R LLY.
rtce 23(c)-1: Ta es. 1939-31-9930
G. C. M. 21373
INT RN L R NU COD ND R NU CT O 193 .
ccrua for edera ncome ta purposes of rea and persona prop-
erty ta es In the States of Mnnesota. Washngton, and Wsconsn.
G. C. M. 6007 (C. . III-2, 94 (1929)) modfed. Recommenced
that I. T. 2633 (C. . I-2, 77 (1932)) and I. T. 2694 (C. . II-1,
107 (1933)) be revoked.
n opnon s requested as to the e tent of the appcaton of the
decsons n Lfson et a. v. Commssoner (C. C. . , 9 . (2d), 50 .
page 19 , ths uetn, certorar dened, 59 S. Ct., 364) Comms-
soner v. Phstchceff (C. C. . 9, 100 . (2d), 62, page 260, ths
uetn), and Commssoner v. Patrck Cudahy amy Co. (C. C. .
7, 102 . (2d), 930, page 202, ths uetn), n the determnaton of
the accrua date of State property ta es for edera ncome ta
purposes.
In Lfson et a. v. Commssoner, supra, t was hed that the date on
whch a en attaches s the date of the accrua of Mnnesota rea prop-
erty ta es and that under the statutes of Mnnesota such en spe-
cfcay attaches on May 1 of each year (whch s aso the date as of
whch the ta s assessed). The Mnnesota statute provdes n part
that as between grantor and grantee, such en sha not attach unt
the frst Monday of anuary of the year ne t thereafter. The court,
however, apparenty dd not consder that such provson had any effect
upon the date of the accrua of the ta abty for purposes of the
appcaton of the edera ncome ta statutes.
In Commssoner v. P estcheeff, supra, t was hed that the deduc-
ton for accrued rea property ta es n the State of Washngton s
mted to the person who owns the reaty at the tme the en for the
ta es attaches, and that under the statutes of that State the en for
rea property ta es attaches on March 1 of each year (whch s aso
the date as of whch the ta s assessed), e cept as between a grantor
and a grantee, n whch case t attaches the frst Monday n ebruary
of the succeedng year. It was aso hed that a devsee s a grantee
wthn the meanng of the Washngton statute. The State of Wash-
ngton statutory provson wth regard to the en as between a grant-
or and a grantee s practcay dentca wth that of the State of
Mnnesota. Thus, the Unted States Crcut Court of ppeas for
the Nnth Crcut dffered wth the Unted States Crcut Court of
ppeas for the ghth Crcut n ts vews as to the effect of such
a statute.
In Commssoner v. Patrck Cvdahy amy Co., supra, t was
hed that rea and persona property ta es n the State of Wsconsn
do not accrue as abtes, for purposes of the edera ncome ta .
on May 1 of each year (the date as of whch Wsconsn rea and
persona property ta es are assessed). The court hed that the ab-
ty for Wsconsn property ta es, both rea and persona, does not
accrue unt a the events by whch that abty s f ed have oc-
curred, that the determnaton of the rate of ta s one of such events,
and that, accordngy, not unt the evy of the ta es n November
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23(c), rt. 23(c)-.
do such ta es accrue wthn the meanng of the edera ta ng stat-
utes. The court by ts anguage mped that ta upon rea property
n Wsconsn does not accrue unt a en upon the rea estate attaches,
and that ths does not occur unt the ta ro s competed and the
ta es e tended on such ro. The court aso ndcated that owner-
shp of rea property as of December 1 determnes the ncdence of
the ta on rea property as between a grantor and grantee n vew
of the provsons of secton 74.62 of the Wsconsn statutes. In ths
respect, the vews of the Unted States Crcut Court of ppeas for
the Seventh Crcut are contrary to those of the Unted States Crcut
Court of ppeas for the ghth Crcut.
The queston of when State property ta es accrue necessary
nvoves a reference to the aw of the partcuar State nvoved and
the decsons of ts courts. ence, t s mpossbe to ay down a
enera rue appcabe to the accrua date of ta es n each and every
tate. It has been the ureau s poston that generay State prop-
erty ta es accrue on the date as of whch the assessment of the ta
s made (frequenty referred to as the assessment date) even though
the amount of the ta s not ascertanabe on that date. That s,
when State statutes have f ed the tme for determnaton of the ta -
abe status of property, t s ta ed to the owner as of that tme.
(See G. C. M. 15305 C. . I -2, 0 (1935) and rungs cted
theren.) Rungs upon ths bass have been ssued nvovng many
States and such rungs are st n effect. G. C. M. 15305, supra,
aso hods that a method prescrbed by State statutes for determnng
who, as between a vendor and a vendee, sha pay the ta es may be
desgned to appy to the successve owners nter sese and does not
the date as of whch the assessment s made s the event whch
estabshes the accrua of ta es.
The decsons n the Pestcheeff and Cudahy cases are contrary to
the genera rue heretofore foowed by the ureau, and the Lfson
case, whe reachng a correct resut, contans reasonng contrary to
the ureau poston that a ta on rea property may accrue pror
to the date a en attaches under State aw. ccordngy, the
Pestcheeff and Cudahy decsons w not be gven genera appca-
ton but w be apped ony n cases nvovng, respectvey, Wash-
ngton rea property ta es and Wsconsn rea and persona property
ta es. Nor w the reasonng empoyed by the court n the Lfson
case be apped wth respect to the accrua date of rea property ta es
of other States. Those decsons w now be foowed wth respect
to the types of ta es of the partcuar States whch were nvoved
theren. In determnng the accrua date of property ta es of other
States, e stng ureau rungs wth regard thereto are not to be
consdered as affected by the court decsons heren dscussed.
In vew of the foregong, G. C. M. 6667 (C. . III-2, 94 (1929))
to the e tent that t nvoves rea property ta es n the State of
Washngton and s nconsstent wth the decson n the Pestcheeff
case, s modfed, and t s recommended that I. T. 2633 (C. . I-2,
77 (1932)) and I. T. 2694 (C. . II-1, 107 (1933)), both nvovng
the accrua date of rea property ta es n the State of Wsconsn, be
necessary dsturb the genera
revoked.
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
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23(c), rt. 23(c)-.)
4
rtce 23(c)-1: Ta es. 1939-41-10051
I. T.332S
INT RN L R NU COD .
Under the genera aws of the State of New York, rea property
tn es accrue, for edera neome ta purposes, as of uy 1 of each
year. (Ths does not necessary appy to ta es Imposed by oca
|ursdctons.) New York Cty rea estate ta es, under the charter
of the cty of New York effectve anuary 1, 193 , accrued for the
fsca perod anuary 1, 1939, to une 30, 1939, on pr 1, 1939,
and for the fsca year begnnng uy 1, 1939, and subsequent
fsca years, one-haf of such ta es accrues on October 1 and
one-haf accrues on pr 1.
dvce s requested as to the accrua date of rea property ta es
n the State of New York generay. dvce s aso requested as
to the accrua date of rea property ta es n New York Cty for the
nterm perod from anuary 1 to une 30, 1939, resutng from the
change to a fsca year bass commencng uy 1, 1939, pursuant to
the provsons of the charter of the cty of New York, effectve
anuary 1, 193 , and as to the accrua date of New York Cty rea
property ta es fang due after uy 1, 1939.
Provsons of the aw pertnent to the queston of the accrua date
of rea property ta es n the State of New York are contaned n
Mc nney s Consodated Laws of New York, ook 59. entted
Ta Law. The State aw provdes that the ta dstrct means a
cty or town n the State (secton 2). rea property wthn the
State s ta abe uness e empt from ta aton by aw (secton 3).
Rea property s assessed as of uy 1 n the ta dstrct n whch
t s stuated and n a cases the assessment s deemed to be aganst
(he rea property tsef, and the property s abe to sae for any
ta eved upon t (secton 9). If the owner of a parce or a porton
of rea property s a resdent of the ta dstrct n whch such
parce or porton of rea property s assessed, and hs name s cor-
recty entered on the assessment ro, he sha be personay abe
for the ta assessed aganst such parce or porton of rea property
(secton 71). (It s deemed unnecessary to state here the varous
provsons of aw eadng up to the competon of the ta ros.)
It has been the ureau s poston that, generay, State property
ta es accrue, for edera ncome ta purposes, on the date as of
whch the assessment of the ta s made, athough the amount of
the ta s not ascertanabe on that date. That s, when State
statutes have f ed the tme for determnaton of the ta abe status
of property, the ta s consdered to have accrued as of that tme.
(See G. C. M. 15305, C. . I -2, 0 (1935), and cases cted theren,
and G. C. M. 21373, page 2, ths uetn.)
The courts of New York n construng the genera ta aw have
hed tha the ta abe status of persons and property becomes f ed
on the 1st day of uy n each year.
In Mygatt v. Wahurn (15 N. Y., 316) t was stated n part:
vdenty there must be some day, n the course of the proceed-
ng, on whch the assessment may be sad to be made. In my opnon
the assessment shoud be consdered as made at the e praton of the tme
for makng the nqury, namey, on the 1st day of uy. If there s aoy
change, of resdence or In the ownershp of the property, after that day.
t does not affect the assessment ro. The nqures are then compete. ny
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23(c), rt. 23(c)-.
changes whch the assessors are authorzed to make after that tme, are such
as may be requred to correct mstakes. when the statute speaks
of the tme when the assessment s made t refers to the bndng and
concusve act whch desgnates the ta payers and the amount of ta abe
property. If I am correct, n what has been sad, t foows that the tme,
referred to n the statute, s the 1st day of uy.
In Cark v. Norton et a. (49 N. Y., 243) t was stated n part:
The assessment must be made by the 1st of uy, and of property
and persons n respect to the abty as t e sts on that day. n
ndvdua not abe to ta aton on the 1st of uy coud not be paced upon
the assessment ro after that tme nether coud a person whose name was
propery on the assessment ro be assessed for property acqured by hm after
that day.
In Overng v. oote (65 N. Y., 263) t was stated n part:
It s probaby the rue of the statute that the determnaton of the
names of the persons who are to be assessed, and the property to be assessed,
must be made on or before the 1st day of uy, and on that day the assess-
ment ro for the year must be regarded as competed n the sense that no
addtona names or property can thereafter be added.
In Peope e rc. 23rd St. It. Co. v. Commssoners of Ta es, etc.
(91 N. Y., 593) t was stated n part:
Under these statutes, It has been hed n ths court, that the
ta abe status of persons and property becomes f ed on the 1st day of
uy n each year, and that no power e sts to enter property thereafter
acqured upon the ro or to change an assessment theretofore made on account
of any transfers of tte.
In Peope e re. Luther v. McDermott (265 N. Y., 47, 191 N. .,
770) t was stated n part:
The procedure under the ta aw s that uy 1st of each year
f es the date at whch status of the property and ts ownershp sha be
taken for the purposes of assessment and ta aton.
In vew of the foregong, t s hed that under the genera aws
of the State of New York, rea property ta es accrue, for edera
ncome ta purposes, as of uy 1 of each year. It appears, how-
ever, that the procedure for ta coecton n some vages, towns,
and ctes s governed by speca egsaton or by charter. The prn-
cpes set forth above do not necessary appy n such cases. The
determnaton of the accrua date of ta es, for edera ncome ta
purposes, n such cases w depend upon the partcuar crcum-
stances nvoved.
Wth respect to the remanng questons, the foowng provsons
of the New York Cty charter, adopted at the genera eecton of
November 3, 1936, and effectve anuary 1, 193 , are pertnent:
Sbc. 111. sca year.
The fsca year of the cty sha commence on the 1st day of uy n each
year and sha termnate at mdnght of the ensung 30th day of une.

Sec. 157. Ta ahe status of property.
The ta abe status of a rea property assessabe for ta aton In the cty
of New York sha be f ed for the succeedng fsca year on the 25th day of
anuary n each year.

Sec. 172. Ta es due and payabe.

ta es upon rea estate for each fsca year sha be due and payabe n
two equa nstaments, the frst of whch sha be due and payabe on
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23(c), rt. 23(c)- .
6
the 1st day of October n such year, the second of whch sha be due ad
payabe on the 1st day of pr n such year.
ta es sha be and become ens on the rea estate affected thereby and
sha be construed as and deemed to be charged thereon on the respectve dap
when they become due and payabe, and not earer, and sha reman such
ens unt pad.

Sec. 952. udget: capta outay budget.
a. The frst fsca year as estabshed by secton 111 sha commence on the t
day of uy, 1939.

d. The counc sha cause to be rased by ta so much of the e pense budf f
for the perod commencng on the 1st day of anuary, 1939, and endng on tb
30th day of une, 1939, as e ceeds the tota amount of recepts estmated b|
the comptroer. The ta rate therefor sha be f ed and the ta es sha be
coected and pad n accordance wth the provsons of ths charter, wth te
foowng e ceptons:
The ta rate sha be f ed upon the assessed vauatons as they appear npm
the assessment ros devered to the counc In March, 193 . The ta
for sad s months perod sha be due and payabe n a snge payment on the
1st day of pr, 1939.
In the Laws of New York, dmnstratve Code, Cty of New
York, 1937, page 1501, the foowng provson s made:
Sec. 41-4.0. Tarahe status of property for sn months fsca perod com-
mencng on the t day of anuary, 1939. a. The ta abe status of rea estate
for the fsca perod commencng on the 1st day of anuary, 1939, and endng
on the 30th day of une, 1939, sha be f ed on the 1st day of October.
193
In I. T. 2 34 (C. . I1I-2, 1 9 (1934) ) t was hed that under
the provsons of the charter of the cty of New York as t e sted
n 1930, ownershp of rea property on May 1 and November 1 of
each caendar year s the event whch determnes the abty for
ta es thereon and that the ta es accrued, for edera ncome ta pur-
poses, on these dates. The charter whch was there consdered pro-
vded that a ta es shoud become ens on rea property and shoud
be deemed to be charges thereon on the respectve dates when they
became due and payabe and not earer.
Lkewse, the charter of the cty of New York now under consd
eraton provdes that ta es on rea estate sha be construed as and
deemed to be charged on the rea estate on the respectve days when
they become due and payabe and not earer. The charter spe-
cfcay provdes that the ta for the s months perod, anuary 1
to une 30, 1939, sha be due and payabe on the 1st day of pr
1939. ccordngy, t s hed that the ta es for such perod accrued,
for edera ncome ta purposes, on pr 1, 1939. The charter
provdes generay that ta es upon rea estate for each fsca year
sha be due and payabe n two equa nstaments, the. frst due and
payabe on October 1, and the second due and payabe on pr L
ccordngy, t s hed, wth respect to the fsca year begnnng
uy 1, 1939, and subsequent fsca years, that one-haf of the rea
estate ta es accrues on October 1 and one-haf accrues on pr L
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7
23(1), rt. 23()-5.
S CTION 23(1). D DUCTIONS ROM GROSS
INCOM : D PR CI TION.
rtce 23()-5: Method of computng depre- 1939-50-10120
caton aowance. T. D. 4957
( so Secton 23(a), rtce 23 (a)-10.)
TITL 20 INT RN L R NU . Cn PT R I, SU C PT R , P RT 24.
INCOM T .
Spread of deprecaton or amortzaton for mprovements or cost
o ease over term of orgna ease and renewas.
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
In determnng deductons from gross ncome of tems n respect
of deprecaton or amortzaton of the cost of mprovements erected
upon eased premses or the cost or other bass of a ease, ncudng
a capta e pendtures n connecton therewth, n cases n whch
the ease contans an une ercsed opton of renewa, the matter of
spreadng such deprecaton or amortzaton over the term of the
orgna ease, together wth the renewa perod or perods, depends
upon the facts n the partcuar case. s a genera rue, uness the
ease has been renewed or the facts show wth reasonabe certanty
that the ease w be renewed, thfc cost or other bass of the ease
or the cost of mprovements sha be spread ony over the number
of years the ease has to run, wthout takng nto account any rght
of renewa. owever, pursuant to the dscreton vested n the Com-
mssoner, wth the approva of the Secretary, by secton 3791(b)
of the Interna Revenue Code, f the ta payer for any ta abe year
endng pror to December 31, 1939, has been aowed such depreca-
ton or amortzaton on the bass of spreadng the cost or other bass
of such ease or mprovements over the number of years the ease
has to run, ncudng any e ercsed or une ercsed renewa perod
or perods, and such ta abe year has been cosed on that bass and
the ta for that year can not be redetermned, then the ta payer may
for subsequent ta abe years take deductons on such bass f wthn
90 days after the approva of ths Treasury decson or wthn such
ater perod as may be specfed by the Commssoner of Interna
Revenue he fes orm 969, n dupcate, wth the Commssoner of
Interna Revenue, Washngton, D. C. attenton of the Income Ta
Unt, Records Dvson, sgnfyng hs eecton to have deductons
n respect of such tems determned upon such bass, and e pressy
waves hs rght to cam or receve the benefts of any reducton n
hs ta abty whch woud resut from the aowance of deductons
for such tems on the bass of ony the number of years the ease
has to run, wthout takng nto account any rght of renewa, or on
any bass other than that set forth n hs eecton. If, n any case,
the fe of the mprovements s ess than the number of years the ease
has to run, ncudng the renewa perod f propery to be consdered,
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27(a), rt. 27 (a)-3.
the deducton for deprecaton wth respect to such mprovements
sha be spread ony over such fe.
(Ths Treasury decson s ssued under the authorty contaned n
secton 3791, Interna Revenue Code (53 Stat., 467).)
Guy T. evernq,
pproved December 6, 1939.
erbert . Gaston,
( ed wth the Dvson of the edera Regster December , 1939, 11.44 a. m |
S CTION 24. IT MS NOT D DUCTI L .
rtce 24-4: mounts aocabe to e empt ncome, other
than nterest.
INT RN L R NU COD .
Ta -e empt nterest, and e penses aocabe thereto, n cases of
resdent foregn nsurance companes. (See I. T. 3297, page 137.)
S CTION 27(a). CORPOR TION DI ID NDS P ID
CR DIT: D INITION IN G N R L.
rtce 27(a)-3: mounts used or rrevocaby 1939-41-10052
set asde to pay or to retre ndebtedness. T. D. 494
TITL 26 INT RN L R NU . C PT R I, SU C PT R . P RT 9, SU -
P RT SU C PT R , P RT 465. SU P RT . INCOM T .
mendng artce 27(a)-3(o) of Reguatons 101, and such
artce as made appcabe to the Interna Revenue Code, to provde
that a renewa w not prevent an ndebtedness from beng wthn
secton 27(a)4 of the Interna Revenue Code and the Revenue
ct of 193 .
Washngton, D. C.
Paragraph . Reguatons 101 as made appcabe to the Interna
Revenue Code by Treasury Decson 4 5, approved ebruary 11,
1939 C. . 1939-1 (Part 1), 396 (Part 465, Subpart , of Tte
26, Code of edera Reguatons), are hereby amended by nsertng
mmedatey precedng artce 27(a)- (secton 9.27 (a)- of such
Tte 26) the foowng:
Sec. 222 (Revenue ct of 1939). Renewa op Indebtedness.
(a) Secton 27(a)(4) of the Interna Revenue Code (reatng to
corporaton credt for amounts used or set asde to pay ndebtedness)
s amended by nsertng at the end thereof the foowng new sen-
tence: renewa (however evdenced) of an ndebtedness sha be
consdered an ndebtedness.
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9
27(a), rt. 27 (a)-3.
(b) The amendment made by subsecton (a) sha be appcabe to
ta abe years begnnng after December 31, 193 .

Pah. . Reguatons 101 are hereby amended by nsertng m-
medatey precedng artce 27(a)- (secton 9.27(a)- of Tte 26,
Code of edera Reguatons) the foowng:
Sec. 222 (Revenue ct of 1930). Renewa or Indebtedness.

(c) Secton 27(a)(4) of the Revenue ct of 193 (reatng to cor-
poraton credt for amounts used or set asde to pay ndebtedness) s
amended by nsertng at the end thereof the foowng new sentence:
renewa (however evdenced) of an ndebtedness sha be consdered
an ndebtedness.
(d) The amendment made by subsecton (c) sha be appcabe to
ta abe years begnnng after December 31, 1937.
Pah. C. rtce 27(a)-3(a) of Reguatons 101 (secton 9.27(a)-
3 (a) of Tte 26, Code of edera Reguatons) and the same artce
of Reguatons 101 as made appcabe to the Interna Revenue Code
by Treasury Decson 4 5, approved ebruary 11, 1939 (Part 465,
Subpart , of such Tte 26) are hereby amended by strkng out the
ast paragraph thereof and by amendng the frst paragraph to read
as foows:
(a) Indebtedness. The term ndebtedness means an obgaton of the
corporaton, absoute and not contngent, to pay, on demand or wthn a gven
tme, n cash or other medum, a f ed amount, e stng at the cose of busness
on December 31, 1937, and evdenced by a bond, note, debenture, certfcate of
ndebtedness, mortgage, or deed of trust, Issued by the corporaton and n
e stence at the cose of busness on December 31, 1937, or by a b of e change
accepted by the corporaton pror to, and n e stence at, the cose of busness
on December 31, 1937. If the ndebtedness was so evdenced at the cose of
busness on December 31, 1937, t s st an ndebtedness wthn the meanng
of secton 27(a)(4) though, pror to the tme payment s made or amounts
are rrevocaby set asde, t has been renewed. Such renewa need not be
evdenced by one of the types of nstruments enumerated In secton 27(a)(4),
but t s suffcent f the debtor-credtor reatonshp evdenced by one of such
nstruments at the cose of busness on December 31, 1937, contnues. n
ndebtedness once so renewed may be agan renewed wthout deprvng the
corporaton of the benefts of secton 27(a)(4). Indebtedness ncurred after
December 31, 1937, s not ndebtedness wthn the meanng of secton 27(a) (4)
even though the proceeds of the oan are used to dscharge an ndebtedness
fang wthn the provsons of that secton, as, for e ampe, where money
s borrowed from to pay , but, f the credtor remans the same and
the transacton s n effect a renewa, the mere fact that t takes the form
of a new borrowng, the proceeds of whch are smutaneousy used to dscharge
the pror obgaton, w not of Itsef prevent the transacton from beng a
renewa wthn the meanng of secton 27(a) (4) and ths artce.
The mere substtuton, after December 31, 1937, of severa nstruments for
one nstrument, or one nstrument for severa nstruments, e stng at the cose
of busness on such date, where there s no change In terms e cept the subst-
tuton of a seres of dfferent amounts equa In the aggregate to the tota
prncpa amount of the Instrument or nstruments surrendered (as, for
e ampe, where two 50,000 bonds are ssued n e change for one 100,000
bond, or where one 100,000 bond s ssued n e change for two 50,000
bonds), or the ressue of a ost or destroyed Instrument, or the ssue of a new
nstrument to a transferee, w not deprve a corporaton of the benefts of
secton 27(a) (4).
Indebtedness ncurred through the assumpton of the abtes of another
Is not ndebtedness wthn the meanng of secton 27(a) (4) uness such assump-
209196 40 4
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42, rt. 42-1.
90
ton took pace pror to anuary 1, 193 , and such ndebtedness was evdenced
at the cose of busness on December 31, 1937, by one or more of the nstnunen
enumerated n such secton, ssued by the ta payer pror to, and n e stent
at, the cose of busness on such date.
(Ths Treasury decson s prescrbed pursuant to secton 222 o
the Revenue ct of 1939 (Pubc, No. 155, Seventy-s th Congres,
frst sesson), secton 62 of the Interna Revenue Code (53 Stat..
Part 1), and secton 62 of the Revenue ct of 193 (52 Stat, 4 0.
26 U. S. C, Sup. I , 62).)
Gut T. eve rng,
pproved September 2 , 1939.
ohn W. anes,
( ed wth the Dvson of the edera Regster September 30,1939,11.2 a. m
P RT I . CCOUNTING P RIODS ND M T ODS O CCOUNTING.
S CTION 42. P RIOD IN W IC IT MS O
GROSS INCOM INCLUD D.
rtce 42-1: When ncuded n gross ncome. 1939-40-1003
I. T.3323
INT RN L R NU COD .
The rue ad own In G. C. M. 21503 (page 205, ths uetn), that
where a contract to se stock on a stock e change for ess than the
bnss thereof was entered nto on the ast day of a ta abe year and
devery of the stock was made n the reguar way on anuary 2
of the foowng year the oss on the transacton was ncurred n the
earer year, s equay appcabe to such a transacton n whch
a gan s reazed. Such a gan s returnabe for edera ncome
ta purposes for the year n whch the transacton was consummated
e cept for devery of the stock.
dvce s requested whether G. C. M. 21503 (page 205, ths uetn)
s appcabe to a gan as we as a oss from the sae of stock.
In G. C. M. 21503, supra, t was hed that where a contract to st
stock on a stock e change for ess than the bass thereof was entera
nto on December 31, 1930, and devery of the stock was made n the
reguar way on anuary 2, 1931, the oss on the transacton was n-
curred n tbe year 1930 and consttutes a proper deducton for that
year.
It s hed that the rue ad down n G. C. M. 21503, supra, wth
respect to a oss appes equay to a smar transacton n whch s
gan s reazed. Such a gan s returnabe for edera ncome tss
purposes for the year n whch the transacton was consummate
e cer|t for devery of the stock.
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91 55.
P RT R TURNS ND P YM NT O T .
S CTION 55. PU LICITY O R TURNS.
1939-36-10003
T. D.4929
ITL 26 INT RN L R NU . C PT R I, P RT 463C. INSP CTION O
R TURNS.
Reguatons governng the Inspecton of certan returns under
the Interna Revenue Code.1
Washngton, D. C.
Tabe of Contents,
subpart a. ntroductoby.
Secton.
63C.0. Introductory.
SU P RT . INCOM , PRO ITS, ND C PIT L STOC T R TURNS, ND R TURNS O
MPLOYM NT T ON MPLOY RS UND SU C PT R O O C PT R O T
INT RN L R NU COD .
Secton.
630.1. Terms used.
t63C.2. Return of ndvdua.
63C.3. ont return of husband and wfe.
4 3C.4. Partnershp return.
63C.5. states.
63C.6. Trusts.
63C.7. Corporatons.
SU P RT C. ST T ND GI T T R TURNS UND R T INT RN L R N U COD .
Secton.
63C.20. Genera.
630.21. ppcaton for Inspecton.
3C.22. Dscosures for nvestgaton purposes.
630.23. Inspecton by State offcas.
630.24. Inspecton dscretonary wth Commssoner n certan cases.
SU P RT D. G N R L PRO ISIONS.
ecton.
630.30. Genera.
63C.31. Permsson to nspect
63C.32. Treasury Department offcas and empoyees.
630.33. Inspecton by branch of Government other than Treasury Department.
G3C.34. Inspecton by Government attorneys.
C3C.35. Informaton returns.
630.36. Pace of nspecton.
63C.37. ppcatons for nspecton.
63C.3 . Penates.
1 Sectons 463C.0 to 463C.3 are ssued under authorty contaned n sectons 60(a).
0 , 603, 702(a), 1204, and 1604(c) of the Interna Revenue Code (63 Stat, 29, 111,
11, 116. 171, 1 6).
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55.
92
Subpart . Intboductobt.
Sec. 463C.0. Introductory. Secton 55(a)(1) of the Interna
Revenue Code provdes:
(1) Returns made under ths chapter upon whch the ta has been
determned by the Commssoner sha consttute pubc records but,
e cept as herenafter provded n ths secton, they sha be open to
nspecton ony upon order of the Presdent and under rues and regua-
tons prescrbed by the Secretary and approved by the Presdent.
Secton 55(a)(2) of the Interna Revenue Code provdes:
(2) nd a returns made under ths chapter, Subchapters , , and
D of Chapter 2, Subchapter of Chapter 3, Chapters 4, sha
consttute pubc records and sha be open to pubc e amnaton and
nspecton to such e tent as sha be authorzed n rues and reguatons
promugated by the Presdent.
Secton 50 of the Interna Revenue Code (reatng to surta on
persona hodng companes) provdes:
provsons of aw (Incudng peuates) appcabe n respect of
the ta es mposed by Chapter 1, sha nsofar as not nconsstent wth
ths subchapter, be appcabe n respect of the ta mposed by ths sub-
chapter, e cept that the provsons of secton 131 sha not be appcabe.
Secton 603 of the Interna Revenue Code (reatng to e cess-
profts ta ) provdes:
provsons of aw (ncudng penates) appcabe n respect of
the ta es mposed by Chapter 1, sha, nsofar as not nconsstent wth
ths subchapter, be appcabe n respect of the ta mposed by secton
600, e cept that the provsons of secton 131 of that chapter sha not
be appcabe.
Secton 702(a) of the Interna Revenue Code (reatng to un|ust
enrchment ta ) provdes:
(a) provsons of aw (ncudng penates) appcabe wth re-
spect to ta es mposed by Chapter 1, sha, nsofar as not nconsstent
wth ths subchapter, be appcabe wth respect to the ta es mposed
by ths subchapter, e cept that the provsons of sectons 101, 131,
251, and 252 sha not be appcabe.
Secton 1204 of the Interna Revenue Code (reatng to capta
stock ta ) provdes:
Returns requred to be fed for the purpose of the ta mposed by
secton 1200 sha be open to nspecton n the same manner, to the
same e tent, and sub|ect to the same provsons of aw, ncudng pen-
ates, as returns made under Chapter 1, e cept that paragraph (2) of
subsectons (b) and (f) of secton 55 sha not appy.
Secton 1604(c) of the Interna Revenue Cede (reatng to empoy-
ment ta on empoyers) provdes:
(c) Pubcty. Returns fed under ths subchapter sha be open to
nspecton n the same manner, to the same e tent, and sub|ect to the
same provsons of aw, ncudng penates, as returns made under
Chapter 1, e cept that paragraph (2) of subsectons (a), (b) and (f)
of secton 55 sha not appy.
Secton 55(f) (1) of the Interna Revenue Code (reatng to ncome
ta ) provdes:
It sha be unawfu for any coector, deputy coector, agent, cerk, or
other offcer or empoyee of the Unted States to dvuge or to make known
In any manner whatever not provded by aw to any person the amount
or source of Income, profts, osses, e pendtures, or any partcuar
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93
IS 55.
thereof, set forth or dscosed In any ncome return, or to permt any
Income return or copy thereof or any book contanng any abstract or
partcuars thereof to be seen or e amned by any person e cept as
provded by aw and t sha be unawfu for any person to prnt or
pubsh n any manner whatever not provded by aw any Income re-
turn, or any part thereof or source of Income, profts, osses, or e pen-
dtures appearng In any ncome return and any offense aganst the
foregong provson sha be a msdemeanor and be punshed by a fne
not e ceedng 1,000 or by mprsonment not e ceedng one year, or
both, at the dscreton of the court and f the offender be an offcer
or empoyee of the Unted States he sha be dsmssed from offce or
dscharged from empoyment
Pursuant to the above-quoted provsons of aw, t s hereby
ardered that certan returns of ndvduas, partnershps, estates,
rusts, corporatons, assocatons, |ont-stock companes, and nsnr-
nce companes made pursuant to the requrements of the Interna
Revenue Code, sha be open to nspecton n accordance and upon
|ompance wth the foowng rues and reguatons:
SIvbpart . Income Returns (Incudng Persona odng Company and
Un|ust nrchment Rbtubns), and cess-Profts and Capta Stock Ta
Returns, and Returns op mpoyment Ta on mpoyers under Subchapter
C of Chapter 9 of the Interna Revenue Code.
Sec. 463C.1. Terms used. The word return when used n Subpart of
nose reguatons sha ncude ony ncome returns (Incudng persona hodng
rompany and un|ust enrchment returns), and e cess-profts and capta stock
a returns and returns of empoyment ta on empoyers under Subchapter C
f Chapter 0 of the Interna Revenue Code. ny other word or term used In
hese reguatons whch s defned n any chapter of the Interna Revenue Code
ha be gven the defnton contaned n the chapter whch s appcabe wth
espect to the partcuar return made.
Sec. 463C.2. Return of ndvdua. The return of an ndvdua sha be open
:o nspecton (a) by the person who made the return, or by hs duy const-
tuted attorney n fact (6) f the maker of the return has ded, or become
pguy ncompetent, by the admnstrator, e ecutor, trustee, or guardan of hs
state, or by the duy consttuted attorney n fact of such admnstrator,
ecutor, trustee, or guardan (c) n the dscreton of the Commssoner, by
ny her at aw, ne t of kn, or benefcary under the w, of such deceased
erson, or by the duy consttuted attorney n fact of such her at aw, ne t of
dn, or benefcary, upon a showng that such her at aw, ne t of kn, or
cnefcary has a matera nterest whch w be affected by nformaton con-
taned n the return and (d) as to returns under Subchapter C of Chapter 9
)f the Interna Revenue Code (reatng to empoyment ta on empoyers), n
he dscreton of the Commssoner and at such tme and n such manner as
:he Commssoner may prescrbe for the nspecton, by an offcer of any State
|avng a aw certfed to the Secretary of the Treasury by the Soca Securty
Roard as havng been approved n accordance wth secton 1603 of the Interna
Revenue Code, upon wrtten appcaton sgned by the governor of such State
mder the sea of the State, desgnatng the offcer to make the nspecton and
showng that such nspecton s soey for purposes of admnsterng such State
aw. Wth respect to nspecton on behaf of States or potca subdvsons
hereof, see further secton 55 of the Interna Revenue Code.
Sec. 463C.3. ont return of husband and wfe. |ont return of a husband
nd wfe sha be open to nspecton (a) by ether spouse for whom the
eturn was made, upon satsfactory evdence of such reatonshp beng fur-
shed, or by hs or her duy consttuted attorney n fact (6) f ether spouse
as ded, or become egay ncompetent, by the admnstrator, e ecutor, trustee,
r guardan of hs or her estate, or by the duy consttuted attorney n fact of
men admnstrator, e ecutor, trustee, or guardan and (c) n the dscreton
f the Commssoner by any her at aw, ne t of kn, or benefcary under the
w, of such deceased spouse, or by the duy consttuted attorney n fact of
such her at aw, ne t of kn, or benefcary, upon a showng that such her
t aw, ne t of kn, or benefcary has a matera Interest whch w be affected
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55.
94
by nformaton contaned n the return. Wth respect to nspecton on behaf
of States or potca subdvsons thereof, see secton 55 of the Interna
Revenue Code.
Sec. 463C.4. Partnershp return. The return of a partnershp sha be ops
to nspecton (a) by any ndvdua who was a member of such partnershp
durug any part of the tme covered by the return, or by hs duy consttute
attorney n fact, upon satsfactory evdence of such membershp n the part
nershp beng furnshed (6) f a member of such partnershp durng any put
of the tme covered by the return has ded, or become egay ncompetent,
by the admnstrator, e ecutor, trustee, or guardan, of hs estate, or by the dUr
consttuted attorney n fact of such admnstrator, e ecutor, trustee, or guardan
(c) n the dscreton of the Commssoner, by any her at aw, ne t of kn.
benefcary under the w, of such deceased person, or by the duy cousttutw
attorney n fact of such her at aw, ne t of kn, or benefcary, upon a rt ra
ng that such her at aw, ne t of kn, or benefcary has a matera nter
whch w be affected by nformaton contaned n the return and (d) as f
returns under Subchapter C of Chapter 9 of the Interna Revenue Code (ret
ng to empoyment ta on empoyers), n the dscreton of the Commssoner
and at such tme and n such manner as the Commssoner may present:
for the nspecton, by an offcer of any State havng a aw certfed to th
Secretary of the Treasury by the Soca Securty oard as havng been n
proved n accordance wth secton 1603 of the Interna Revenue Code, up
wrtten appcaton sgned by the governor of such State under the sea of tb
State, desgnatng the offcer to make the nspecton and showng that sort
nspecton s soey for purposes of admnsterng such State aw. Wth respee
to nspecton on behaf of States or potca subdvsons thereof, sec further
secton 55 of the Interna Revenue Code.
Sbo. 463(15. states. The return of an estate sha be open to Inspecton (a
by the admnstrator, e ecutor, or trustee of such estate, or by hs duy const-
tuted attorney n fact (6) n the dscreton of the Commssoner, by any her at
aw, ne t of kn, or benefcary under the w, of the deceased person for who
estate the return s made, or by the duy consttuted attorney n fact of sar
her at aw, ne t of kn, or benefcary, or f any such her at aw, ne t of tt -
or benefcary has ded or become egay ncompetent, by hs admnstrator,
e ecutor, trustee, or guardan of hs estate, or by the duy consttuted attorney
n fact of such admnstrator, e ecutor, trustee, or guardan, upon a showng of
matera Interest whch w e affected by nformaton contaned n the return:
and (c) as to returns under Subchapter C of Chapter 9 of the Interna Revenue
Code (reatng to empoyment ta on empoyers), n the dscreton of to Coo-
mssoner and at such tme and n such manner as the Commssoner may pre-
scrbe for nspecton, by an offcer of any State havng a aw certfed to rfc
Secretary of the Treasury by the Soca Securty oard as havng t een approved
n accordance wth secton 1603 of the Interna Revenue Code, upon wrtte
appcaton sgned by the governor of such State under the sea of the State-
desgnatng the offcer to make the nspecton and showng that such nspecton
s soey for purposes of admnsterng such State aw. Wth respect to nspt
ton on behaf of States or potca subdvsons thereof, see further secton w
of the Interna Revenue Code.
Se 463C.6. Trusts. The return of a trust sha be open to Inspecton (o M
the trustee or trustees, onty or severay, or the duy consttuted attorney
fact of such trustee or trustees (6) by any ndvdua who was a benefcary
of such trust durng any part of the tme covered by the return, or by hs duy
consttuted attorney n fact, upon satsfactory evdence beng furnshed that the
ndvdua was such benefcary (o) f any ndvdua who was a benefcary
of such trust durng any part of the tme covered by the return has ded.
become egay Incompetent, by the admnstrator, e ecutor, trustee, or guardan,
of hs estate, or by the duy consttuted attorney n fact of such admnstrator
e ecutor, trustee, or guardan (d) n the dscreton of the Commssoner, by
any her at aw, ne t of kn, or benefcary under the w, of such deceased p
son, or by the duy consttuted attorney n fact of such her at aw, ne t of k 0
or benefcary, upon a showng that snch her at aw, ne t of kn, or benefcary
has a matera nterest whch w be affected by nformaton contaned In a
return and (e) as to returns under Subchapter C of Chapter 9 of the Interna
Revenue Code (reatng to empoyment ta on empoyers), n the dscreton ot
the Commssoner and at such tme and n such manner as the Commssoner
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95
55.
may prescrbe for the Inspecton, by an offcer of any State havng a aw certfed
to the Secretary of the Treasury by the Soca Securty oard as havng been
approved n accordance wth secton 1603 of the Interna Revenue Code, upon
wrtten appcaton sgned by the governor of such State under the sea of the
State, desgnatng the offcer to make the nspecton and showng that such
nspecton s soey for purposes of admnsterng such State aw. Wth respect
to nspecton on behaf of States or potca subdvsons thereof, see further
secton 66 of the Interna Revenue Code.
Sc. 4630.7. Corporatons. The return of a corporaton sha be open to
nspecton (a) by any person desgnated by acton of ts board of drectors, or
other smar governng body, upon submsson of satsfactory evdence of such
acton, or (6) by any offcer or empoyee of such corporaton 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, or (c) by the duy
consttuted attorney n fact of such corporaton. The return of a corporaton
whch has snce been dssoved, sha, n the dscreton of the Commssoner,
be open to Inspecton by any person who under these reguatons mght have
nspected the return at the date of dssouton. Returns of corporatons under
Subchapter C of Chapter 9 of the Interna Revenue Code (reatng to empoy-
ment ta on empoyers), n the dscreton of the Commssoner, and at such tme
and n such manner as the Commssoner may prescrbe, sha be open to n-
specton by an offcer of any State havng a aw certfed to the Secretary of the
Treasury by the Soca Securty oard as havng been approved n accordance
wth secton 1003 of the Interna Revenue Code, upon wrtten appcaton sgned
by the governor of such State under the sea of the State, desgnatng the offcer
to make the nspecton and showng that such nspecton s soey for purposes
of admnsterng such State aw. Wth respect to nspecton on behaf of States
or potca subdvsons thereof, see further secton 55 of the Interna Revenue
Code.
Subpart C. state and Gft Ta Returns Under the Interna Revenue Code.
Sbc. 463C.20. Genera. state ta returns and notces and gft ta returns,
fed under the Interna Revenue Code, sha be treated as prveged communca-
tons and sha not be nspected nor ther contents dscosed e cept as heren-
after provded.
Sec. 463C.21. ppcaton for nspecton, Upon appcaton to the coector,
nterna revenue agent n charge, or Commssoner, an estate ta return or
notce may be nspected by the e ecutor, or hs successor n offce, or by hs duy
authorzed attorney n fact Upon ke appcaton a gft ta return may be
nspected by the donor or hs duy authorzed attorney n fact.
Sbc. 463C.22. Dscosures for nvestgaton purposes. n nterna revenue
offcer engaged n an offca nvestgaton of an estate ta or gft ta abty
may dscose the returned vaue of any tem or the amount of any specfc
deducton, or other mted Informaton, f such dscosure s necessary n order
to verfy the same or to arrve at a correct determnaton of the ta . Ths
rght of dscosure, however, Is mted to the purposes of the nvestgaton, and
n no case e tends to such nformaton as the amount of the estate, the amount
of ta , or other genera data.
Sec. 463C.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 n connecton wth an estate, nhertance, egacy, suc-
cesson, gft, or other ta of the State, provded a ke cooperaton s gven by
the State to the Commssoner or hs representatves for use n the admnstra-
ton of the edera ta aws. Such offcer may aso be permtted to Inspect
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 con-
tan Informaton ncuded or requred by statute to be ncuded In the return.
Seo. 463C.24. Inspecton dscretonary wth Commssoner n certan cases.
If any other person has a matera nterest n ascertanng any fact dscosed by
the return, or n obtanng nformaton as to the payment of the ta , he may
make a wrtten appcaton to the Commssoner for such nformaton, settng
forth the nature of hs nterest and the purpose of the appcaton. Thereupon,
the Commssoner may permt an nspecton of, or furnsh a copy of the return,
or may furnsh such nformaton as he deems advsabe.
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96
Subpart D. Genera Provsons.
Sec. 463C.30. Scope. The foowng provsons, uness otherwse stated, are
appcabe to a returns referred to n Subparts and C of these reguatons.
Sec. 4C3C.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. 4630.32. Treasury Department offcas and empoyees. The offcers and
empoyees of the Treasury Department whose offca dutes requre Inspecton ( f
returns may nspect any such returns wthout makng such wrtten appcaton.
If the head of a bureau or offce n the Treasury Department, not a part of h
Interna Revenue ureau, desres to nspect, or to have an empoyee n h
bureau or offce nspect a return, n connecton wth some matter offcay before
hm, for reasons other than ta admnstraton purposes, the nspecton may. d
the dscreton of the Secretary, be permtted upon wrtten appcaton to um
by the head of such bureau or offce, showng n deta why the nspecton s
desred.
Sec. 4630.33. Inspecton by branch of Government other than Treasur|t Depart-
ment. cept as provded n secton 4630.34, f the head of an e ecuth
department (other than the Treasury Department), or of any other estabshment
of the Unted States Government, desres to nspect 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 Secretar|
of the Treasury, be permtted upon wrtten appcaton to hm by the head of such
e ecutve department or other Government estabshment. The appcaton sha
be sgned by such head and sha show n deta why the Inspecton s desred,
the name and address of the ta payer who made the return, and the name and
offca desgnaton of the person t s desred sha nspect the return. Tt
nformaton obtaned under ths secton and secton 463C.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 s a party.
Sec. 4630.34. Inspecton by Government attorneys. ny return sha be open
to nspecton by a Unted States attorney or by an attorney of the Department
of ustce where necessary n the performance of hs offca dutes. The request
for nspecton sha be In wrtng and, e cept as provded n secton 463C.37.
sha be addressed to the Commssoner, and sha state the purpose for whch
nspecton s desred. It may be sgned by the ttorney Genera, the ssstant
to the ttorney Genera, an ssstant ttorney Genera, or a Unted States
attorney.
Sno. 463C.35. Informaton returns. Informaton returns, schedues, sts, and
other statements desgned to be suppementa to, or to become a part of, the
returns sha be sub|ect to the same rues and reguatons as to nspecton as
are the returns themseves. In any case where nspecton of the return s
authorzed by these reguatons, the Commssoner may, n hs dscreton, permt
nspecton of other records and reports whch contan nformaton ncuded or
requred by statute to be ncuded n the return.
Sec. 4630.36. Pace of nspecton. Generay, returns may be Inspected onr
n the ureau of Interna Revenue, Washngton, D. C, uness such returns are
n the custody of a coector of nterna revenue or nterna revenue agent n
charge or the head of a fed dvson of the Technca Staff, n whch event the
returns may be nspected n the offce of such coector or agent n charge or
head of dvson, but ony In the presence of an nterna revenue offcer, desg-
nated by the coector or agent or head of dvson for that purpose.
Sec. 4630.37. ppcatons for nspecton. cept as provded n secton
4630.33, and as herenafter provded, a appcatons for permsson to nspect
returns must be made n wrtng to the Commssoner of Interna Revenue.
When a return s n the custody of a coector of nterna revenue or Interna
revenue agent In charge or the head of a fed dvson of the Technca Staff,
such coector or revenue agent In charge or head of dvson, upon wrtten
appcaton to hm, s authorzed to permt the nspecton of such return by a
Unted States attorney, or an attorney n the Department of ustce, or by the
ta payer or hs duy authorzed attorney In fact, In accordance wth these
reguatons.
Sec. 4630.3 . Penates. Secton 55(f)(1) of the Interna Revenue Code
makes t a msdemeanor, punshabe by a fne not e ceedng 1,000, or by m-
prsonment not e ceedng one year, or both, at the dscreton of the court, for
any person to prnt or pubsh n any manner whatever not provded by av
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5 55.
Informaton contaned n any ncome return, am further provdes that f the
offender be an offcer or empoyee of the Unted States he sha be dsmssed
from offce or dscharged from empoyment. The penates provded n secton
05(f) (1) of the Interna Revenue Code are appcabe aso to dscosure of
nformaton contaned n e cess-profts, un|ust enrchment, and capta stock
ta returns and returns made under Subchapter C of Chapter 9 of the Interna
Revenue Code.
erbert . Gaston,
pproved ugust 2 , 1939.
rankn D. Roosevet,
The Whte ome.
e ecutve order authorzng the nspecton of certan returns
made under the nterna revenue code.
y vrtue of the authorty vested n me by secton 55(a) of the
Interna Revenue Code (53 Stat., 29), t s hereby ordered that the
foowng desgnated returns made under the sad Code sha be open
to nspecton n accordance and upon compance wth the rues and
reguatons prescrbed by the Secretary of the Treasury n the Treas-
ury decson reatng to the nspecton of such returns, approved by
me ths date.
Income (ncudng ncome of persona hodng companes and
un|ust enrchment ncome), e cess-profts, capta stock, estate, and
gft ta returns, and returns of empoyment ta on empoyers under
Subchapter C of Chapter 9 of the Interna Revenue Code.
rankn D. Roosevet.
The Whte ouse,
ugust 2 ,1939.
( 230)
( ed wth the Dvson of the edera Regster ugust 29, 1939, 3.23 p. m.)
1939-39-10030
T. D. 4945
TITL 26 INT RN L R NU C PT R I, SU C PT R D, P RT 463,
SU P RT D.
Use of orgna returns open to Inspecton In accordance wth
Treasury Decson 4929 page 91, ths uetn furnshng of copes
of returns and nspecton of returns of corporatons by State
offcers and sharehoders.1
Offce of Commssoner of Interna Revenue.
Washngton, D. C.
Coectors of Interna Revenue and Others Concerned:
Tabe of Contents,
ntroductory.
Secton.
463D.0. Introductory.
Sectons 463D.0 to 463D.9 are Issued nnder authorty contaned In sectons 55, 02, 60 ,
603, 702(a), 1204, 1207, 1604(c), and 3791 of the Interna Revenue Code (63 Stat., 20,
2, 111, 11L 116, 171, 171, 1 6, 467).
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9
SP CI L PRO ISIONS.
Secton.
463D.1. ccess to returns by State offcers.
463D.2. Inspecton of returns by State ta ng offcas.
4C3D.3. amnaton of returns by sharehoder.
G N R L PRO ISIONS.
4C3D.4. Use of returns n tgaton.
463D.5. urnshng of copes of returns.
463D.6. Suppementa documents, records, and reports.
463D.7. Penates for dscosure of returns.
463D. . Terms used.
463D.9. Pror reguatons under Code superseded.
Sec. 463D.0. Introductory. y ecutve order dated ugust 2 ,
1939, the Presdent ordered that returns made under Chapter 1, Sub-
chapters , , and D of Chapter 2, Chapters 3, 4, and 6, and Sub-
chapter C of Chapter 9 of the Interna Revenue Code, sha be open
to nspecton n accordance and upon compance wth the rues and
reguatons promugated n Treasury Decson 4929 approved by the
Presdent on the same date page 91, ths uetn . That Treasury
decson deas wth the nspecton of returns n so far as nspecton
s permssbe ony upon order of the Presdent and under regua-
tons approved by the Presdent. Under authorty of aw, and wth-
out acton by the Presdent, returns of corporatons under Chapter 1
(ncome ta ), Subchapters (surta on persona hodng com-
panes), (e cess-profts ta ), and D (un|ust enrchment ta ), of
Chapter 2, Chapter 6 (capta stock ta ), and Subchapter C of
Chapter 9 (empoyment ta on empoyers), of the Interna Revenue
Code, are open to nspecton by the proper offcers of any State
a returns under Chapter 1, and Subchapters , , and D of Chapter
2 of the Interna Revenue Code (or copes thereof) are open to
nspecton by any offca, body, or commsson, awfuy charged
wth the admnstraton of any State ta aw, f the nspecton s
for the purpose of such admnstraton or for the purpose of obtan-
ng nformaton to be furnshed to oca ta ng authortes and a
returns of corporatons are open to nspecton by bona fde share-
hoders of record ownng 1 per cent or more of the outstandng
stock.
Pursuant to sectons 55, G2, 50 , G03, 702(a), 1204, 1207, 1604(c).
and 3791 of the Interna Revenue Code, the foowng rues and regu-
atons are hereby prescrbed wth respect to the use of orgna, and
the furnshng of copes of, returns open to nspecton n accordance
wth Treasury Decson 4929, or otherwse wth respect to e amna-
tons by sharehoders of the returns of corporatons wth respect to
nspecton of returns of corporatons under Chapter 1, Subchapters
, , and D of Chapter 2, Chapter 6, and Subchapter C of Chap-
ter 9 of the Interna Revenue Code, by the proper offcers of an|
State and wth respect to the nspecton of returns under Chapter 1,
and Subchapters and D of Chapter 2 of the Interna Revenue Code
by any offca, body, or commsson, awfuy charged wth the ad-
mnstraton of any State ta aw. or nspecton by State ta ng
offcas of ncome returns other than returns under Subchapters
and D of Chapter 2 of the Interna Revenue Code, see secton 55(b)
of the Interna Revenue Code and the reguatons wth respect
thereto.
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II 55.
SP CI L PRO ISIONS.
Sec. 463D.1. ccess to returns by State offcers. (1) The proper
offcers of a State are entted as of rght upon the request of ts
governor to have access to the foowng returns of a corporaton (or
abstracts thereof): Income returns (ncudng persona hodng com-
pany and un|ust enrchment returns), and e cess-profts and capta
stock ta returns, and returns of empoyment ta by empoyers under
Subchapter C of Chapter 9 of the Interna Revenue Code.
(2) The request or appcaton of the governor must be n wrtng,
sgned by hm under the sea of hs State, and must show why access
s desred, and the names and offca postons of the offcers desg-
nated to have the access. The request or appcaton shoud be
addressed to the Commssoner, who w set a convenent tme and
pace for the access to the returns (or to an abstract thereof as he
may determne).
(3) ccess sha be gven ony n the offce of the Commssoner,
n ess such returns are n the custody of a coector of nterna rev-
mue or an nterna revenue agent n charge or the head of a fed
vson of the Technca Stan, n whch event the return may be
nspected n the offce of such coector or agent or head of dvson,
ut ony n the presence of an nterna revenue offcer desgnated by
mch coector or agent or head of dvson for that purpose.
Sec. 463D.2. Inspecton of returns by State ta ng offcas.
Drgna returns of ta es mposed by Subchapters and D of Chap-
er 2 of the Interna Revenue Code sha be open to nspecton, at
onvenent tmes and paces, by any offca, body, or commsson
awfuy charged wth the admnstraton of any State ta aw, or
y the representatves of such offca, body, or commsson desg-
ated n wrtng by the governor of the State, for the purpose of
uch admnstraton, or for the purpose of obtanng nformaton
o be furnshed to oca ta ng authortes, as provded n secton
.r)(b) 2 of the Interna Revenue Code. Requests for permsson
o nspect the returns must be n wrtng sgned by the governor
nder the sea of hs State, and must be addressed to the Comms-
oner of Interna Revenue, Records Dvson, Washngton, D. C.
e request sha state (a) the knd of returns t s desred to nspect,
b) the ta abe year or years covered by the returns t s desred to
nspect, (c) the name of the offca, body, or commsson by whom
r whch the nspecton s to be made, (d) the name of the represent-
tve of such offca, body, or commsson, desgnated to make the
specton, (e) by specfc references, the State ta aw whch such
ffca, body, or commsson s charged wth admnsterng and the
w under whch he, she, or t s so charged, (/) the purpose for
hcn the nspecton s to be made, and (g) f the nspecton s
r the purpose of obtanng nformaton to be furnshed to oca
ng authortes, (1) the name of the offca, body, or comms-
on of any potca subdvson of the State, awfuy charged wth
e admnstraton of the ta aws of such potca subdvson, f
y, to whom or to whch the nformaton secured by the nspecton
to be furnshed, and (2) the purpose for whch the nformaton
to be used by such offca, body, or commsson.
Sbo. 463D.3. amnaton of returns by sharehoder. bona fde
arehoder of record ownng 1 per cent or more of the outstandng
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55. 100
stock of a corporaton sha be entted as of rght, upon makng
request of the Commssoner, to e amne the returns of such corpo
raton and of ts subsdares. s request for permsson to e amne
such returns sha be made n wrtng, verfed by affdavt, and sha
show hs address, the name of the corporaton, the perod of tme
covered by the return he desres to nspect, the amount of the cor
poraton s outstandng capta stock, the number of shares owned
by hm, the date when he acqured them, and whether he has the
benefca as we as the record tte to such shares. It sha aso
show that he has not acqured hs shares for the purpose of the
e amnaton of the returns of the corporaton. If he has acqured
them for such purpose, he s not a bona fde sharehoder wthn the
meanng of the statute. The appcaton sha be supported by sats
factory evdence showng that te appcant s a bona fde sharehoder
of record of the requred amount of stock of the corporaton.
The supportng evdence may be n the form of a certfcate
sgned by the presdent or vce presdent of the corporaton and
countersgned by the secretary under the corporate sea. Upon be-
ng satsfed from the evdence presented that the appcant hs
fuy met these condtons, the Commssoner w grant the per-
msson to e amne the returns and set a convenent tme and pace
for the e amnaton. Ths prvege s persona and w be granted
ony to the sharehoder, who can not deegate t to another. In
the case of a corporaton whch has been dssoved, the returns may
be e amned by any person who woud have been entted to e amne
them at the date of dssouton.
G N R L PRO ISION S.
Sec. 463D.4. Use of returns n tgaton. The return of an n-
dvdua, partnershp, corporaton, or fducary, or a copy thereof,
may be furnshed to a Unted States attorney for offca use n pro-
ceedngs before a Unted States grand |ury or n tgaton n any
court, f the Unted States s nterested n the resut, or for use n
preparaton for such proceedngs or tgaton or to an attorney of
the Department of ustce| for ke use, upon wrtten request of the
ttorney Genera, the ssstant to the ttorney Genera, or an s
sstant ttorney Genera. If a return or copy s thus furnshed,
t sha be mted n use to the purpose for whch t s furnshed
and s under no condton to be made pubc e cept to the e tent
that pubcty necessary resuts from such use. The orgna return
w be furnshed ony n e ceptona cases, and then ony f t s made
to appear that the ends of |ustce may otherwse be defeated. Nether
the orgna nor a copy of a return desred for use n tgaton n
court w be furnshed f the Unted States Government s not nter-
ested n the resut, but ths provson s not a mtaton on the u
of copes of returns by the persons entted thereto.
Sec. 463D.5. urnshng of copes of returns. copy of a return
may be furnshed to any person who s entted to nspect such return
upon wrtten appcaton therefor and the submsson of evdence
satsfactory to the Commssoner of hs rght to receve the samf,
e cept that f a return s n the custody of a coector or an nterna
revenue agent n charge or the head of a fed dvson of the Tech-
nca Staff, such coector or agent n charge or head of dvson ma|
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101
55, rt. 55(b)-5.
furnsh a copy of such return to a Unted States attorney or an
attorney of the Department of ustce, or to the ta payer or hs
duy authorzed attorney n fact, n accordance wth these regua-
tons. Certfed copes w be furnshed ony upon specfc request
therefor sent to the Commssoner at Washngton.
The Commssoner may prescrbe a reasonabe fee for furnshng
copes of returns.
Sec. 463D.6. Suppementa documents, records, and reports. Per-
sons entted to nspect returns may have access to nformaton re-
turns, schedues, sts, and other statements desgned to be suppe-
menta to, or to become a part of, the returns to whch they are
gven access, and the Commssoner may, n hs dscreton, permt
such persons to nspect other records and reports whch contan
nformaton ncuded or requred by statute to be ncuded n the
return.
Sec. 463D.7. Penates for dscosure of returns. Secton 55(f )1 of
the Interna evenue Code makes t a msdemeanor punshabe by a
fne not e ceedng 1,000 or by mprsonment not e ceedng one year,
or both, at the dscreton of the court, for any person to prnt or
pubsh n any manner whatever not provded by aw nformaton
contaned n any ncome return, and further provdes that f the
offender be an offcer or empoyee of the Unted States he sha be
dsmssed from offce or dscharged from empoyment. The penates
provded n secton 55(f) of the Interna Revenue Code are app-
cabe aso to dscosure of nformaton contaned n e cess-profts, un-
|ust enrchment, and capta stock ta returns, and returns made
under Subchapter C of Chapter 9 of the Interna Revenue Code.
Sec. 463D. . Terms used. ny word or term used n these regua-
tons whch s defned n any chapter of the Interna Revenue Code
sha be gven the defnton contaned n the chapter whch s app-
cabe wth respect to the partcuar return made.
Sec. 463D.9. Pror reguatons under Code superseded. Ths
Treasury decson supersedes Treasury Decson 4 7 , approved an-
uary 4, 1939 C. . 1939-1 (Part 1), 115 , ony nsofar as such
Treasury decson was made appcabe by Treasury Decson 4 5,
approved ebruary 11, 1939 C. . 1939-1 (Part 1), 396 , to returns
made under the Interna Revenue Code.
Gut T. everng,
pproved September 20, 1939.
ohn W. anes,
( ed wth the Dvson of the edera Regster September 22,1939, 12.53 p. m.)
rtce 55(b)-5: Inspecton of orgna 1939-37-10017
returns. T. D. 4936
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 463,
SU P RT . INSP CTION O INCOM T WIT OLDING R TURNS.
Reguatons governng the nspecton of Income ta returns, orm
1042 , by the Department of Natona Revenue, Ottawa, Canada.
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I 65, rt. 55(b)-5.
102
Treasury Department.
Washngton, D. C.
Secton 463 .0. Introductory. Secton 55(a) of the Revenue
ct of 193 provdes:
Returns made under ths tte sha be open to Inspecton n the same
manner, to the same e tent, and sub|ect to the same provsons of aw,
ncudng penates, as returns made under Tte II of the Revenue ct
of 1926 and a returns made under ths ct sha consttute pubc
records and sha be open to pubc e amnaton and nspecton to such
e tent as sha be authorzed n rues and reguatons promugated by
the Presdent.
Secton 55(a) 1 of the Interna Revenue Code provdes:
Returns made under ths chapter upon whch the ta has been deter-
mned by the Commssoner sha consttute pubc records but, e cept
as herenafter provded n ths secton, they sha be open to nspecton
ony upon order of the Presdent and under rues and reguatons pre-
scrbed by the Secretary and approved by the Presdent
Secton 55(a)2 of the Interna Revenue Code provdes:
nd a returns made under ths chapter. Subchapters , , and D of
Chapter 2, Subchapter of Chapter 3, Chapters 4, 7, 12, and 21, Sub-
chapter of Chapter 29, and Subchapters and of Chapter 30, sha
consttute pubc records and sha be open to pubc e amnaton and
nspecton to such e tent as sha be authorzed n rues and reguatons
promugated by the Presdent.
Pursuant to the above-quoted provsons of aw the Presdent orders
that ncome ta wthhodng returns, orm 1042 , fed under the
provsons of Tte I of the Revenue ct of 193 , or Chapter 1 of the
Interna Revenue Code, sha be open to nspecton by the Department
of Natona Revenue, Ottawa, Canada, for the purpose of enabng
the Unted States Treasury Department to admnster effectvey the
provsons of the ta conventon, dated December 30, 1936, between
the Unted States and Canada whch was ratfed ugust 13, 1937
C. . 1937-2, 539 . (Secton 55(a), 52 Stat., 47 , 26 U. S. C, Sup.
I , 55(a) secton 55(a) (1) and (2), 53 Stat., 29.)
Sec. 463 .1. Procedure for nspecton. Upon recept by the Com-
mssoner of Interna Revenue of ncome ta wthhodng returns,
orm 1042 , dupcate copes thereof sha be forwarded to the De-
partment of Natona Revenue, Ottawa, Canada. (Secton 55(a),
52 Stat, 47 , 26 U. S. C, Sup. I , 55(a) secton 55(a) (1) and (2),
53 Stat., 29.)
ohn W. anes,
ctng Secretary of the Treastry.
rankn D. Roosevet,
The Whte ouse.
CUTI ORD R UT ORIZING T INSP CTION O C RT IN INCOM
T WIT OLDING R TURNS Y T D P RTM NT O N TION L R NU ,
OTT W , C N D .
y vrtue of the authorty vested n me by secton 55(a) of the
Revenue ct of 193 (52 Stat., 447, 47 ) and secton 55(a) (1) and
(2) of the Interna Revenue Code (53 Stat, 1, 29), t s hereby
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103
101, rt. 101(6)-1.
ordered that ncome ta wthhodng returns, orm 1042 , fed under
the provsons of Tte I of the Revenue ct of 193 (52 Stat., 447,
452), or Chapter 1 of the Interna Revenue Code (53 Stat., 1, 4),
sha be open to nspecton by the Department of Natona Revenue,
Ottawa, Canada, for the purpose of enabng the Unted States
Treasury Department to admnster effectvey the provsons of the
ta conventon, dated December 30, 1936, between the Unted States
and Canada whch was ratfed ugust 13, 1937. Such nspecton
sha be n accordance wth the rues and reguatons prescrbed by
the Secretary of the Treasury n the Treasury decson reatng to
the nspecton of returns by the Department of Natona Revenue,
Ottawa, Canada, approved by me ths date.
rankn D. Roosevet.
The Whte ouse,
September 6,1939.
( 236)
( ed wth the Dvson of the edera Regster September 7, 1939, 10.4 a. m.)
SU C PT R C SUPPL M NT L PRO ISIONS.
SUPPL M NT . R T S O T .
S CTION 101. MPTIONS ROM T
ON CORPOR TIONS.
rtce 101(6)-1: Regous, chartabe, scen- 1939-41-10053
tfc, terary| and educatona organzatons G. C. M. 21610
and communty chests.
INT RN L R NU COD , R NI CT OP 103 , ND PRIOR R NU CTS.
s a genera rue, In determnng whether an organzaton s
e empt from edera ncome ta , the purpose of the organzaton
shoud be determned from the nstrument creatng It Ths rue
Is sub|ect to the e cepton that where the net Income of an organ-
zaton s requred by some other bndng Instrument to be used for
chartabe purposes ts e empton w not be defeated by the fact
that ts charter or other nstrument under whch t e sts does not
ndcate an e cusvey chartabe purpose. The e cepton to the
genera rue does not ncude cases where there s no bndng nstru-
ment requrng the ncome to be devoted to charty even though the
ncome s so devoted, and shoud be confned to cases where the
ntent promptng the orgna organzaton was to create an or-
ganzaton to be operated e cusvey for chartabe purposes.
n opnon s requested whether the purposes of an organzaton
as set forth n the nstrument creatng t are determnatve of ts
status for edera ncome ta purposes or whether ts actua actvtes
shoud be the bass for determnng ts status. It s stated that there
s an apparent confct upon ths sub|ect between Roche s each, Inc.,
v. Commssoner (96 ed. (2d). 776, Ct. D. 1359 C. . 193 -2, 230)
and Northwestern- Muncpa ss n. Inc., v. Unted States (99 ea.
(2d), 460, Ct. D. 1419, page 224, ths uetn).
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101, rt. 101(6)- .
104
In Roche s each, Inc., v. Commssoner, supra, the corporaton was
formed under the stock corporaton aw of New York by an nd-
vdua shorty before hs death for the purpose of beng the medum
through whch a chartabe foundaton created by hs w coud
operate hs property and coect the ncome therefrom after hs
death. The ndvdua transferred to the corporaton varous op-
eratng busness propertes n e change for ts stock on the date the
ndvdua e ecuted hs w. owever, the ndvdua contnued to
operate the property unt hs death, recevng a the ncome there-
from. y the w of the ndvdua, the capta stock of the cor-
poraton was bequeathed to testamentary trustees for the purpose
of estabshng the chartabe foundaton. The w referred to the
corporaton and made manfest that the ncome produced by t
coud not be used for other than chartabe purposes wthout a per-
verson of the testamentary trust. fter the death of the nd-
vdua the trustees operated the property through the medum of
the corporaton, whch remtted any e cess of ncome over e penses
to the foundaton for chartabe purposes. The certfcate of ncor-
poraton of the corporaton gave t broad powers reatve to carry-
ng on varous knds of busnesses and sad nothng of the chartabe
purposes whch t was to serve. The court there hed that the cor-
poraton was e empt from ta under the provsons of secton 103(6)
of the Revenue ct of 192 . The court ponted out that the e emp-
ton provson does not mean that a corporaton may not conduct
busness actvtes for proft, statng that the destnaton of the n-
come s more sgnfcant than ts source, ctng Trndad v. Sagrada
Orden (263 U. S., 57 , T. D. 354 , C. . III-, 270 (1924)) Sand
Sprngs ome v. Commssoner (6 . T. ., 10 , acquescence, C. .
I-1, 5 (1927)) and ppea of Unty Schoo of Chrstanty (4
. T. ., 61, acquescence, C. . I-1, 6 (1927)). The court aso
hed that the charter provsons of a corporaton are not concusve
n determnng the purpose for whch t was organzed and that
e trnsc evdence may be consdered n determnng the actua pur-
pose for whch t was organzed. The court further hed that the
e empton granted to chartabe organzatons s not mted to those
whch drecty dspense charty, but ncudes those whch merey
produce ncome for a charty admnstered by another ta -e empt
organzaton on the ground that e emptons of ncome devoted to
charty are begotten from motves of pubc pocy and are not to be
narrowy construed.
In Northwestern Muncpa ss n, Inc., v. Unted Staes, supra,
the organzaton there nvoved was aeged to be a busness eague
e empt from ta under secton 101(7) of the Revenue ct of 1934,
whch e empts certan stated organzatons not organzed for
proft. The court hed that the organzaton was not entted to
e empton party because t dd not meet ths requrement of the
statute. In that case the corporaton was organzed under the Mn-
nesota usness Corporaton ct and ts artces of ncorporaton
dscosed the purpose of engagng n a reguar busness of a knd
ordnary carred on for proft. The court hed that the purpose
of the organzaton must be determned by the purpose decared n
the nstrument creatng t, ctng, among other cases, cverng v.
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105
101, rt. 101(9)-1.
CoTemun-Gbert ssocates (296 U. S., 309, Ct. D. 1067, C. . -1,
261 (1936)), wheren the Court stated n part that The partes are
not at berty to say that ther purpose was other or narrower than
that whch they formay set forth n the nstrument under whch
ther actvtes were conducted.
It s the opnon of ths offce that, as a genera rue, the purpose
of an organzaton shoud be determned from the nstrument cre-
atng t. owever, ths rue s sub|ect to the e cepton that where
(as n Roche s each) the net ncome of an organzaton s requred
by some other bndng nstrument to be used for chartabe pur-
poses, ts e empton w not be defeated by the fact that ts charter
or other nstrument under whch t e sts does not ndcate an e -
cusvey chartabe purpose. Ths e cepton to the genera rue s
to charty are not to be narrowy construed snce they are begotten
from motves of pubc pocy. (Cf. everng v. ws, 293 U. S.,
144, Ct. D. 4, C. . III-2, 191 (1934), and Lederer v. Stockton,
260 U. S., 3.) Ths e cepton to the genera rue shoud not be e -
tended to cases n whch there s no such bndng nstrument requr-
ng that the ncome be devoted to charty, even though the ncome
s n fact devoted to charty. The e cepton to the genera rue s
aso confned to cases n whch (as n Roche s each) the ntent whch
prompted the orgna organzaton was an ntent to set up an organ-
zaton to be operated e cusvey for chartabe purposes.
. P. Wenche,
rtce 101 (9)-: Soca cubs. 1939-31-9931
INT RN L R NU COD ND R NU CT O 103 .
The M Cub s rght to e empton under secton 101(9) of the
Revenue ct of 193 and the Interna Revenue Code, as a nonproft-
makng soca cub, s not affected by the fact that for the tme
beng a substanta part of ts ncome s derved from nterest,
such Income beng ncdenta to the nvestment of the proceeds of
sae of ts former cubhouse pendng the acquston of a new home
for the cub.
dvce s requested whether the M Cub s entted to e empton
from edera ncome ta under secton 101 (6) or (9) of the Revenue
ct of 193 and the Interna Revenue Code.
The M Cub was ncorporated wthout capta stock under the aws
of the State of R. Its ob|ects are the promoton of artstc taste n
genera, and voca musc n partcuar, by the practce and perform-
ance of sacred and secuar musc and by the estabshment of a schoo
for gratutous nstructon n sngng and musc, wth power to take by
purchase, devse or otherwse, and to hod, transfer, mortgage and
convey such rea and persona estate as sha be necessary for the
purpose of the corporaton. It mantans a free schoo for nstruc-
ton n musc and sngng. It aso mantans a cubhouse wth the
usua cub factes, ncudng a restaurant, bard tabes, and bow-
ng aeys for the use of ts members and ther guests.
e emptng ncome devoted
I. T. 3302
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101, rt. 101(9)- .
106
The cub s ncome, as shown by ts fnanca statement, s derved
from membershp dues, nterest on nvestments, and recepts from
cub factes. It hods nvestments n a substanta amount, ap-
pro matey 176,000, representng proceeds from the sae of ts cub-
house, whch amount s to be used for the purchase of a new home
for the cub. or the present the cub s occupyng rented quarters.
ppro matey 20 per cent of ts ncome s derved from nvestments.
The offcers and members receve no gans or profts from the organ-
zaton. The statements of recepts and e pendtures ndcate that
the prncpa actvty of the organzaton s the mantenance and
operaton of a soca cub.
Secton 101(6) of the Revenue ct of 193 and of the Interna
Revenue Code provdes for the e empton of:
Corporatons, and any communty chest, fund, or foundaton, organzed and
operated e cusvey for regous, chartabe, scentfc, terary, or educatona
purposes, or for the preventon of cruety to chdren or anmas, no part of the
net earnngs of whch nures to the beneft of any prvate sharehoder or n-
dvdua, and no substanta part of the actvtes of whch s carryng on
propaganda, or otherwse attemptng, to nfuence egsaton
n assocaton camng e empton under the provsons of aw
quoted above must be organzed and operated e cusvey for one
or more of the specfc purposes. It s cear from the actvtes of
the organzaton under consderaton that t s not operated e cu-
svey for educatona purposes, as contended by the cub, wthn the
meanng of secton 101(6) and s not entted to e empton under
that secton.
Secton 101(9) of the Revenue ct of 193 and of the Interna
Revenue Code provdes for the e empton of:
Cubs organzed and operated e cusvey for peasure, recreaton, and other
nonproftabe purposes, no part of the net earnngs of whch nures to the
beneft of any prvate sharehoder
rtce 101(9)-1 of Reguatons 101 provdes n part as foows:
The e empton granted by secton 101(9) appes to practcay a soca
and recreaton cubs whch are supported by membershp fees, dues, and
assessments.
Whe a substanta part of the ncome of the M Cub s derved
from nterest, such ncome s ncdenta to the nvestment of the
proceeds from the sae of the cubhouse. The purpose of such sae
was not for proft. In other words, the ncome n queston does not
arse out of any actvty entered nto for proft or from engagng n
busness. It s, therefore, hed that the recept of such ncome does
not precude e empton under secton 101(9) of the Revenue ct of
193 and the Interna Revenue Code. (See G. C. M. 19465, C. .
193 -1, 172.)
rtce 101(9)-1: Soca cubs. 1939-50-10117
I. T. 3339
INT RN L R NU COD ND R NU CTS O 1036 ND 193 .
The M Cub eased ts physca property to another cub and
dscontnued operatons. It s not supported by membershp dues,
fees, and assessments and Is dervng a of ts Income from ts
ease. ed, the M Cub s not entted to e empton from edera
ncome ta aton under secton 101(9) of the Interna Revenue Code
and smar provsons of the Revenue cts of 1036 and 193 .
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107
101, rt. 101(9)-1
dvce s requested whether the M Cub s entted to e empton
from edera ncome ta aton under the provsons of secton 101(9)
of the Interna Revenue Code and smar provsons of the Revenue
cts of 1936 and 193 .
In December, 1936, the M Cub eased ts physca property to the
N Cub and dscontnued ts actve operatons. owever, members
of the M Cub retaned the rght to use the cub factes. The M
Cub states that the purpose of easng ts property to the N Cub
was and s to contnue the M Cub n e stence and to provde fac-
tes for ts members whch coud not have been furnshed had there
not been a consodaton wth the N Cub. It s contended that the
M Cub s st operated e cusvey for peasure, recreaton, and
other nonproftabe purposes, and no part of ts ncome nures to the
beneft of any prvate stockhoder. In support of ts cam for
e empton, the cub ctes Santee Cub v. Whte ( 7 ed. (2d), 5) and
G. C. M. 19465 (C. . 193 -1, 172).
In Santee Cub v. Whte, supra, the ta payer was a soca cub
organzed to acqure and obtan and as a huntng and fshng pre-
serve for ts members. It had sod part of ts and, whch had be-
come vaueess for ts purposes, and had used the proft therefrom
for the mprovement of other parts of ts property and for genera
purposes. The court hed that the cub had not ost ts e empton
snce ths was merey an ncdenta sae of property. The Santee
Cub contnued to operate as a cub for the beneft of ts members and
was supported by membershp fees, dues, and assessments eved upon
ts members.
G. C. M. 19465, supra, refers to a cub whch for severa years
occuped a budng under a ease and thereafter purchased the bud-
ng. Wthn a year or two the members reazed the mpractcabty
of contnung to own the property, as the cub s ncome was not suff-
cent to fnance the actvtes and defray the heavy carryng charges.
The property was, therefore, sod at a proft, the payments on the
sae prce beng receved annuay for 10 years. The proceeds from
the sae were not dstrbuted to the members but were used to create
a surpus whch was graduay beng absorbed by operatng osses.
fter the sae the cub contnued to occupy the premses under a
ease from the purchaser and contnued to operate n the same
manner. It was hed that the sae dd not deprve the cub of e emp-
ton from edera ncome ta aton under secton 101(9) of the
Revenue ct of 1936.
In the nstant case, the M Cub, after easng a of ts property to
the N Cub, has not been supported by membershp fees, dues, and
assessments as requred by artce 101 (9)-1 of Reguatons 101. In
an affdavt submtted by the presdent of the M Cub t s stated that
The ony ncome of ue cub s from the ease, and ths ncome s
equa to the nterest and amortzaton on the bond ssue, the ta es,
the nsurance, and the e pense of mantanng, repacng, and operat-
ng the budng.
Inasmuch as the cub s not supported by membershp fees, dues,
and assessments, but merey eases ts property and derves a ts
ncome from the ease, t s not entted to e empton under the pro-
vsons of secton 101 (9) of the Revenue ct of 1936 and shoud be
requred to fe an ncome ta return for 1937. Inasmuch as secton
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102, rt. 102-2
10
101(9) of the Revenue ct of 193 and secton 101(9) of the Interna
Revenue Code are smar to secton 101(9) of the Revenue ct of
1936, t s aso requred to fe ncome ta returns for subsequent
years.
S CTION 102. SURT O CORPOR TIONS IMPROP RLY
CCUMUL TING SURPLUS.
rtce 102-2: Purpose to avod surta ev- 1939-31-9943
dence burden of proof defnton of hod- T. D. 4914
ng or nvestment company.
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 22.
INCOM T .
Corporate Income ta returns to be gven partcuar attenton to
determne the appcaton of the provsons of secton 102 of the
Interna Revenue Code, and the correspondng secton of the Reve-
nue ct of 103 , reatng to unreasonabe accumuaton of earnngs
or profts to avod surta .1
Washngton, D. C.
To Coectors of Interna Revenue and Other Offcers and mpoyees
of the ureau of Interna Revenue Concerned:
Secton 22. 0. Introductory. (a) ttenton s drected to the pro-
vsons of secton 102 of the Interna Revenue Code (53 Stat., Part 1)
whch mposes a surta on corporatons mpropery accumuatng
surpus, partcuary secton 102(c), whch provdes as foows:
(c) vdence determnatve of purpose. The fact that the earnngs or profts
of a corporaton are permtted to accumuate beyond the reasonabe needs of
the busness sha be determnatve of the purpose to avod surta upon share-
hoders uness the corporaton by the cear preponderance of the evdence sha
prove to the contrary.
The above-quoted provsons frst appeared n the Revenue ct of
193 (52 Stat., 4 3).
(b) ttenton s aso drected to the foowng provsons of artce
102-2 of Reguatons 101 ssued under the Revenue ct of 193 , and
made appcabe to the Interna Revenue Code by Treasury Decson
4 5, approved ebruary 11, 1939 C. . 1939-1 (Part 1) , page 396
(Part 465, Subpart , Tte 26, Code of edera Reguatons):
If the Commssoner determnes that the corporaton was formed or avaed
of for the purpose of avodng the Indvdua surta through the medum of
permttng earnngs or profts to accumuate, and the ta payer contests such
determnaton of fact by tgaton, the burden of provng the determnaton
wrong by a preponderance of evdence, together wth the correspondng burden
of frst gong forward wth evdence, s on the ta payer under prncpes ap-
pcabe to ncome ta cases generay, and ths s so even though the corpora-
ton s not a mere hodng or Investment company and does not have an Tn-
reasonabe accumuaton of earnngs or profts. owever, If the corporaton Is
a mere hodng or nvestment company, then the ct gves further weght to
the presumpton of correctness aready arsng from the Commssoner s deter-
1 Sectons 22.0 and 22.1 eaned nnder the authorty contaned In sectons 62 and 102 of
the Interna Revenue Code (53 Stat., Part 1) and of the Revenue ct of 1 3 (52 SuU
4 0, 4 3 26 U. S. C, Sup. I , 62, 102).
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109
( 102, rt. 102-2-
m naton by e pressy provdng an addtona presumpton of the e stence of
a purpose to avod surta upon sharehoders, whe f earnngs or profts are
permtted to accumuate beyond the reasonabe needs of the busness, then the
ct adds st more weght to the Commssoner s determnaton by provdng
that rrespectve of whether or not the corporaton s a mere hodng or nvest-
ment company, the e stence of such an accumuaton s determnatve of the
purpose to avod surta upon sharehoders uness the ta payer proves the
contrary by such a cear preponderance of a the evdence that the absence of
such a purpose s unmstakabe.
(c) It s to be remembered that persona hodng companes are
now ta ed under secton 351 of the Revenue ct of 1934 (4 Stat., 751,
26 U. S. C, 331) and the correspondng sectons of the Revenue cts
of 1936 (49 Stat., 1732, 26 U. S. C, Sup. 2, 331) and 193 (52 Stat.,
557, 26 U. S. C, Sup. 4, 331) and the Interna Revenue Code. The
provsons of aw estabshng hgh ta rates on earnngs hed n
such corporatons have emnated the argest group of cases whch
prevousy fe wthn the provsons of secton 102, and that secton
now has appcaton ony to corporatons other than persona hod-
ng companes.
Sec. 22.1. Instructons. (a) Returns fed by the foowng casses
of corporatons w be grven cose attenton to determne whether
secton 102 s appcabe:
(1) Corporatons whch have not dstrbuted at east 70 per cent
of ther earnngs as ta abe dvdends.
(2) Corporatons whch have nvested earnngs n securtes or
other propertes unreated to ther norma busness actvtes.
(3) Corporatons whch have advanced sums to offcers or share-
hoders n the form of oans out of undstrbuted profts or surpus
from whch ta abe dvdends mght have been decared.
(4) Corporatons, a ma|orty of whose stock s hed by a famy
group or other sma group of ndvduas, or by a trust or trusts for
the beneft of such groups.
(5) Corporatons the dstrbutons of whch, whe e ceedng 70
per cent of ther earnngs, appear to be nadequate when consdered
n connecton wth the nature of the busness or the fnanca pos-
ton of the corporaton or corporatons wth accumuatons of cash or
other quck assets whch appear to be beyond the reasonabe needs
of the busness.
(b) In so far as the casses of cases referred to n (1), (2), (3),
and (4) are concerned, the e amnng offcer s report n every n-
stance sha contan a specfc recommendaton for the appcaton
or nonappcaton of secton 102.
(c) ach nterna revenue agent n charge and each head of a
fed dvson of the Technca Staff w desgnate a quafed em-
poyee n hs offce, whose responsbty t w be to pass personay
upon each case n whch a recommendaton has been made by an
e amnng or revewng offcer wth respect to the appcaton or non-
appcaton of secton 102. The nterna revenue agent n charge or
head of the fed dvson of the Technca Staff w advse the
Commssoner of the names and ttes of such empoyees.
(d) There w be mantaned currenty n Washngton, D. C,
detaed data regardng cases n whch recommendatons have been
made wth respect to the appcaton or nonappcaton of secton
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112(0, rt. 112(f)- .
110
102, n order that the offcers of the Department may be kept ap-
propratey nformed. To ths end, there w be forwarded to ths
offce by nterna revenue agents n charge or heads of fed dvsons
of the Technca Staff, as the case may be, mmedatey upon prepa-
raton thereof, a copy of each e amnng offcer s report, revenue
agent s report, fed conference memorandum, or acton memorandum
n cases referred to n (1), (2), (3), and (4) of paragraph (a) of
ths secton, n whch a recommendaton has been made wth respect
to the appcaton or nonappcaton of secton 102, and a copy of
each e amnng offcer s report, revenue agent s report, fed con-
ference memorandum, or acton memorandum n cases referred to n
(5) of paragraph (a) of ths secton n whch a recommendaton has
been made for the appcaton of secton 102.
(e) In the revew of ncome-ta cases by the ureau, the returns
of corporatons of the casses enumerated n paragraph (a) of ths
secton w be gven speca consderaton to determne whether fed
offcers have comped fuy wth these nstructons.
(/) Correspondence, reports, and memorandums from nterna
revenue agents n charge n regard to ths Treasury decson shoud
refer to the number thereof and the symbos IT: . Correspondence,
reports, and memorandums from heads of the fed dvsons of the
Technca Staff n regard to ths Treasury decson shoud refer to
the number thereof and the symbos C: TS.
arod N. Graves,
ctng Commssoner.
pproved uy 26, 1939.
. Moroenthau, r.,
Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 27, 1939. 12.47 p. m.)
SUPPL M NT . COMPUT TION O N T INCOM .
S CTION 112(f). R COGNITION O G IN OR
LOSS: IN OLUNT RY CON RSIONS.
rtce 112(f)-: Renvestment of proceeds 1939-42-10061
of nvountary converson. T. D. 4951
TITL 26 INT RN L R NU C PT R I, SU C PT R . P RT 3 ND
P RT 9, SU P RT SU C PT R , P RT 465, SU P RT . INCOM T .
rtce 112(f)- of Reguatons 6, 94, 101, and 101 as made ap-
pcabe to the Interna Revenue Code, reatng to renvestment of
proceeds of nvountary conversons, amended.
Washngton, D. O.
Paragraph . rtce 112(f)- of Reguatons 6, as amended by
Treasury Decson 469 (1936) (C. . -2, 159), artce 112(f)-
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I
5 112(f), rt. 112(f)- .
of Reguatons 94 secton 3.112(f)-, Tte 26, Code of edera Reg-
uatons , 101 secton 9.112(f)- of such Tte 26 , and 101 as made
appcabe to the Interna Revenue Code by Treasury Decson 4 5,
approved ebruary 11, 1939 C. . 1939-1 (Part 1), 396 Part
465, Subpart , of such Tte 26 , are each amended by substtutng
for the frst sentence of the second paragraph thereof, readng as
foows:
If, In a condemnaton proceedng, the Government retans out of the award
suffcent funds to satsfy ens and mortgages aganst the property and Itsef
pays the same, the amount so retaned shoud be Incuded n determnng the
amount of the net award.
the foowng sentence:
If, In a condemnaton proceedng, the Government retans out of the award
suffcent funds to satsfy ens (other than ens due to speca assessments
eved aganst the remanng porton of the pot or parce of rea estate affected
for benefts accrung In connecton wth the condemnaton) and mortgages
aganst the property and tsef pays the same, the amount so retaned sha
not be deducted from the gross award n determnng the amount of the net
award.
Par. . The ffth paragraph of sad artce 112(f)- of Regua-
tons 6, as amended, 94, 101, and 101 as made appcabe to the
Interna Revenue Code by Treasury Decson 4 5, approved ebru-
ary 11, 1939, readng n part as foows:
There Is no nvestment In property smar In character and devoted to a
smar use f

(4) n award for property taken for street wdenng s apped toward
payment of speca assessments for benefts accrung to the remanng
property.
s amended by strkng therefrom the cause desgnated (4), whch
reads as foows:
(4) n award for property taken for street wdenng Is apped toward pay-
ment of speca assessments for benefts accrung to the remanng property.
(Ths Treasury decson s prescrbed pursuant to the provsons of
secton 62 of the Revenue ct of 1934 (4 Stat., 700 26 U. S. C,
62), the Revenue ct of 1936 (49 Stat., 1673 26 U. S. C, Sup. I ,
62), the Revenue ct of 193 (52 Stat., 4 0 26 U. S. C, Sup. I , 62),
and the Interna Revenue Code (53 Stat, Part 1).)
Gt|t T. everng,
pproved October 5, 1939.
on W. anbs,
( ed wth the Dvson of the edera Regster October 7,1939, 9.29 a. m.)
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2(k).
112
SUPPL M NT - COMPUT TION O N T INCOM .
S CTION 112(k) ( DD D Y S CTION 213, R NU CT
O 1939). SSUMPTION O LI ILITY
NOT R COGNIZ D.
1939-39-10029
T. D. 4939
SU P RT . INCOM T .
Reguatons under secton 213 of the Revenue ct of 1939
reatng to the recognton of gan or oss and the bass of prop-
erty acqured n certan e changes nvovng the assumpton of
abtes or the acquston of property sub|ect to a abty.1
Washngton, D. C.
Tabe op Contents.
Secton.
20 .0. Introductory.
20 .1. Genera.
20 .2. Purpose and scope of speca treatment accorded assumpton of a-
btes n certan cases.
20 .3. ssumpton of abty not to be taken nto account for purpose of
recognzng gan or oss.
20 .4. ssumpton of abtes to be dsregarded n determnng whether
transacton s a reorganzaton under cause requrng acquston of
propertes of a corporaton soey for transferee s votng stock.
20 . 5. ffect of assumpton of abtes on computaton of proportonate nter-
ests requred by secton 112(b)(5).
20 .6. ffect of assumpton of abtes on bass of property acqured by per-
son whose abtes are assumed.
20 .7. Modfcaton of pror reguatons.
Secton 20 .0. Introductory. (a) Secton 213 of the Revenue
ct of 1939, approved une 29, 1939 (Pubc, No. 155, Seventy-s th
Congress, frst sesson), provdes:
Sec. 213. ssumpton of Indebtedness.
(a) ssumpton of Labty Not Recognzed. Secton 112 of the
Interna Revenue Code (reatng to recognton of gan or oss) Is
amended by addng at the end thereof the foowng new subsecton:
(k) ssumpton of Labty Not Recognzed. Where upon an
e change the ta payer receves as part of the consderaton property
whch woud be permtted by subsecton (b) (4) or (5) of ths secton
to be receved wthout the recognton of gan f t were the soe con-
sderaton, and as part of the consderaton another party to the e -
change assumes a abty of the ta payer or acqures from the ta -
payer property sub|ect to a abty, such assumpton or acquston
1 Secton 2O .0 to secton 20 .7 are ssued under the authorty contaned n secton 62
of the Interna Revenue Code (53 Stat, Part 1), secton 62 of the Revenue ct of 193
S2 Stat., 4 0, 26 U. S. C, Sup. I , 62), secton 62 of the Revenue ct of 1936 (49 Stat.,
673, 26 U. S. C, Sup. I , 62), secton 62 of the Revenue ct of 1934 (4 Stat., 700, 2
. S. C, 62), secton 62 of the Revenue ct of 1932 (47 Stat, 191), secton 62 of the
Revenue ct of 192 (45 Stat., 10), secton 1101 of the Revenue ct of 1926 (44 Stat,
111, 26 U. S. C, 1691), secton 1001 of the Revenue ct of 1924 (43 Stat. 339) and other
provsons of the ncome ta aws, and Interpret secton 213 of the Revenue ct of 1939
(Pubc, No. 165, Seventy-s th Congress, trst sesson).
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113
2(k).
sha not be consdered as 1 other property or money receved by the
ta payer wthn the meanng of subsecton (c), (d), or (e) of ths
secton and sha not prevent the e change from beng wthn the pro-
vsons of subsecton (b) (4) or (5) e cept that f, takng nto consd-
eraton the nature of the abty and the crcumstances n the ght
of whch the arrangement for the assumpton or acquston was made,
t appears that the prncpa purpose of the ta payer wth respect to
the assumpton or acquston was a purpose to avod edera ncome
ta on the e change, or, f not such purpose, was not a bona fde
busness purpose, such assumpton or acquston (n the amount of
the abty) sha, for the purposes of ths secton, be consdered as
money receved by the ta payer upon the e change. In any sut or
proceedng where the burden s on the ta payer to prove that such
assumpton or acquston s not to be consdered as money receved by
the ta payer, such burden sha not be consdered as sustaned uness
the ta payer sustans such burden by the cear preponderance of the
evdence.
(b) mendment to Defnton or Reorganzaton. Secton 112(g)
(1) of the Interna Revenue Code (reatng to defnton of reorganza-
ton) s amended to read as foows:
(1) The term reorganzaton means ( ) a statutory merger
or consodaton, or ( ) the acquston by one corporaton, n
e change soey for a or a part of ts votng stock, of at east 0
per centum of the votng stock and at east 0 per centum of the
tota number of shares of a other casses of stock of another cor-
poraton, or (C) the acquston by one corporaton, n e change
soey for a or a part of ts votng stock, of substantay a the
propertes of another corporaton, but n determnng whether the
e change s soey for votng stock the assumpton by the acqur-
ng corporaton of a abty of the other, or the fact that property
acqured s sub|ect to a abty, sha be dsregarded, or (D) a
transfer by a corporaton of a or a part of ts assets to another
corporaton If mmedatey after the transfer the transferor or ts
sharehoders or both are n contro of the corporaton to whch the
assets are transferred, or ( ) a recaptazaton, or ( ) a more
change n dentty, form, or pace of organzaton, however effected.
(c) Requrement of Substantay Proportonate Interests. Sec-
ton 112(b)(5) of the Interna Revenue Code (reatng to requrement
of substantay proportonate nterests) s amended by addng at the
end thereof the foowng new sentence: Where the transferee as-
sumes a abty of a transferor, or where the property of a transferor
s transferred sub|ect to a abty, then for the purpose ony of
determnng whether the amount of stock or securtes receved by
each of the transferors s n the proporton requred by ths paragraph,
the amount of such abty (f under subsecton (k) t s not to be
consdered as other property or money ) sha be consdered as stock
or securtes receved by such transferor.
(d) ass of Property. Secton 113(a)(6) of the Interna Revenue
Code (reatng to bass of property) s amended by nsertng before the
ast sentence thereof the foowng: Where as part of the consdera-
ton to the ta payer another party to the e change assumed a abty
of the ta payer or acqured from the ta payer property sub|ect to a
abty, such assumpton or acquston (n the amount of the abty)
sha, for the purposes of ths paragraph, be consdered as money
receved by the ta payer upon the e change.
(e) Ta abe Years to Whch ppcabe. The amendments made
by subsectons (a), (b), (c), and (d) sha be appcabe to ta abe
years begnnng after December 1, 193 .
(f) ssumpton of Labty Not Recognzed Under Pror ct.
(1) Where upon an e change occurrng n a ta abe year endng
after December 31, 1923, and begnnng before anuary 1, 1939, the
ta payer receved as part of the consderaton property whch woud be
permtted by subsecton (b) (4) or (5) of secton 112 of the Revenue
ct of 193 , or the correspondng provsons of the Revenue ct of 1924
or subsequent Revenue cts, to be receved wthout the recognton of
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2(k).
114
gan f t were the soe consderaton, and as part of the consderaton
another party to the e change assumed a abty of the ta payer or
acqured from the ta payer property sub|ect to a abty, such as-
sumpton or acquston sha not be consdered as other property or
money receved by the ta payer wthn the meanng of subsecton (c),
(d), or (e) of secton 112 of the Revenue ct of 193 , or the corre-
spondng provsons of the Revenue ct of 1924 or subsequent Revenue
cts, and sha not prevent the e change from beng wthn the pro-
vsons of subsecton (b) (4) or (5) of secton 112 of the Revenue
ct of 1935, or the correspondng provsons of the Revenue ct of
1924 or subsequent Revenue cts e cept that f, n the determnaton
of the ta abty of such ta payer for the ta abe year n whch
the e change occurred, by a decson of the oard of Ta ppeas or of
a court whch became fna before the nneteth day after the date of
enactment of the Revenue ct of 1939, or by a cosng agreement,
gan was recognzed to such ta payer by reason of such assumpton
or acquston of property, then for the purposes of secton 112 of the
Revenue ct of 193 , and correspondng provsons of the Revenue ct
of 1924 or subsequent Revenue cts, such assumpton or acquston (n
the amount of the abty consdered n computng the gan) sha
be consdered as money receved by the ta payer upon the e change.
(2) Paragraph (1) sha be effectve wth respect to the Revenue ct
of 1924 and subsequent Revenue cts as of the date of enactment of
each such ct.
(g) Defnton of Reorganzaton Under Pror cts.
(1) Secton 112(g)(1) of the Revenue cts of 193 , 1936, and 1934
are amended to read as foows:
(1) The term reorganzaton means ( ) a statutory merger
or consodaton, or ( ) the acquston by one corporaton, n e -
change soey for a or a part of ts votng stock, of substantay
a the propertes of another corporaton, but n determnng
whether the e change s soey for votng stock the assumpton by
the acqurng corporaton of a abty of the other, or the fact
that property acqured s sub|ect to a abty, sha be dsregarded
or the acquston by one corporaton n e change soey for a
or a part of ts votng stock of at east 0 per centum of the votng
stock and at east 0 per centum of the tota number of shares of a
other casses of stock of another corporaton, or (C) a transfer by a
corporaton of a or a part of ts assets to another corporaton
f mmedatey after the transfer the transferor or ts sharehoders
or both are n contro of the corporaton to whch the assets are
transferred, or (D) a recaptazaton, or ( ) a mere change n
dentty, form, or pace of organzaton, however effected.
(2) The amendments made by paragraph (1) to the respectve cts
amended sha be effectve as to each of such cts as of the date of
enactment of such ct
(h) Substantay Proportonate Interests Under Pror cts.
(1) Secton 112(b)(5) of the Revenue cts of 193 , 1936, 1934,
1932, and 192 , and secton 203(b)(4) of the Revenue cts of 1926
and 1924 are amended by nsertng at the end thereof the foowng:
Where the transferee assumes a abty of a transferor, or where
the property of a transferor s transferred sub|ect to a abty, then
for the purpose ony of determnng whether the amount of stock or
securtes receved by each of the transferors s n the proporton
requred by ths paragraph, the amount of such abty (f under
secton 213 of the Revenue ct of 1939 t s not consdered as other
property or money ) sha be consdered as stock or securtes re-
ceved by such transferor. If, as the resut of a determnaton of
the ta abty of the ta payer for the ta abe year n whch the
e change occurred, by a decson of the oard of Ta ppeas or of a
court whch became fna before the nneteth day after the date of
the enactment of the Revenue ct of 1939, or by a cosng agreement,
the treatment of the amount of such abty was dfferent from
the treatment whch woud resut from the appcaton of the pre-
cedng sentence, such sentence sha not appy and the resut of suck
determnaton sha be deemed proper.
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115
2(k).
(2) The amendments made by paragraph (1) to the respectve cts
amended sha be effectve as to each of such cts as of the date of
enactment of such ct.
( ) ass U ND It I OR .CTS
(1) Secton 113(a)(6) of the Revenue cts of 193 , 1936, 1934, 1932,
and 192 , and secton 204(a)(6) of the Revenue cts of 1926 and
1924 are amended by nsertng before the ast sentence thereof the
foowng: Where as part of the consderaton to the ta payer an-
other party to the e change assumed a abty of the ta payer or
acqured from the ta payer property sub|ect to a abty, such
assumpton or acquston (n the amount of the abty) sha, for
the purposes of ths paragraph, be consdered as money receved by
the ta payer upon the e change.
(2) The amendments made by paragraph (1) to the respectve
cts amended sha be effectve as to each of such cts as of the date
of enactment of such ct.
(5) Secton 910 of the Soca Securty ct mendments of 1939,
approved ugust 10, 1939 (Pubc, No. 379, Seventy-s th Congress,
frst sesson), provdes:
Sec. 910. (a) The provsons of secton 213(f) of the Revenue ct
of 1939 sha appy wthout regard to the e cepton theren provded, f
(1) the ta payer n the determnaton referred to n such e cepton s a
corporaton, (2) ruch determnaton s by a decson of the oard of
Ta ppeas or of a court, (3) under the aw appcabe to the ta abe
year n whch the e change occurred, the bass of the property, ac-
qured upon the e change from the ta payer by the party assumng a
abty of the ta payer or acqurng the property sub|ect to a
abty, s the cost to such party of the property acqured upon the e -
change, and (4) the ta payer n pursuance of the pan of reorganzaton
effected a compete qudaton mmedatey subsequent to the e -
change.
(b) No overpayment determned to have been made for any ta abe
year by reason of the provsons of paragraph (a) of ths secton
sha be refunded or credted uness a cam for refund s fed wthn
the perod of mtatons otherwse provded by aw for fng a cam
for refund for such ta abe year, or wthn one year from the date of
enactment of the Revenue ct of 1939, whchever of such perods e -
pres the Inter. No nterest sha be aowed or pad on the amount of
any overpayment refunded or credted by reason of the provsons
of ths secton.
Pursuant to secton 213 of the Revenue ct of 1939 and other pro-
vsons of the nterna revenue aws, the foowng reguatons are
hereby prescrbed:
Sc. 20 .1. Genera. (a) Use of term assumpton of abtes. When
used n these reguatons, the terms assumpton of abtes, abtes
assumed, or smar e pressons ncude, n addton to cases where persona
abtes of the ta payer are assumed by another party to the e change, cases
(1) where property of the ta payer s acqured by another party to the e -
change sub|ect to a abty, whether or not the ta payer was hmsef per-
sonay abe, and (2) where, though the property transferred was hed by
the ta payer merey sub|ect to a abty, the abty s assumed by another
party to the e change.
(6) References to sectons of aw. Uness otherwse specfed, a references
to sectons of aw In these reguatons are to sectons of the Interna Revenue
Code and the correspondng provsons, If any, of Revenue cts pror thereto,
to and ncudng the Revenue ct of 1924.
(c) References to the ct. References to the ct n these reguatons are
to the Revenue ct of 1939.
(d) Date oard or court decson becomes fna. The date upon whch a de-
cson by the oard of Ta ppeas becomes fna s prescrbed In secton 1140
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116
The date upon whch a |udgment of a court becomes fna must be determned
upon the bass of the facts n the partcuar case. Ordnary, a |udgment of
a Unted States dstrct court becomes fna upon the e praton of the tune
aowed for takng an appea, If no such appea s duy taken wthn such
tme and a |udgment of the Unted States Court of Cams becomes fna upon
the e praton of the tme aowed for fng a petton for certorar If no such
petton s duy fed wthn such tme.
Sec. 20 .2. Purpose and cope of speca treatment accorded, assumpton of
abtes n certan cases. Secton 213 of the ct makes specfc provson
reatve to the proper treatment of assumptons of abtes n connecton wth
the defnton of the term reorganzaton and certan types of reorganzaton
e changes and transfers to controed corporatons. The transactons drecty
affected by secton 233 of the ct are those descrbed In secton 112(b) (4)
and (5), ncudng those descrbed In secton 112 (c), (d), and (e) whch
woud have been wthn secton 112(b) (4) or (5) f It had not been for the
recept of other property or money. Though secton 213 of the ct does not
e tend to the transactons descrbed n secton 112(b), (1), (2), or (3) or so
much of secton 112 (c) and (e) as refers to secton 112(b) (1), (2), or (3), t
does, because of the amendment to secton 112(g) (1) reatve to the defnton of
the term reorganzaton, make secton 112 (b) (3), (c), and (e) appcabe to
e changes whch mght otherwse be outsde the scope of such provsons. In
addton to the e ceptons and mtatons contaned n the specfc provsons
of secton 213 of the ct, transactons nvovng assumptons of abtes are
sub|ect to a the e ceptons and mtatons generay, appcabe n the de-
termnaton of whether an e change s wthn the nonrecognton provsons
of secton 112, ncudng satsfacton of the underyng purposes and assumptons
of the reorganzaton provsons. See artces 112(a)- and 112(g)- of Regu-
atons 101 (sectons 9.112(a)- and 9.112(g)- of Tte 26 of the Code of edera
Reguatons). The effect of secton 213 of the ct Is to prevent certan types of
assumptons of abtes from resutng n a dena of nonrecognton of gan
or oss n whoe or n part n cases where, but for such assumpton of ab-
tes, gan or oss woud have been unrecognzed n whoe or n part under
the sectons affected. It does not add to the e ceptons now contaned n
secton 112. It merey mpements them.
y retroactvey provdng that an assumpton of abtes does not prevent
a transacton from consttutng a reorganzaton, f otherwse quafed, by
smary provdng that an assumpton of abtes n connecton wth certan
reorganzaton e changes and transfers to controed corporatons does not
prevent a transacton from beng wthn secton 112(b) (4) or (5) and does
not consttute a measure of the amount of gan to be recognzed, and by amend-
ng secton 113(a)(6), secton 213 of the ct n genera confrms the ureau
practce wth respect to the recognton of gan or oss and the determnaton
of bass of property acqured n the cases covered thereby.
Skc. 20 .3. ssumpton of abty not to be taken nto account for purpose of
recognzng gan or oss. (a) Genera rue. Secton 213 of the ct does not
affect the rue that abtes assumed are to be taken nto account for the pur-
pose of computng the amount of gan or oss reazed upon an e change. Such
secton provdes, however, that abtes assumed are not to be treated as other
property or money under secton 112(e) or for the purpose of determnng the
amount of the reazed gan whch s to be recognzed under secton 112 (c) or
(d), f the transactons nvoved woud, but for the recept of other property
or money, have been e changes of the type descrbed n secton 112(b) (4) or
(5). The secton aso provdes that f the ony type of consderaton receved by
the transferor n addton to that permtted to be receved by secton 112(b) (4)
or (5) conssts of an assumpton of abtes, the transacton, f otherwse qua-
fed, sha be deemed to be wthn the provsons of secton 112(b) (4) or (5).
The above rues are appcabe to a transactons of the character descrbed
occurrng at any tme n the past or the future In a ta abe year endng after
December 31, 1923, of the transferor whose abtes are assumed, wth the e -
ceptons and mtatons specfed n paragraphs (b) and (c) of ths secton of
the reguatons.
The appcaton of ths paragraph may be ustrated by the foowng e ampe:
ampe: , an ndvdua, transfers to a controed corporaton property wth
an ad|usted bass of 10,000 n e change for stock of the corporaton wth a far
market vaue of ,000, cash n the amount of 3,000, and the assumpton by the
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117
112(10.
corporaton of ndebtedness of amountng to 4,000. s gan s 5,000, com-
puted as foows:
Stock receved S,000
Cash receved 3,000
Labtes assumed by transferee 4,000
Tota consderaton receved 15,000
Less: d|usted bass of property transferred 10,000
Gan reazed 5,000
ssumng that the transacton fas wthn secton 112(c) as a transacton
whch woud have been wthn secton 112(b) (5) but for the recept of other
property or money, ony so much of such 5,000 gan w be recognzed as does
not e ceed the other property or money receved. Snce secton 213 of the
ct provdes that an assumpton of abtes sha not consttute other prop-
erty or money for ths purpose, the ony other property or money receved
s the 3,000 cash, and the 5,000 reazed gan w be recognzed ony to that
e tent.
(6) ceptons and mtatons reatve to transactons takng pace n a
ta abe year begnnng after December SI, 19.1 . The benefts of secton 112(k),
added to the Interna Revenue Code by secton 213(a) of the ct, do not e tend
to any e change nvovng an assumpton of abtes where t appears that the
prncpa purpose of the ta payer wth respect to such assumpton was a pur-
pose to avod edera ncome ta on the e change, or, f not such purpose, was
not a bona fde busness purpose. In such cases, the amount of the abtes
assumed sha, for the purpose of determnng the amount of gan to be recog-
nzed upon the e change n whch the abtes are assumed, be treated as
money receved by the ta payer upon the e change. In any sut or proceedng
where the burden s on the ta payer to prove that an assumpton of abtes
s not to be consdered as other property or money under secton 112(k),
whch s the case f the Commssoner determnes that the ta payer s purpose
wth respect to the assumpton was a purpose to avod edera ncome ta on
the e change or was not a bona fde busness purpose and the ta payer contests
such determnaton by tgaton, the ta payer must sustan such burden by the
cear preponderance of the evdence. Thus, the ta payer must prove hs case
by such a cear preponderance of a the evdence that the absence of a pur-
pose to avod edera ncome ta on the e change, or the presence of a bona
fde busness purpose, s unmstakabe.
(c) ceptons and mtatons reatve to transactons takng pace n a
ta abe year begnnng pror to anuary 1, 1939. cept as provded n secton
910 of the Soca Securty ct mendments of 1939 (quoted n secton 20 .0(6)
of these reguatons), there are e cepted from the rue provded by secton
213(f) of the ct cases nvovng ta payers n the determnaton of whose ta
abty for the ta abe year n whch the e change occurred, by a decson
of the oard of Ta ppeas or of a court whch became fna on or before
September 26, 1939, or by a cosng agreement under secton 3760, gan was
recognzed to such ta payer by reason of the assumpton of abtes n ques-
ton. It s provded that under the appcabe provson of the aw such an
assumpton of abtes sha be treated as money receved by the ta payer
upon the e change to the e tent such assumpton of abtes was consdered
n computng the amount of gan to be recognzed.
Seo. 20 .4. ssumpton of abtes to be dsregarded n determnng whether
transacton s a reorgansaton under cause requrng acquston of propertes
of a corporaton soey for transferee s votng stock. The nonrecognton of gan
or oss accorded by secton 112(b) (3) and (4), and so much of secton 112 (c),
(d), and (e) as refers to secton 112(b) (3) and (4), appes ony to e changes
made In connecton wth a reorganzaton. mong the types of transactons
defned as a reorganzaton by secton 112(g) (1) of the Interna Revenue Code
and the Revenue cts of 1934, 1936, and 193 Is the acquston by one corpora-
ton, n e change soey for a or part of Its votng stock, of substantay a
the propertes of another corporaton. Secton 213 (b) and (g) of the ct
amends such secton 112(g) (1) to provde that In determnng whether an
e change s soey for votng stock for the purposes of such defnton any
assumpton by the acqurng corporaton of the abtes of the other sha be
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2(k).
11
dsregarded. The effect of such provson may be Iustrated In the operaton
of secton 112(b) (3) and (4) by the foowng e ampes:
ampe (1): The ony assets of the Corporaton consst of property wth
an ad|usted bass of 1,000,000. The Corporaton aso has ndebtedness out-
standng of 50,000. On uy 1, 1939, pursuant to a pan of reorganzaton, the
Corporaton transfers a Its property to the Y Corporaton n e change for
votng stock of the Y Corporaton wth a far market vaue of 900,000 and an
assumpton by the Y Corporaton of the Corporaton s ndebtedness. The
transacton beng a reorganzaton pursuant to the terms of secton 112(g)(1)
as amended by secton 213 of the ct, the e change s governed by secton
112(b) (4) and though the Corporaton reazed a oss of 50,000 on the e -
change, such oss w not be recognzed.
ampe (2): ssume the same facts as n e ampe (1), pus the fact that,
pursuant to the pan of reorganzaton, the Corporaton Immedatey ds-
trbutes the Y Corporaton s stock to ts sharehoders n compete qudaton.
, one of the sharehoders of the Corporaton, receves stock of the Y Cor-
poraton wth a far market vaue of 5,000 In e change for stock of the Cor-
poraton wth an ad|usted bass n hs hands of 4,000. The transacton between
the Corporaton and the Y Corporaton beng a reorganzaton pursuant to the
terms of secton 112(g) (1) as amended by secton 213 of the ct. the e change
by of hs Corporaton stock for Y Corporaton stock s governed by the
provsons of secton 112(b)(3) and the 1,000 gan reazed by n such e -
change w not be recognzed. If n connecton wth such e change Indebtedness
of had been assumed, the amount of the abtes so assumed woud have
been treated as other property or money for the purposes of secton 112(c),
snce the provsons of secton 213 (a) and (f) of the ct do not e tend to
secton 112(b) (3), and so much of s gan woud have been recognzed as dd
not e ceed such other property or money.
Though an assumpton of abtes does not prevent an e change from
beng soey for votng stock for the purposes of the defnton of a reorganza-
ton, an assumpton of abtes n some cases may so ater the character of the
transacton as to pace t outsde the underyng purposes and assumptons of
the reorganzaton provsons. The amendments made by secton 213 (b) and
(g) of the ct do not prevent consderaton of the effect of an assumpton of
abtes on the genera character of the transacton, but merey provde that
the requrement that the e change be soey for votng stock Is satsfed f the
ony addtona consderaton s an assumpton of abtes.
Sew. 20 .5. ffect of assumpton of abtes on computaton of proportonate
nterests requred by secton 112(b)(5). (a) Genera rue. Sub|ect to the
mtatons and e ceptons specfed n paragraph (6) of ths secton of the regu-
atons, n any case where an assumpton of abtes s not to be treated as
other property or money under secton 213(f) of the ct or secton 112(k),
added to the Interna Revenue Code by secton 213(a) of the ct, the amount of
the abtes so assumed s to be treated as stock or securtes receved by the
transferor whose ndebtedness s assumed, for the purpose of determnng whether
the stock or securtes receved by the transferors are substantay n propor-
ton to ther nterests n the propertes transferred, as requred by secton
112(b) (5). The appcaton of ths paragraph may be ustrated by the foow-
ng e ampe:
ampe: and , Indvduas, each own property wth a far market vaue
of 100,000 on uy 1, 1939. There s a purchase money mortgage on s prop-
erty of 50,000. On uy 1, 1939, and organze the Corporaton, to whch
they transfer the property above descrbed for the entre capta stock of the
Corporaton and the assumpton by the Corporaton of s purchase money
mortgage. The Corporaton s capta stock Is dvded as foows: 50,000 to
and 100,000 to . Nevertheess, for the purposes of determnng whether the
transferors receved stock or securtes substantay n proporton to ther nter-
ests n the propertes transferred, as requred by secton 112(b) (5), s deemed
to have receved stock or securtes to the e tent of 100,000, snce hs 50,000
purchase money mortgage, assumed by the Corporaton, s aso to be treated
as stock or securtes receved by hm. ccordngy, under the facts as stated,
the proportons requred by secton 112(b) (5) e st
(6) ceptons and mtatons n the case of transactons takng pace n a
ta abe year begnnng pror to anuary 1,19S9. Paragraph (a) of ths secton
of the reguatons sha not appy f the e change took pace n a ta abe year
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119
15 U2(k).
begnnng pror to anuary 1, 1939, and, as the resut of a determnaton of the
ta abty of the ta payer for such ta abe year, by a decson of the oard of
Ta ppeas or of a court whch became fna on or before September 26, 1939,
or by a cosng agreement under secton 3760, the treatment of the amount of
such abty was dfferent from the treatment whch woud resut from the
appcaton of paragraph (a) of ths secton of the reguatons. In such case
the resut of such determnaton sha be deemed proper.
Seo. 20 .6. ffect of assumpton of abtes on bass of property acqured by
person whose abtes are assumed. Secton 113(a) (6) provdes that the bass
of property acqured upon certan ta -free e changes sha be the same as the
ad|usted bass of the property transferred, decreased n the amount of any
money receved by the ta payer and ncreased n the amount of gan or decreased
n the amount of oss to the ta payer that was recognzed upon the e change
under the aw appcabe to the year n whch the e change was made. or the
purpose of ths provson, the amount of any abtes of the ta payer assumed
by the other party to the e change s to be treated as money receved by the ta -
payer upon the e change, whether or not the assumpton of abtes resuted
n a recognton of gan or oss to the ta payer. Such treatment of an assump-
ton of abtes may be ustrated by the foowng e ampes:
ampe (1): , an ndvdua, owns property havng an ad|usted bass of
100,000 and on whch there s a purchase money mortgage of 25,000. On
September 1, 1939, organzes the Corporaton to whch he transfers the
property above descrbed n e change for a the capta stock of the Corpora-
ton and the assumpton of the 25,000 mortgage. The captn stock of the
Corporaton has a far market vaue of 150,000. Under secton 112(b)(5),
no gan s recognzed. The bass of such stock n s hands s 75,000, computed
as foows:
d|usted bass of property transferred 100, 000
Less: mount of money receved (amount of abtes assumed by
Corporaton) 25.000
ass of stock of the Corporaton n s hands 75, 000
ampe (2): , an ndvdua, owns an apartment house whch has an
ad|usted bass n hs hands of 500,000, but whch s sub|ect to a mortgage of
150,000. On September 1, 1939, he transfers such apartment house to C, recev-
ng n e change therefor 50,000 n cash and another apartment house wth a
far market vaue on that date of 600,000. The transfer to C s made sub|ect
to the 150,000 mortgage, but O does not assume such mortgage. reazes a
gan of 300,000 on the e change, computed as foows:
aue of property receved 600,000
Cash 50,000
Labtes sub|ect to whch od property was transfered 150,000
Tota consderaton receved 00,000
d|usted bass of property transferred 500, COO
Gan reazed 300,000
Snce secton 213 of the ct does not appy to secton 112(b) (1) or so much
of secton 112(c) as reates to secton 112(b) (1), 200,000 of such 300,000 gan
s recognzed. The bass of the apartment house acqured by upon the
e change s 500,000, computed as foows:
d|usted bass of property transferred 500, 000
Less: mount of money receved:
Cash 50,000
mount of abtes sub|ect to whch property was
transferred 150,000
200,000
Dfference 300, 000
Pus: mount of gan recognzed upon the e change 200,000
ass of property acqured upon the e change 500,000
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113(a). 120
Sec. 20 .7. Modfcaton of pror reguatons. Pror Treasury reguatons are
hereby modfed to the e tent that they may be Inconsstent wth these regu-
atons.
Gt|t T. euverng,
ohn W. anes,
S CTION 113(a) ( M ND D Y S CTION 214, R NU
CT O 1939). D UST D SIS OR D T RMINING
G IN OR LOSS: SIS (UN D UST D) O PROP RTY.
1939-39-10025
T. D. 493
TITL 26 INT RN L R NU C PT R I. SU C PT R , P RT 20,
SU P RT . INCOM T .
Reguatons reatng to the bass for determnng gan or oss
and hodng perod upon the sae or other dsposton of stock
dvdends or stock rghts and the bass of the shares wth respect
to whch stock dvdends or stock rghts have been ssued.1
Washngton, D. G.
Tabe of Contents.
Secton. .
20 .0. Introductory.
20 .1. Genera rue.
20 .2. orm n whch rue Is stated.
20 .3. Stock dvdend, bass for determnng gan or oss.
20 .4. Stock rghts, bass for determnng gan or oss.
20 .5. odng perod.
20 .6. Stock dvdends to whch secton 214 appes.
20 .7. ceptons, mtatons, and quafcatons to genera rue.
20 . . Modfcaton of pror reguatons.
Secton 20 .0. Introducton/. Secton 214 of the Revenue ct of
1939, approved une 29, 1939 (Pubc, No. 155, Seventy-s th Con-
gress, frst sesson), provdes:
Sec. 214. ass of Stock Dvdends and Stock Rghts.
(a) ass Undcr Interna Rhvenue Code. Secton 113(a) of the
Interna Revenue Code (reatng to the unad|usted bass of property) s
amended by Insertng at the end thereof the foowng new paragraph:
(19) ( ) If the property was acqured by a sharehoder In a
corporaton and conssts of stock n such corporaton, or rghts to
acqure such stock, acqured by hm after ebruary 2 , 1913, n a
dstrbuton by such corporaton (herenafter n ths paragraph
1 Sectons 20 .0 to 20 . are Issued under authorty contaned In secton 214 of the
Revenue ct of 1939 (Pubc, No. 155, Seventy-s th Congress, frst sesson) and secton
62 of the Interna Revenue Code (63 Stat, art 1), and nterpret secton 214 of sad
Revenue ct of 1939.
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121
3(a).
caed new stock ), or conssts of stock In respect of whch such
dstrbuton was made (herenafter n ths paragraph caed od
stock ) and
() the new stock was acqured n a ta abe year begnnng
before anuary 1, 1036 or
() the new stock was acqured n a ta abe year begnnng
after December 31, 1935, and ts dstrbuton dd not consttute
ncome to the sharehoder wthn the meanng of the s teenth
amendment to the Consttuton
then the bass of the new stock and of the od stock, respectvey,
sha, n the sharehoder s hands, be determned by aocatng
between the od stock and the new stock the ad|usted bass of the
od stock such aocaton to be made under reguatons whch sha
be prescrbed by the Commssoner wth the approva of the Secre-
tary.
( ) Where the new stock conssted of rghts to acqure stock
and such rghts were sod n a ta abe year begnnng before an-
uary 1, 1931), and there was ncuded n the gross ncome for such
year the entre amount of the proceeds of such sae, then, f before
the date of the enactment of the Revenue ct of 1939 the ta payer
has not asserted (by cam for a refund or credt or otherwse)
that any part of the proceeds of the sae of such new stock shoud
be e cuded from gross ncome for the year of ts sae, the bass of
the od stock sha be determned wthout regard to subparagraph
( ) and no part of the proceeds of the sae of such new stock sha
ever be e cuded from the gross ncome of the year of such sab .
(C) .Subparagraph ( ) sha not appy f the new stock was
acqured n a ta abe year begnnng before anuary 1, 193f , and
there was ncuded, as a dvdend, n gross ncome for such year
an amount on account of such stock, and after such ncuson such
amount was not (before the date of the enactment of the Revenue
ct of 1939) e cuded from gross ncome for such year.
(D) Subparagraph ( ) sha not appy f the new stock or the
od stock was sod or otherwse dsposed of n a ta abe year begn-
nng pror to anuary 1, 1936, and the bass (determned by a
decson of a court or the oard of Ta ppeas, or a cosng
agreement, and the decson or agreement became fna before the
nneteth day after the date of the enactment of the Revenue ct
of 1939) for determnng gan or ass on such sae or other dspos-
ton was ascertaned by a method other than that of aocaton of
the bass of the od stock.
(b) Dstrbutons Not Tbeatkd as DI ID NDS Secton 115(d) of
the Interna Revenue Code (reatng to dstrbutons apped n reduc-
ton of bass) s amended to read as foows:
(d) Other Dstrbutons rom Capta. If any dstrbuton made
by a corporaton to ts sharehoders s not out of ncrease n vaue of
property accrued before March 1, 1913, and s not a dvdend, then the
amount of such dstrbuton sha be apped aganst and reduce the
ad|usted bass of the stock provded n secton 113. and f n e cess of
such bass, such e cess sha be ta abe n the same manner as a gan
from the sae or e change of property. Ths subsecton sha not appy
to a dstrbuton n parta or compete qudaton or to a dstrbuton
whch, under subsecton (f) (1), s not treated as a dvdend, whether or
not otherwse a dvdend.
(c) Determnaton or Perod roR Whch IIe.d. Secton 117(h) of
the Interna Revenue Code (reatng to determnaton of perod for
whc property s hed) s amended by addng at the end thereof the
foowng new paragrap:
(5) In determnng the perod for whch the ta payer has hed
stock or rghts to acqure stock receved upon a dstrbuton, f
the bass of such stock or rghts s determned under secton
113(a) (19) ( ), there sha (under reguatons prescrbed by the
Commssoner wth the approva of the Secretary) be ncuded the
perod for whch he hed the stock n the dstrbutng corporaton
pror to the recept of such stock or rghts upon such dstrbuton.
209196 40 5
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113(a).
122
(d) Ta abe Tears to Whch ppcabe. The amendments made
by subsectons (a), (b), and (c) sha be appcabe to ta abe years
begnnng after December 31, 193 .
(e) ass Under Pror cts. The foowng rues sha be apped,
for the purposes of the Revenue ct of 193 or any pror Revenue ct
as f such rues were a part of each such ct when t was enncted, n
determnng the bass of property acqured by a sharehoder n a cor-
poraton whch conssts of stock n such corporaton, or rghts to
acqure such stock, acqured by hm after ebruary 2 , 1913, n a ds-
trbuton by such corporaton (herenafter n ths subsecton caed
new stock ), or consstng of stock n respect of whch such dstrbu-
ton was made (herenafter n ths subsecton caed od stock ) f the
new stock was acqured n a ta abe year begnnng before anuary 1,
1936, or acqured n a ta abe year begnnng after December 31, 1933,
and ts dstrbuton dd not consttute ncome to the sharehoder wthn
the meanng of the s teenth amendment to the Consttuton:
(1) The bass of the new stock and of the od stock, respectvey,
sha, n the sharehoder s hands, be determned by aocatng be-
tween the od stock and the new stock the ad|usted bass of the od
stock such aocaton to be made under reguatons whch sha be
prescrbed by the Commssoner wth the approva of the Secretary.
(2) Where the new stock conssted of rghts to acqure stock and
such rghts were sod and there was ncuded n the gross ncome
for the ta abe year of the sae the entre amount of the proceeds
of such sae, then, f before the date of the enactment of ths ct
the ta payer has not asserted (by cam for a refund or credt or
otherwse) that any part of the proceeds of the sae of such new
stock shoud be e cuded from gross ncome for the year of ts sae,
the bass of the od stock sha be determned wthout regard to
paragraph (1) and no part of the proceeds of the sae of such new
stock sha ever be e cuded from the gross ncome of the year of
such sae.
(3) Paragraph (1) sha not appy f the new stock was acqured
n a ta abe year begnnng before anuary 1, 193G, and there was
ncuded, as a dvdend, n gross ncome for such year an amount
on account of such stock, and after such ncuson such amount was
not (before the date of the enactment of ths ct) e cuded from
gross ncome for such year.
(4) Paragraph (1) sha not appy f the new stock or the od
stock was sod or otherwse dsposed of n a ta abe year begnnng
before anuary 1, 1936, and the bass (determned by a decson
of a court or the oard of Ta ppeas, or a cosng agreement, and
the decson or agreement became fna before the nneteth day after
the date of the enactment of ths ct) for determnng gan or oss
on such sae or other dsposton was ascertaned by a method other
than that of aocaton of the bass of the od stock.
(f) Determnaton Under Pror cts of Perod for Whch ed.
or the purposes of the Revenue ct of 193 or any pror Revenue ct,
n determnng the perod for whch the ta payer has hed stock or
rghts to acqure stock, receved upon a dstrbuton, f the bass of such
stock or rghts s determned under secton 214(e)(1) of the Revenue
ct of 1939. there sha (under reguatons whch sha be prescrbed by
the Commssoner wth the approva of the Secretary) be ncuded the
perod for whch he hed the stock n the dstrbutng corporaton pror
to the recept of such stock or rghts upon such dstrbuton. Ths sub-
secton sh be appcabe as f t were a part of each such ct when
such ct was enacted.
Pursuant to the authorty granted by the foregong provsons and
by the provsons of secton 62 of the Interna Revenue Code, the
foowng reguatons are prescrbed wth respect to the foregong
secton:
Pec. 20 .1. Genera rue. The statutory rue quoted above Is, n genera, the
rue of apportonment prescrbed by Treasury reguatons wth respect to a
stock dvdends and stock rghts ssued throughout the perod ntervenng be-
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123
113(a).
tween the date of te derson of the Supreme Court n sner v. Maeombcr
(19 0) (252 U. S., 1 9 T. D. 3010, C. . 3, 25 (1920) ), and the effectve dae
of the Revenue ct of 1930, and wth respect to stock dvdends and stcck
rghts acqured n a ta abe year begnnng after December 31, 1935, n a ds-
trbuton of such a character that t does not consttute ncome to the share-
hoder wthn the meanng of the s teenth amendment to the Consttuton.
Ths statutory rue appes generay to a stock, od and new, Invoved n an
ssue of stock dvdends or stock rghts acqured n a ta abe year begnnng
pror to anuary 1, 1930, and to those ater ssues consttutonay e empt from
ta , such e empton beng recognzed by secton 115(f) of the Code or the cor-
respondng provsons of the Revenue cts of 1930 and 193 . Secton 214 of
the Revenue ct of 1939 provdes, however, certan specfc e ceptons to such
genera appcaton (see secton 20 .7 of these reguatons).
Sec. 20 .2. orm n whch rue s stated. The rue for apportonng bases
between the od and the new property nterests contempated n pror regua-
tons and here prescrbed dffers sghty n ts mechancs dependng n on
whether the new ssue consttutes a stock dvdend on the one hand or a stock
rght on the other hand (the stock rght beng referred to n the ct equay
wth the stock dvdend as new stock ), and, f a stock rght, whether acqured
before anuary 1, 1925, or on or after that date. ccordngy the rue as de-
veoped n these reguatons s separatey stated.
Skc. 20 .3. stock dvdend, bass for determnng gan or oss. In the case of
stock n respect of whch was acqured a stock dvdend of any character n a
ta abe year begnnng before anuary 1, 1930, or n respect of whch was
acqured In a ta abe year begnnng after December 31, 1935, a stock dvdend
whch dd not consttute ncome to the sharehoder wthn the meanng of the
s teenth amendment to the Consttuton, the bass for determnng gan or
oss from a sae or other dsposton of ether the stock n respect of whch
the dstrbuton was made or the stock dvdend sha (e cept as otherwse pre-
scrbed n secton 20 .7 of these reguatons) be ascertaned by apportonng
the ad|usted bass of the od stock between such od stock and the new stock
dstrbuted to the sharehoder n accordance wth the foowng rues:
(1) If the now stock Is of substantay the same character and preference
as the od stock, the bass of each share w be the quotent of the cost or other
bass of the od shares, propery ad|usted, dvded by the tota number of the
od and the new shares.
(2) If the new stock s n whoe or In part stock of a character or prefer-
ence materay dfferent from the od stock, the cost or other bass of the od
stock, propery ad|usted, sha be apportoned between such od stock and the
new stock n proporton, as neary as may be, to the respectve vaues of each
cass of stock, od and new, at the tme of such dstrbuton, and the bass of
each share of stock w be the quotent of the cost or other bass, propery
ad|usted, of the cass of stock to whch such share beongs, dvded by the
number of shares n the cass. In genera, any matera dfference n character
or preference or terms suffcent to dstngush one stock from another so that
dfferent vaues may propery he assgned thereto w consttute a dfference
n cass.
(3) If the od stock was purchased at dfferent tmes or at dfferent prces,
and the Identty of the ots can not be determned, any sae of the od stock
w be charged to the earest purchases of such stock, and any sae of the
new stock w be presumed to have been made from the stock dstrbuted n
respect of the earest purchased stock.
(4) If the od stock was purchased at dfferent tmes or at dfferent prces,
and the new sock can not be dentfed as havng been dstrbuted n respect
of any partcuar ot of such stock, then any sae of the new stock w be
presumed to have been made from the stock dstrbuted In respect of the
earest purchased stock.
Sec. 20 .4. Sock ryhts, oass for determnng gan or oss. (a) In the case
of stock In respect of whch were acqured after December 31. 1924 (see T. D.
401 , C. . I-1, 30 1927 , as amended by T. D. 4145,0. . II-1, 59 L192 ),
and before the 1st day of the frst ta abe year begnnng after December 31,
1935, stock subscrpton rghts (whether or not consttutng ncome to the share-
hoder wthn the meanng of the s teenth amendment to the Consttuton) or n
respect of whch were acqured n a ta abe year begnnng after December 31,
1935, stock subscrpton rghts whch dd not consttute ncome to the sharehoder
wthn the meanng of the s teenth amendment to the Consttuton, and n the
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113(a).
124
case of such rghts, the foowng rues are to be apped (e cept as otherwse
prescrbed n secton 20 .7 of these reguatons):
(1) If the sharehoder does not e ercse, but ses, hs rghts to subscrbe, the
cost or other bass, propery ad|usted, of the stock n respect of whch the
rghts are acqured sha be apportoned between the rghts and the stock n
proporton to the respectve vaues thereof at the tme the rghts are ssued,
and the bass for determnng gan or oss from the sae of a rght on one
hand or a share of stock on the other w be the quotent of the cost or other
bass, propery ad|usted, assgned to the rghts or the stock, dvded, as the case
may be. by the number of rghts acqured or by the number of shares hed.
ampe: ta payer n 1933 purchased 500 shares of common stock at 125
a share, and n 193 , by reason of the ownershp of such stock, acqured 500
rghts enttng hm to subscrbe to 100 addtona shares of such stock at 100
a share. Upon the ssuance of the rghts each of the shares of stock n respect
of whch the rghts were acqured had a far market vaue of 120, and the
rghts had a far market vaue of 3 each. Instead of subscrbng to the add-
tona shares, he sod the rghts at 4 each. The proft s computed as foows:
500 (shares) 125 62,500, cost of od stock (stock n respect of whch
the rghts were acqured).
500 (shares) 120 60,000, market vaue of od stock.
500 (rghts) 3 ,500, market vaue of rghts.
c n of 62,500 60,975.61, cost of od stock apportoned to such
5 : of 62,500 1.524.39, cost of od stock apportoned to rghts.
o.OOO
2,000 (proceeds of sae of rghts) ess 1,524.39 (cost of od stock
apportoned to rghts)- 475.61, proft.
or the purpose of determnng the gan or oss from the subsequent sae
of the stock n respect of whch the rghts were acqured, the ad|usted cost
of each share s 121.95 that s. 60,975.61 dvded by 500.
(2) If the sharehoder e ercses hs rghts to subscrbe, the bass for deter-
mnng gan or oss from a subsequent sae of a share of the stock n respect
of whch the rghts were acqured sha be determned as n paragraph (n)()
of ths secton. The bass for determnng gan or oss from a subsequent
sae of a share of the stock obtaned through e ercsng the rghts sha be
determned by dvdng the part of the cost or other bass, propery ad|usted,
of the od shares assgned to the rghts, pus the subscrpton prce of the
new shares, by the number of new shares acqured.
ampe: ta payer n 1935 purchased 500 shares of common stock at 125
a share, and n 193 , by reason of the ownershp of such stock, acqured WO
rghts enttng hm to subscrbe to 100 addtona shares of such stock at 100
a share. Upon the ssuance of the rghts each of the shares of stock n respect
of whch the rghts were acqured had a far market vaue of 120. aud the
rghts had a far market vaue of 3 each. The ta payer e ercsed hs rghts
to subscrbe to the addtona shares and ater sod one of such shares for
140. The proft s computed as foows:
1,524.39 (cost of od stock apportoned to rghts pursuant to the com-
putaton n the e ampe under paragraph (a)(1) of ths secton) pus
10,000 (subscrpton prce of addtona shares) 11,524.39, bass for de-
termnng gan or oss from sae of addtona shares.
11,524.39 dvded by 100 115.24, bass for determnng gan or oss
from sae of each share of addtona stock.
140 (proceeds of sae of share of addtona stock) ess 115.24 24.76,
proft.
The bass for determnng the gan or oss from subsequent sae of the stock
In respect of whch the rghts were acqured s 60,975.61 dvded by 500, or
121.95 a share.
(3) If the stock n respect of whch the rghts are acqured was purchased
at dfferent tmes or at dfferent prces and the dentty of the ots can not be
determned, or f the stock n respect of whch the rghts are acqured was
purchased at dfferent tmes or at dfferent prces and the stock rghts acqured
n respect of such stock can not be dentfed as havng been acqured n respect
of any partcuar ot of such stock, the bass for determnng gan or oss from
the sae or other dsposton of the od shares, or the rghts n cases n whch
the rghts are sod, or from the sae or other dsposton of the od or new
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125
113(a).
shares In cases In whch the rghts are e ercsed, sha he ascertaned In ac-
cordance wth the prncpes ad down n secton 20 .3 of these reguatons.
(ft) In the case of stock n respect of whch were acqured pror to anuary 1.
192f , stock subscrpton rghts (whether or not consttutng ncome to the share-
hoder wthn the meanng of the s teenth amendment to the Consttuton), and
n the case of such rghts, the foowng rues are to be apped (e cept as other-
wse prescrbed n secton 20 .7 of these reguatons):
(1) If the rght to subscrbe reates to new stock of substantay the same
character or preference as the stock wth respect to whch the rght was
acqured
( ) If the sharehoder e ercses hs rght to subscrbe, the bass for
determnng gan or oss from a subsequent sae or oer dsposton of any
one of the od or new shares w be the cost or other bass of the od shares,
propery ad|usted, pus the subscrpton prce of the new shares, dvded
by the tota number of the od and new shares.
( ) If the sharehoder ses the rght to subscrbe, the gan or oss from
the s e w be determned by comparng the sum of the sae prce of the
rght and the subscrpton prce wth the bass of the shares as determned
n ( above. The gan computed under the provsons of ths paragraph
shn not e ceed the amount for whch the rght s sod. If, however, ths
mtaton has been apped, the gan or oss from the subsequent sae of the
stock wth respect to whch the r.nht was acqured, shn he determned as
f no rght to subscrbe had been acqured wth respect to t.
(2) If the rght acqured deas wth stock n whoe or n part of a character
or preference materay dfferent from the stock wth respect to whch the rght
was acqured, or f the stock wth respect to whch the rght was acqured was
purchased at dfferent tmes or at dfferent prces, and the dentty of the ots
can not be determned, or f the stock wth respect to whch the rght was acqured
was purchased at dfferent tmes or at dfferent prces and the stock rght
acqured wth respect to such stock can not he dentfed as havng been acqured
wth respect to any partcuar ot of such stock, the computaton of the gan from
the sae of the od shares or the rght n cases n whch the rght s sod, or from
the sae of the od or new shares n cases n whch the rght s e ercsed, shn be
made n accordance wth the prncpes ad down n secton 20 .3 of these
reguatons.
Sec. 2015.5. odng perod. The perod for whch the ta payer has hed stock,
or stock subscrpton rghts, acqured by hm as a dvdend sha be determned
as though the stock dvdend or the subscrpton rght were the stock n respect
of whch the dvdend was acqured, f the bass for determnng gan or oss
upon the sae or other dsposton of snch stock dvdend or rght s f ed by
appcaton of the genera rue of apportonment provded by secton 214 of the
Revenue ct of 1039.
Sec. 2012.6. Sock dvdends to whch secton 21.) appes. The genera rue
provded by secton 214 of the Revenue ct of 1939 requrng an apportonment
of bass n certan stock dvdend and stock rght enses and dscussed n sec-
tons 20 .1 to 20 .4 of these reguatons, and the rue governng the computa-
ton of hodng perods appy equay In the case of a ta abe year begnnng
after December 31, 193 , and n the case of a pror ta abe years, and appy
regardess of whether the dstrbuton s made out of earnngs or profts accu-
muated after ebruary 2 , 1913, or earnngs or profts accumuated pror to
March 1, 1913, or from any other source. In a cases, the appcaton of the
rue s sub|ect to the e ceptons, mtatons, and quafcatons e pressed u
subsectons (a) and (e) of that secton and n secton 20 .7 of these
regnatons.
Sec 20 .7. ceptons, mtatons, and quafcatons to genera rue. The
genera rue for determnng the bass for gan or oss In the case of stock
dvdends and stock rghts s sub|ect to the foowng e ceptons, mtatons,
and quafcatons:
(a) Proceeds of sae of rghts reported as ncome. In the case of stock rghts
sod n a ta abe year begnnng pror to anuary 1, 1939, the genera rue sha
not appy f the entre proceeds of such sae were ncuded by the ta payer as
gross ncome for the year of the sae and If, before une 29, 1939, the ta payer
had not asserted by a cam for a refund or credt or otherwse that any part
of such proceeds shoud not have been ncuded n gross ncome for the year
of the sae. In such cases, no part of the proceeds of such sae sha ever be
e cuded from gross Income for the year of the sae, and the bass for deter-
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113(b), rt. 113(b)-3. 126
mnng gan or oss from a subsequent sae or other dsposton of the stock
In respect of whch the rghts were acqured sha be the same as though the
rghts had not been acqured.
(6) Recept of new stock reported as ncome n pror pears. In the case of
stock dvdends or stock rghts acqured n a ta abe year begnnng pror to
anuary 1, 1036, the genera rue sha not appy f for any reason there wa
ncuded In the gross ncome of the sharehoder as a dvdend for such year,
as, for e ampe, pursuant to the provsons of secton 201(c) of the Revenue
ct of 101 or the correspondng provsons of pror Revenue cts, or as
a resut of the decson of the Supreme Court n oshand v. everng (19301
(20 U. S.. 441 tCt. D. 1124, C. 13. -1, 219 (1936) ), an amount refectng
the acquston of such stock dvdends or stock rghts, and f before une
29, 1930, such amount was not e cuded from gross ncome for such year.
In such cases, the bass for determnng gan or oss wth respect to the od
stock sha be the same as though the stock dvdends or the stock rghts
had not been acqured, and the bass wth respect to the stock dvdend or
stock rght sha be an amount equa to that at whch such stock dvdend
or stock rght was ncuded n gross ncome for the year of ts acquston
(c) Gan or oss upon sae of od or new stock fnay determned upon bash
nconsstent wth genera rue. The genera rue sha not appy wth res|ect
to od stock or new stock remanng on hand after a sae or other dsposton
of od stock or new stock effected n a ta abe year begnnng pror to anuary
1, 1936, f the bass for determnng gan or oss on such sae or other dspos-
ton was f ed by a decson of a court or the oard of Ta ppeas or by a
cosng agreement, and f such decson or cosng agreement became fna on
or before September 26, 1030, and f _the bass for determnng gan or ass
upon such sae or other dsposton was f ed by a method other than that of
aocaton of bass provded by the genera rue. In such cases, the bass for
determnng gan or oss wth respect to the remanng shares sha be f ed
n a manner consstent wth the pror determnaton to the end that, the sae
or other dsposton of a ots beng consdered, the ta payer w have
effected utmatey a ta -free recovery of the tota cost or other bass of
hs orgna shares, and no more.
Sec. 20 . . Modfcaton of pror reguatons. Pror Treasury reguatons are
hereby modfed to the e tent that they may be nconsstent wth these regua
tons.
Gut T. everng,
ohn W. anes,
( ed wth the Dvson of the edera Regster September 1 , 1030. 11.19 a. m.)
S CTION 113(b) ( M ND D Y S CTION 223,
R NU CT O 1939).
INT RN L R NU COD .
Reguatons reatve to eecton by ta payers to ncude n cross
ncome for the ta abe year n wnch receved amounts receved as
oans from the Commodty Credt Corporaton. (See T. D. 491 ,
page 12 .)
rtce 113(b)-3: Substtuted bass.
INT RN L R NU COD .
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127
116. rt. 116-1.
rtce 113(b) (3)-: d|usted bass: Dscharge of corporate
ndebtedness. Genera rue.
mendment of Reguatons 101. (See T. D. 4954. page 7G.)
rtce 113(b) (3)-2: d|usted bass: Dscharge of ndebt-
edness. Speca cases.
mendment of Reguatons 101. (See T. D. 4954, page 7G.)
S CTION 116. CLUSIONS ROM GROSS INCOM .
empton from edera Income ta of compensaton receved
for servces rendered n the Unted States by certan foregn con-
sus statoned n the Unted States and certan empoyees of
foregn consuates n the Unted States.
Washngton, D. C, October 4, 1939.
Coector of Interna Revenue, Interna Revenue gents n Charge,
and Other Offcers and mpoyees of the ureau of Interna
Revenue Concerned:
In vew of the certfcaton made by the Secretary of State under
secton 116(h) of the Interna Revenue Code, the offca compensa-
ton for servces rendered wthn the Unted States of foregn con-
suar offcers statoned n the Unted States (who are not ctzens
of the Unted States) and the empoyees of foregn consuates n
the Unted States (who are not ctzens of the Unted States) of
the foowng countres s e empt from edera ncome ta :
bana. rgentna, ustraa. ova, raz, ugara, Canada,
Che. Chna, Coomba, Cuba, Czechosovaka, Denmark, Domncan
Repubc, Savador. cuador, gypt, nand, rance, Germany.
Great rtan and Northern Ireand, Greece, Guatemaa, at, on-
duras, ungary, Inda, Iraq, Iran, Ireand, Itay, apan, Latva,
Lbera, Lthuana, Me co, Morocco, Netherands, Netherands
Indes, New Zeaand, Ncaragua, Norway, Panama. Peru, Poand,
Portuga, Rumana, Sam, Span, Sweden, Turkey, Unon of South
frca, Unon of Sovet Socast Repubcs, Uruguay, enezuea,
Yugosava.
In vew of the certfcaton referred to above, the offca compen-
saton for servces rendered wthn the Unted States of foregn
consuar offcers statoned n the Unted States (who are not ctzens
of the Unted States) of the foowng countres (but not the em-
poyees of ther consuates n the Unted States) s e empt fom
edera ncome ta :
INT RN L R NU COD .
INT RN L R NU COD .
rtce 116-1: Income of foregn governments,
ambassadors, and consus.
1939-44-10075
Mn. 4967
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123.
12
egum, Costa Rca, stona, Paraguay.
Correspondence reatng to the provsons of ths mmeograph
shoud refer to ts number and the symbos IT: TM.
Guy T. evf|ng,
Commssoner.
S CTION 123 ( DD D Y S CTION 223, R NU CT
O 1939). COMMODITY CR DIT LO NS.
( so Secton 113(b).) 1939-33-9059
T. D. 491S
TITL 26 INT RN L R NU . C PT R L SU C PT R . P RT 20,
SU P RT C INCOM T .
Reguatons reatve to eecton by ta payers to ncude n
gross ncome for the ta abe year n whch receved amounts
receved as oans from the Commodty Credt Corporaton under
secton 223 of the Revenue ct of 1939.1
Washngton, D. C.
Secton 20C.0. Introductory. Secton 223 of Tte II (Income
Ta mendments) of the Revenue ct of 1939, enacted une 29,
1939 (Pubc, No. 155, Seventy-s th Congress, frst sesson),
provdes:
Sec. 223. Commodty Credt Loans.
(a) The Interna Revenue Code s amended by nsertng after secton
121 the foowng new secton:
Sec. 123. Commodty Credt Loans.
(a) mounts receved as oans from the Commodty Credt Cor-
poraton sha, at the eecton of the ta payer, be consdered as ncome
and sha be ncuded n gross ncome for the ta abe year n whch
receved.
(b) If a ta payer e ercses the eecton provded for n subsecton
(a) for any ta abe year begnnng after December 31, 193 , then the
method of computng ncome so adopted sha be adhered to wth respect
to a subsequent ta abe years uness wth the approva of the Com-
mssoner a change to a dfferent method s authorzed.
(b) d|ustment of ass. Secton 113(b)(1) of the Interna
Revenue Code s amended by addng at the end thereof a new sub-
paragraph readng as foows:
(O) n the case of property pedged to the Commodty Credt
Corporaton, to the e tent of the amount receved as a oan from
the Commodty Credt Corporaton and treated by the ta payer as
ncome for the year n whch receved pursuant to secton 123 of
ths chapter, and to the e tent of any defcency on such oan wth
respect to whch the ta payer has been reeved from abty.
(c) The amendments made by subsectons (a) and (b) sha be
appcabe to ta abe years begnnng after December 31, 193 .
Sectons 20C.0 to 20C.3 Issued under the authorty contaned n secton 02 of tb
Interna Revenue Code ( 3 Stat., Part 1) and nterpret secton 123 of the Interna Revpnoo
Code, as added by secton 223 of the Revenue ct of 1939 (Pubc, No. 155, Seventr-su 1
Congress, frst sesson).
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129
123.
(d) Retroactve ppcaton. The provsons of subsecton (a)
sha be retroactvey apped n computng Income for any ta abe year
sub|ect to the provsons of the Revenue ct of 1034, the Revenue ct
of 1936, or the Revenue ct of 193 , or any of such cts amended,
f
(1) The ta payer eects n wrtng (n accordance wth regua-
tons prescrbed by the Commssoner wth the approva of the
Secretary) wthn one year from the date of the enactment of
ths ct to treat such oans as ncome for such year, and
(2) The records of the ta payer ore suffcent to permt an
accurate computaton of ncome for such year, and
(3) The ta payer consents n wrtng to the assessment, wthn
such perod as may be agreed anon, of any defcency for such year,
even though the statutory perod for the assessment of any such
defcency had e pred pror to the fng of such consent.
ny ta overpad for any such year sha be credted or refunded,
sub|ect to the statutory perod of mtaton propery appcabe thereto,
(e) d|ustment of ass for Pror Years. In computng ncome
for any ta abe year sub|ect to the provsons of the Revenue ct of
1934, the Revenue ct of 1936, or the Revenue ct of 193 , or any of
such cts as amended, the bass, for determnng gan or oss from the
sne or other dsposton of any property, pedged to the Commodty
Credt Corporaton as securty on a oan obtaned therefrom, sha e
ad|usted for the amount of such ean to the e tent t was consdered
as ncome and ncuded n gross ncome for the year n whch receved,
and for the amount of any dctcency on such oan wth respect to whch
the ta payer was reeved from abty.
Secton 62 of the Interna Revenue Code provdes:
S C. 62. RUI. S ND R OUT. TIONS.
The Commssoner, wth the approva of the Secretary, sha pre-
scrbe and pubsh a needfu rues and reguatons for the enforcement
of ths chapter.
Pursuant to the above-quoted provsons and other provsons of
the nterna revenue aws, the foowng reguatons are hereby pre-
scrbed wth respect to the appcaton of secton 123 of the Interna
Revenue Code as added by secton 223 of the Revenue ct of 1939:
Skc. 20C.1. Ta abe years begnnng after December SI, 193S. ta payer who
receves a oan from the Commodty Credt Corporaton wthn any ta abe year
begnnng after December 31, 193 , may, at hs eecton, ncude the amount of
such oan n hs gross ncome for the ta abe year n whch the oan s receved.
If a ta payer makes such an eecton, then for subsequent ta abe years e sha
ncude n hs gross ncome a amounts receved durng those years as oans from
the Commodty Credt Corporaton, uness he secures the approva of the Com-
mssoner to change to a dfferent method of accountng. ppcaton for per-
msson to change such method of accountng and the bass upon whch the
return s made sha be fed wthn 90 days after the begnnng of the ta abe
year to be covered by the return.
Sec. 20C.2. Ta abe years begnnng after December SI, 1933, and before anu-
ary 1, 1939. ta payer who has receved a oan from the Commodty Credt
Corporaton wthn any ta abe year begnnng after December 31, 1933, and
before anuary 1, 1939, may ncude the amount of such oan n hs gross ncome
for the ta abe year n whch the oan was receved f he compes wth the
foowng condtons:
(1) ects to ncude such oan n gross ncome by fng an amended return
on or before une 29,1940, ncudng theren such tem as a part of gross ncome
(2) as kept suffcent records so as to permt an accurate computaton of
ncome for such year and
(3) es wth the amended return orm 72 consentng therpn to the assess-
ment, wthn such perod as may be agreed upon, of any defcency for such year.
Sec. 20C.3. ffect of eecton on ad|ustments for other ta abe years. If a ta -
payer eects under secton 20C.1 or 20C.2 of these reguatons to ncude n hs
G
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131, rt. 131-5.
130
gross Income the amount of a oan from the Commodty Credt Corporaton for
the ta abe year n whch t s receved, then
(1) no part of the amount reazed by the Commodty Credt Corporaton upon
the sae or other dsposton of the commodty pedged for such oan sha be
recognzed as Income to the ta payer, uness the ta payer receves an amount n
addton to that advanced to hm as the oan, n whch event such addtona
amount sha be ncuded n the gross ncome of the ta payer for the year n
whch receved and
(2) no deductbe oss to the ta payer sha be recognzed on account of any
defcency reazed by the Commodty Credt Corporaton on such oan f tbe
ta payer was reeved from abty for such defcency.
ttvampe: , a ta payer who eected for hs ta abe years 1937, 193S. and
1939 to ncude n gross ncome amounts receved durng those years as oans
from the Commodty Credt Corporaton, receved as oans 500 n 1937. 700 n
193 , and 900 n 1939. In 1940 a the pedged commodty was sod by the Com-
modty Credt Corporaton for an amount 100 and 200 ess than the oans wth
respect to the commodty pedged n 1937 and 193 , respectvey, and for an
amount 150 greater than the oan wth respect to the commodty pedged n
193 ). , n makng hs return for 1940, sha ncude n gross ncome the sum
of 150 f t s receved durng that year, but w not be aowed a deducton
for the defcences of 100 and 200 uness he s requred to satsfy such
defcences and does satsfy them durng that year.
arod N. Graves,
ctng Commssoner of Interna Revenue.
pproved ugust 7, 1939.
ohn W. anes,
( ed wth the Dvson of the edera Regster ugust 9, 1939. 2.44 p. m.)
S CTION 131. T S O OR IGN COUNTRI S
ND POSS SSIONS O UNIT D ST T S.
The Commonweath of ustraa satsfes the smar credt re-
qurement of secton 131 (a)3 of the Interna Revenue Code.
The State of ueensand, a potca subdvson of ustraa, does
not satsfy such smar credt requrement.
dvce s requested whether the Commonweath of ustraa and
the Stae of ueensand, a potca subdvson of ustraa, satsfy
the smar credt requrement of secton 131 (a) 3 of the present
ncome ta aw.
Under secton 131 (a) 3 of the Interna Revenue Code, an aen res-
dent of the Unted States s entted to credt hs edera ncome ta
wth the amount of any ncome, war-profts, and e cess-profts ta es
pad or accrued durng the ta abe year to any foregn country, f de
foregn country of wnch such aen resdent s a ctzen or sub|ect, n
mposng such ta es, aows a smar credt to ctzens of the Unted
States resdng n such country.
SUPPL M NT C CR DITS G INST T .
rtce 131-5: Countres whch do or do not
satsfy the smar credt requrement.
1939-13-10009
I. T. 33:31
INT RN L R NU COD .
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131
131, rt. 131-5
rtce 131-5 of Reguatons 101, pertanng to the ncome ta under
the Revenue ct of 193 , made appcabe to the Interna Revenue
Code by Treasury Decson 4 5 C. . 1939-1 (Part 1), 396 reads
n part as foows:
Countres whch do or do not satsfy the smar credt requrement. country
satsfes the smar credt requrement of secton 131(a)3, us to ncome ta pad
to such country, ether by aowng to ctzens of the Unted States resdng n
such country a credt for the amount of ncome ta es pad to the Unted States,
or, n mposng such ta es, by e emptng from ta aton the ncomes receved from
sources wthn the Unted States by ctzens of the Unted States resdng n such
country.
The foowng s an e cerpt from the Income Ta ssessment ct,
193(5, of the Commonweath of ustraa, as amended by the Income
Ta ssessment ct (No. 2), 1936:
I aht III. Labty to Ta aton.
DI ISION 1. G N R L

23. The foowng ncome sha be e empt from Income ta :

(q) ncome derved by a resdent from sources out of ustraa, where that
Income s not e empt from ncome ta n the country where t s derved .
(r) ncome derved by a nonresdent from sources whoy out of ustraa
art I, 6, provdes n part as foows:

nonresdent means a person who s not n resdent of ustraa

resdent or resdent of ustraa moans
(a) a person, other than a company, who resdes n ustraa and ncudes
a person
() whose domce s n ustraa, uness the Commssoner s satsfed
that hs permanent pace of abode s outsde ustraa or
() who has actuay been n ustraa, contnuousy or ntermttenty,
durng more than one-haf of the year of ncome, uness the Commssoner
s satsfed that hs usua pace of abode s outsde ustraa and that he
does not ntend to take up resdence n ustraa .
Thus, whether or not a ctzen of the Unted States resdng n
ustraa be consdered a r sdent or a nonresdent under the aws of
such country, t s apparent that ncome receved by hm from sources
wthn the Unted States s e empted from ta aton under the us-
traan aw. The Commonweath of ustraa, therefore, satsfes the
smar credt requrement of secton 131 (a)3 of the Interna Revenue
Code.
amnaton of the Income Ta ssessment ct of 1936 of the
State of ueensand, as amended by the Income Ta ct of 1936,
dscoses that no credt for the amount of ta es pad to the Unted
States s aowed to ctzens of the Unted States resdng n ueens-
and, nor s the ncome of such Unted States ctzens receved from
sources wthn the Unted States e empted from ta aton. Para-
graph 1 (c), dvson 3, secton 29, of the Income Ta ssessment
ct of 1936, as amended, provdes that sums pad by the ta payer
for any ncome ta (other than unempoyment reef ta ) sha not
be aowabe deductons.
ueensand, therefore, does not satsfy the smar credt requre-
ment of secton 131 (a) 3 of the Interna Revenue Code.
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131, rt. 131-5.
132
rtce 131-5: Countres whch do or do not
satsfy the smar credt requrement.
1939-49-10112
I. T.3337
INT RN L R NU COD .
The Unon of South frca satsfes the smar credt requre-
ment of secton 131(a)3 of the Interna Revenue Code.
dvce s requested whether the Unon of South frca satsfes
the smar credt requrement of secton 131(a)3 of the Interna
Revenue Code.
Under secton 131 (a)3 of the Interna Revenue Code, an aen res-
dent of the Unted States s entted to credt hs edera ncome
ta wth the amount of any ncome, war-profts, and e cess-profts
ta es pad or accrued durng the ta abe year to any foregn country,
f the foregn country of whch such aen resdent s a ctzen or
sub|ect, n mposng such ta es, aows a smar credt to ctzens
of the Unted States resdng n such country.
rtce 131-5 of Reguatons 101, pertanng to the ncome ta
under the Revenue ct of 193 , made appcabe to the Interna
Revenue Code by Treasury Decson 4 5 (C. . 1939-1 (Part 1),
396), reads n part as foows:
Countres whch do or do not satsfy the smar credt requrement. I
country satsfes the smar credt requrement of secton 131(a)3, as to ncome
a pad to such country, ether by aowng to ctzens of the Unted States
resdng n such country a credt for the amount of ncome ta es pad to the
Unted States, or, n mposng such ta es, by e emptng from ta aton the
ncomes receved from sources wthn the Unted States by ctzens of the
Unted States resdng n such country.
The foowng s an e cerpt from the Income Ta ct of 1925, as
amended, of the Unon of South frca:
Chapter II, Part I, secton 7, page 273, The Law of Income Ta n South
frca Ingram.
7. (1) or the purposes of ths chapter
gross ncome means the tota amount whether n cash or otherwse
receved by or accrued to or In favour of any person, other than recepts
or accruas of a capta uature, n any year or perod assessabe under ths
chapter from any source wthn the Unon or deemed to be wthn the
Uuou .
In oume III of Ta aton of oregn and Natona nterprses,
at pages 1G and 170, t s stated by the Commssoner for Inand
Revenue for the Unon of South frca that:
Nether natonaty, domce, nor resdence affect the abty of ndvduas,
save n a few speca nstances. The genera bass of the ta s source wthn
the Unon, and, provded that the ncome arses from such a source, the
recpent s abe whatever may be hs natonaty, domce or resdence.
Conversey, Unon natonaty, domce or resdence does not create abty
n respect of ncome derved from sources outsde the Unon.

or the purposes of ths study, natona ncome s taken to be Income derved
from sources wthn the Unon, and foregn ncome s taken to be ncome derved
from sources outsde the Unon.
y the terms of the Income-Ta ct No. 40, of 1925, the ncome-ta of the
Unon s mposed ony upon ncome derved from sources wthn the Unon,
or, by the terms of the ct, deemed to be so derved.
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133
143, rt. 143-1.
Snce the aw of the Unon of South frca docs not requre a
ta payer to ncude n gross ncome, for the purpose of the ncome
ta of that country, ncome from sources wthout that country, t s
hed that the Unon of South frca satsfes the smar credt re-
qurement of secton 131 (a)3 of the Interna Revenue Code.
SUPPL M NT D. R TURNS ND P YM NT O T .
S CTION 143. WIT OLDING O T
T SOURC .
rtce 143-1: Wthhodng ta at source. 1939-2 -9903
I. T. 3290
INT RN L R NU COD .
Where books are sod e cusvey In the Phppne Isands under
a Phppne copyrght, the royates pad thereon to . a nonres-
dent aen, by the M Company, a domestc corporaton, are ncome
from sources wthout the Unted States and are not sub|ect to
wthhodng even though the books are prnted n the Unted States.
dvce s requested whether the M Company s requred to wth-
hod ncome ta at the source wth respect to royates pad to , a
nonresdent aen, under the crcumstances heren set forth.
, a nonresdent aen, resdng n the Phppne Isands, pre-
pared the manuscrpt for certan te tbooks to be used n the pubc
schoos of the Phppnes. The books were prnted n the Unted
States by the M Company and were copyrghted n the Unted States
and the Phppnes. The Unted States copyrght s of no effect n
the Phppnes as that possesson has ts own copyrght aw. The
books were not desgned for use n the Unted States and are sod
e cusvey n the Phppnes. receved the royates from the M
Company for the books sod n the Phppnes.
Secton 119(a)4 of the Interna Revenue Code provdes that roya-
tes for the use of or for the prvege of usng copyrghts n the
Unted States sha be treated as ncome from sources wthn the
Unted States. Secton 119(c)4 of the Interna Revenue Code pro-
vdes that royates for the use of or for the prvege of usng copy-
rghts wthout the Unted States sha be treated as ncome from
sources wthout the Unted States.
It appears n the nstant case that there s no commerca pubca-
ton of the te tbooks wthn the Unted States n that the te tbooks
are not sod wthn the Unted States. Wthout such commerca pub-
caton, t appears that te M Company s engaged soey n prntng
or manufacturng books wthn the Unted States, whch books are
ater sod n the Phppnes, and n the vendng of such books n the
Phppnes, the Phppne copyrghts are used and not the Unted
States copyrghts.
It s hed, therefore, that the royates pad by the M Company n
the nstant case are not ta abe to , a nonresdent aen, as ncome
from sources wthn the Unted States, and are not sub|ect to wth-
hodng of edera ncome ta .
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147, rt. 147-2.
134
S CTION 147. IN ORM TION T SOURC .
rtce 147-1: Return of nformaton as to
payments of 1,000.
1939-44-10076
Mm. 4963
Informaton returns, orm 1009, wth respect to wages.
Washngton, D. C, October 9, 1939.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
Reference s made to Mmeograph 46 9, dated November 11, 1937
(C. . 1937-2, 149), whch permts the fng of nformaton returns
on orm 1099 on the bass of wages earned, nstead of wages pad, n
cases of empoyees whose earnngs for the atter part of December
are not pad to them unt anuary of the foowng year. That
mmeograph was desgned for the convenence of empoyers n pre-
parng orms 1099, Soca Securty Ta returns, and Carrers Ta
returns from one set of pay-ro records. Under the provsons of
the Soca Securty ct mendments of 1939, the ta on empoyers
of eght or more for the caendar year 1939 and subsequent caendar
years s computed on the bass of wages pad nstead of wages
payabe.
In vew of the foregong, empoyers who have foowed the method
authorzed by Mmeograph 46 9 for 1937 and 193 and who desre
to make a change for 1939 and subsequent years, reportng the wages
actuay or constructvey pad to ther empoyees durng the caen-
dar year, may make such change. If the change s made, the em-
poyer shoud show by approprate entry on the orm 1099 fed for
the caendar year 1939 the amount representng wages earned n De-
cember, 193 , and not pad unt anuary, 1939.
Correspondence reatve to ths mmeograph shoud refer to ts
number and the symbos IT: TM.
ng of nformaton returns. orm 1099, by States and potca
subdvsons, or any agency or nstrumentaty thereof.
dvce s requested wth respect to the fng of nformaton returns
on orm 1099 for the caendar year 1939 and subsequent caendar
years n connecton wth compensaton pad offcers and empo3Tees of
the varous States, potca subdvsons, and agences and nstru-
mentates thereof.
In order that as tte e pense and nconvenence as possbe be
caused the severa States, potca subdvsons, and ther agences
and nstrumentates n the fng of nformaton returns wth respect
to the payment of compensaton to ther offcers and empoyees, the
Gut T. f verng,
Commssoner.
rtce 147-2: Return of nformaton as to
payments to empoyees.
1939-44-10077
I. T. 3333
INT RN L R NU COD .
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135
162, rt. 162-1.
ureau w consder t as a satsfactory compance wth the regua-
tons f, n the case of payments of any form of compensaton made
by a State, or any potca subdvson, or any agency or nstru-
mentaty of any one or more of the foregong, to persons n ts serv-
ce (cv, mtary, or nava), nformaton returns on orm 1099 are
fed by any offcer, or offcers, as best suts the convenence of the
State, potca subdvson, agency, or nstrumentaty. urthermore,
t w not be necessary to report on the nformaton returns, orm
1099, amounts pad as aowances for traveng e penses, ncudng
aowances for meas and odgng, as, for e ampe, per dem aow-
ances n eu of subsstence and amounts pad as rembursements for
traveng e penses.
SUPPL M NT . ST T S ND TRUSTS.
S CTION 162. N T INCOM .
rtce 1C2-1: Income of estates and trusts. 1939-40-1003
I. T. 33 24
INT IN L R NU COD .
Treatment for edera Income ta purposes of nterest (ncre-
ment n vaue) on Unted States savngs bonds n the ease of trusts
and benefcares of trusts.
dvce s requested by the M Trust Co. reatve to the proper
method of reportng, for edera ncome ta purposes, the nterest
(ncrement n vaue) on Unted States savngs bonds n the case of
trusts and the benefcares thereof.
The M Trust Co. has purchased a consderabe amount of Unted
States savngs bonds for trust accounts n some of whch there w
be successor benefcares upon the death of the orgna benefcares
pror to tbe redempton of the bonds. The company has been fo-
owng the practce n sma trusts, where the contnuty of ncome
s of prmary mportance, of transferrng to the benefcares at
6-month ntervas an amount equa to the ncrement n vaue of Unted
States savngs bonds durng such perod. Ths, t s stated, const-
tutes n effect an addtona cash nvestment of trust corpus and a
dstrbuton to the benefcares whch they mght consder as ncome.
The nterest (ncrement n vaue) on Unted States savngs bond-
s entrey e empt from ta es now or hereafter mposed by the
Unted Sates, any State, or any of the possessons of the Unted
States, or by any oca ta ng authorty thereof, upon ncome or
profts e cept graduated addtona ncome ta es (commony known
as surta es) and e cess-profts and war-profts ta es now or here-
after mposed by the Unted States. Such nterest (ncrement n
vaue) on Unted States savngs bonds s e empt from the e -
cepted ta es to the e tent of nterest on an amount of the bonds
the prncpa of whch does not e ceed n the aggregate 5,000 (n-
cudng other bonds and certfcates owned by the ta payer whch
were ssued under the authorty of the Second Lberty ond ct,
as amended). In determnng whether the prncpa amount of such
bonds and certfcates owned by a ta payer s wthn or n e cess of
6,000, the ssue or purchase prce ony s consdered as prncpa of
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162, rt. 162-.
136
Unted States savngs bonds. (I. T. 3262, C. . 1939-1 (Part 1), 96.)
The above-mentoned e cepton to e empton from ta es upon
nterest on such bonds s not appcabe whe they are benefcay
owned by a nonresdent aen ndvdua, or a foregn corporaton.
artnershp, or assocaton, not engaged n busness n the Unted
tates. (I. T. 3262, supra.)
If the trusts n the nstant case reguary empoy the accrua
method of accountng, the ncrement n vaue of Unted States sav-
ngs bonds shoud be reported as ncome when accrued. In G. C M.
15 75 (C. . I -2, 100 (1935)) t was hed that ta payers who
reguary empoy the accrua method of accountng shoud report the
ncrement n vaue of Unted States savngs bonds as ncome for
each ta abe year when and to the e tent that t s earned durn|r
the year, accordng to the terms of the bonds and n the amount
set forth n the tabe of redempton vaues shown thereon.
The ncrement n vaue of Unted States savngs bonds wth
respect to trusts empoyng the accrua method of accountng, the
ndentures of whch provde for the current dstrbuton of trust
ncome to benefcares, shoud be treated as ncome currenty ds-
trbuted to the benefcares and deducton therefor taken by the
trusts under secton 162(b) of the Interna Revenue Code n com
putng ncome sub|ect to ta . The benefcares, as provded n
secton 162(b) of the Code, shoud ncude such amounts n confut-
ng ther net ncome whether dstrbuted to them or not. Such
amounts so ncuded as ncome by the benefcares w have the
status for edera ncome ta purposes of nterest on Unted State
savngs bonds.
If the trusts empoy the cash recepts and dsbursements bass of
accountng, the ncrement n vaue of Unted States savngs bonds f
not ncome to such trusts unt the year of redempton. In I. T.
295 (C. . -1,120 (1936)) t was hed that ta payers who reg-
uary make ther ncome ta returns on the cash recepts and ds-
bursements bass shoud not ncude n such returns any ncrement
n vaue of Unted States savngs bonds ssued under the pro-
vsons of secton 22(c) of the Second Lberty ond ct, a
amended, unt they receve payment for the bonds, whether at or
before maturty, and that the entre dfference between the prce
pad for the bonds at ssue and the amount receved n payment
therefor shoud be reported as ncome for the ta abe year n whch
redempton occurs.
Snce the ncrement n vaue of Unted States savngs bonds, e -
cept n the year of redempton, s not ncome to trusts whch empoy
the cash recepts and dsbursements bass of accountng, the ds-
trbuton of an amount every s months by fducares of such trusts
to benefcares thereof equa to the ncrement n vaue of such bond
can not be consdered as a dstrbuton of trust ncome to that e -
tent, nor as a dstrbuton of nterest on Unted States savngs
bonds. Such dstrbuton, therefore, s not deductbe by the trust
under secton 162(b) of the Interna Revenue Code n computng
ts ncome sub|ect to ta , and the amount thereof n the hands of
the benefcares, not representng a dstrbuton of trust ncome, s
not ta abe ncome to them. ccordngy, the orgna benefcares
or the successor benefcares, as the case may be, at the tme the
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137
204(e).
Unted States savngs bonds are redeemed, f the ncome of the
trusts s currenty dstrbutabe, are the benefcares who w be
abe for edera ncome ta on the ncrement n vaue of such
redeemed bonds.
SUPPL M NT G. INSUR NC COMP NI S.
S CTION 204(e). INSUR NC COMP NI S OT R T N
LI OR MUTU L: DOU L D DUCTIONS.
( so Secton 24, rtce 24-4.) 1939-2 -9909
I. T. 3297
INT RN L R NU COD ND R NU CTS O 1034. 1036. ND 1D3 .
Ta -e empt Interest shoud be e cuded from gross ncome from
sources wthn the Unted States of a resdent foregn nsurance
company but shoud be ncuded n the gross ncome from a sources
of such company n determnng the rato of unaocabe e penses
whch may be deducted from Income from sources wthn the Unted
States. Secton 24(a)5 of the Revenue ct of 1934 dd not change
the prevous ureau rue that deductons aocabe to earnng of
ta -e empt nterest are not aowabe n the case of ta payers sub-
|ect to ta under secton 204.
dvce s requested whether a resdent foregn nsurance company
s entted under the Revenue ct of 1934 and subsequent Revenue
cts to deduct home offce e penses attrbutabe to the earnng n the
Unted States of ta -e empt nterest. It s stated that the e penses
n queston can not defntey be aocated soey to ta -e empt nterest
and ony a ratabe part thereof s deductbe under secton 119(b) of
the Revenue ct of 1934 whch reads as foows:
(b) Net ncome from sources n Unted States. rom the tems of gross n-
come specfed n subsecton (a) of ths secton there sha e deducted the e -
penses, osses, and other deductons propery apportoned or aocated thereto
and a ratabe part of any e penses, osses, or other deductons whch can not
defntey be aocated to some tem or cass of gross ncome. The remander,
f any, sha be ncuded In fu as net ncome from sources wthn the Unted
States.
In other words, the queston s whether ta -e empt nterest shoud
be ncuded n the gross ncome of the company from sources wthn
the Unted States as we as n the tota gross ncome n determnng
the rato of gross ncome from sources wthn the Unted States to the
tota gross ncome. (See artce 119-10 of Reguatons 6.)
It s contended that secton 24(a) 5 of the Revenue ct of 1934 and
subsequent Revenue cts permts the deducton of e penses aocabe
to ta -e empt nterest and that, consequenty, such nterest shoud
be ncuded n the gross ncome from Unted States sources as we
as n the tota gross ncome n determnng the rato. That secton
reads n part as foows:
(a) Genera rue. In computng net ncome no deducton sha n any case
be aowed n respect of

(5) ny amount otherwse aowabe as a deducton whch s aocabe to
one or more casses of ncome other than nterest (whether or not any amount
of Income of that cass or casses s receved or accrued) whoy e empt from
the ta es mposed by ths tte . Itacs supped.
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I 204(e).
13
Other provsons of the Revenue ct of 1934 pertnent to the ssue
are as foows:
Sec. 204. Insurance Companes Other Than Lfe or Mutua.
(a) Imposton of ta . In eu of the ta mposed by secton 13 of ths tte,
there sha be eved, coected, and pad for each ta abe year upon the net
ncome of every nsurance company (other than a fe or mutua nsurance
company) a ta as foows:

(2) In the case of such a foregn nsurance company, 13 per centum of the
amount of ts net ncome from sources wthn the Unted States n e cess of
the credt provded n subsecton (f) of ths secton. Subsecton (f) s no
matera to present ssue.

(c) Deductons aowed. In computng the net ncome of an nsurance com-
pany sub|ect to the ta mposed by ths secton there sha be aowed a-
deductons:
(1) ordnary and necessary e penses ncurred, as provded u secton
23(a)

( ) The amount of nterest earned durng the ta abe year whch under
secton 22(b)(4) s e cuded from gross ncome. (Secton 22b)4 e -
cudes ta -e empt nterest from gross ncome.
(d) Deductons of foregn corporatons. In the case of a foregn corwrafon
the deductons aowed n ths secton sha be aowed to the e tent provded
n Suppement I.
(e) Doube deductons. Nothng n ths secton sha be construed to permt
the same tem to be twce deducted.
Sec. 200. Computaton of Gross Income.
The goss ncome of nsurance companes sub|ect to the ta mposed by sec-
ton 201 or 204 sha not be determned n the manner provded n secton 115
Seo. 231. Gross Income.
(a) encra rue. In the case of a foregn corporaton gross ncome ncude
ony the gross ncome from sources wthn the Unted States.
Sec. -32. Deductons.
In the case of a foregn corporaton the deductons sha be aowed ony f
and to the e tent that they are connected wth the ncome from sources wthn
the Unted States and the proper apportonment and aocaton of the deduc-
tons wth respect to sources wthn and wthout the Unted Staes sha be
determned as provded n secton 110, under rues and reguatons prescrbed
by the Commssoner wth the approva of the Secretary.
Under the Revenue cts pror to the Revenue ct of 1934. t f
setted that ta -e empt ncome s to be e cuded from the gross n-
come wthn the Unted Sates of a resdent foregn nsurance com-
pany n determnng the rato for the deducton of unaocabe e -
penses. To hod otherwse woud be to aow a doube deducton n
contraventon of secton 204(e). (London d- Lancashre Inmrwcf
Co.. Ltd., v. Comm doner, 34 13. T. ., 295 Roya Insurance Co.,
Ltd., v. Commssoner, 3 . T. ., 955.) Secton 24(a)5, supra,
was frst enacted n the Revenue ct of 1934. Pror to the en-
actment of that secton, deductons aocabe to the earnng of ta -
e empt nterest were aowed by the ureau n cases where secton
204 was not appcabe. In effect secton 24 (a)5 merey adopts the
prevous ureau rue. Secton 24(a)5 dd not supersede secton
204(c), whch prohbts doube deductons. Secton 204(e) st con-
tros as to deductons aocabe to ta -e empt nterest n the case of
nsurance companes.
ccordngy, t s hed that ta -e empt nterest shoud be e cuded
from the gross ncome from sources wthn the Unted States of a
resdent foregn nsurance company but shoud be ncuded n the
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139
3604.
gross ncome from a sources of such company n determnng the
rato of unaocabe e penses whch may be deducted from ncome
from sources wthn the Unted States.
Ths rung s aso appcabe under the correspondng provsons
of the Revenue cts of 1936 and 193 and the Interna Revenue Code.
C PT R 34. IN ORM TION ND R TURNS.
SU C PT R DISCO RY O T LI ILITY.
S CTION 3604 ( M ND D Y S CTION 404. R NU
CT O 1939). R TURNS S TO ORM TION,
TC., O OR IGN CORPOR TIONS.
1939-33-9960
T. D.4917
TITL 2 INT RN L R NU . C PT R I, SU C PT R . T RT 20,
SU P RT D INCOM T .
Reguatons under secton 3G04 of the Interna Revenue Code, as
amended by secton 404 of the Revenue ct of 1939, reatng to
returns of nformaton wth respect to foregn corporatons.1
Washngton, D. C.
Secton 20D.0. Introductory. (a) Secton 3604 of the Interna
Revenue Code (53 Stat., Part 1), approved ebruary 10, 1939,
provdes:
Sec. 3f04. Returns as to ormaton, etc., of oregn Corporatons.
(a) Requrement. Under reguatons prescrbed by the Commssoner
wth the approva of the Secretary, any attorney, accountant, fducary,
bank, trust company, fnanca nsttuton, or other person, who ads,
asssts, counses, or advses n, or wth respect to, the formaton,
organzaton, or reorganzaton of any foregn corporaton, sha, wthn
30 days thereafter, fe wth the Commssoner a return.
(b) orm and Contents of Return. Such return sha be n such form,
and sha set forth, under oath, n respect of each such corporaton, to
the fu e tent of the nformaton wthn the possesson or knowedge or
under the contro of the person requred to fe the return, such nfor-
maton as the Commssoner wth the approva of the Secretary pre-
scrbes by reguatons as necessary for carryng out the provsons of
the ncome ta aws. Nothng n ths secton sha be construed to
requre the dvugng of prveged communcatons between attorney
and cent.
(e) Penaty. ny person requred under subsecton (a) to fe a
return, or to suppy any nformaton, who wfuy fas to fe such
return, or suppy such nformaton, at the tme or tmes requred by
aw or reguatons, sha, n eu of other penates provded by aw
for such offense, be guty of a msdemeanor and, upon convcton
thereof, be fned not more than 2,000, or mprsoned for not more
than one year, or both.
Secton 20D.0 to secton 20n.C Issued under the authorty contaned n secton 3604 of
the Interna Revenue Cof, as amended by secton 404 of the Revenue ct of 1 ). 9 (Pubc,
No. 155, Seventy-s th Congress, frst sesson), and n secton 3791 of the Interna Reve-
nue Code (03 Stat., Part 1).
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3G0-1.
140
(b) Secton 404 of the Revenue ct of 1939 (Pubc, No. 155,
Seventy-s th Congress, frst sesson), provdes:
Sec. 404. Returns by ttorneys ab to oregn Corporatons.
ffectve as of the date of the enactment of the Interna Revenue
Code, secton 3004 of such Code s amended by strkng out Nothng
n ths secton sha be construed to requre the dvugng of prveged
communcatons between attorney and cent, and nsertng n en
thereof . Nothng n ths secton sha be construed to requre the
tng by an attorney-at-aw of a return wth respect to any advce
gven or nformaton obtaned through the reatonshp of attorney
and cent
(c) Secton 3632 of the Interna Revenue Code provdes:
Sec. 3632. uthorty to dmnster Oaths, Take Testmony, act
Certfy.
(a) Interna Revenue Personne.
(1) Persons n charge of admnstraton of nterna revenue
aws generay. very coector, deputy coector, nterna revenue
agent, and nterna revenue offcer assgned to duty under an n-
terna revenue agent, s authorzed to admnster oaths and to take
evdence touchng any part of the admnstraton of the nterna
revenue aws wth whch he s charged, or where such oaths and
evdence are authorzed by aw or reguaton authorzed by aw
to be taken.
(2) Persons n charge of e ports and drawbacks. very co-
ector of nterna revenue and every superntendent of e ports
and drawbacks Is authorzed to admnster such oaths and to
certfy to such papers as may be necessary under any reguaton
prescrbed under the authorty of the nterna revenue aws.
(b) Others. ny oath or affrmaton requred or authorzed by any
Interna revenue aw or by any reguatons made under authorty
thereof may be admnstered by any person authorzed to admnster
oaths for genera purposes by the aw of the Unted States, or of
any State, Terrtory, or possesson of the Unted States, or of the
Dstrct of Coumba, wheren such oath or affrmaton s admnstered,
or by any consuar offcer of the Unted States. Ths subsecton sha
not be construed as an e cusve enumeraton of the persons who may
admnster such oaths or affrmatons.
(d) Secton 3797 of the Interna Revenue Code provdes n part
Sec. 3797. Defntons.
(a) When used n ths tte, where not otherwse dstncty e pressed
or manfesty ncompatbe wth the ntent thereof
(I) Person. The term person sha be construed to mean
and ncude an ndvdua, a trust, estate, partnershp, company,
or corporaton.

(4) D omcsc. The term domestc when apped to a cor-
poraton or a partnershp means created or organzed n the Unted
States or under the aw of the Unted States or of any State or
Terrtory.
(5) oregn, The term foregn when apped to a corporaton
or partnershp means a corporaton or partnershp whch s not
domestc.
(6) ducary. The term fducary means a guardan, trustee,
e ecutor, admnstrator, recever, conservator, or any person act-
ng n any fducary capacty for any person.

(II) Secretary. The term Secretary means the Secretary
of the Treasury.
(12) Ce|nmssoner. The term Commssoner means the
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141
3604.
(e) Secton 3791 of the Interna Revenue Code provdes n part as
foows:
Sec. 3791. Rues and Reguatons.
(a) uthorzaton.
(1) In genera. the Commssoner, wth the approva
of the Secretary, sha prescrbe and pubsh a needfu rues and
reguatons for the enforcement of ths tte.
(2) In case of change n aw. The Commssoner may make
a such reguatons, not otherwse provded for, as may have become
necessary by reason of any ateraton of aw n reaton to nterna
revenue.
(h) Retroactvty of Reguatons or Rungs. The Secretary, or the
Commssoner wth the approva of the Secretary, may preser e the e -
tent, f any, to whch any rung, reguaton, or Treasury decson, reat-
ng to the Interna revenue aws, sha be apped wthout retroactve
effect.
Pursuant to the authorty contaned n the above-quoted provsons
of aw, the foowng reguatons are prescrbed wth respect to re-
turns of nformaton to be fed by attorneys, accountants, fducares,
banks, trust companes, fnanca nsttutons, or other persons as to
the formaton, organzaton, or reorganzaton of foregn corpora-
tons, a references to sectons beng to sectons of the Interna Reve-
nue Code, or such Code as amended, e cept as otherwse ndcated:
Secton 20D.1. Informaton return . ( ) Genera. ny attorney (e cept as
herenafter provded n (ft) (4) of ths secton), accountant, fducary, bank, trust
company, fnanca nsttuton, or other person, who ads, asssts, counses, or
advses n, or wth respect to, the formaton, organzaton, or reorganzaton of
any foregn corporaton sha fe wth the Commssoner, wthn 30 days after
gvng such ad, assstance, counse, or advce, an nformaton retnrn as provded
n secton 3004(a) and these reguatons. The return must be fed n every such
case (1) regardess of the nature of the counse or advce gven, whether for or
aganst the formaton, organzaton, or reorganzaton of the foregn corporaton,
or the nature of the ad or assstance rendered and (2) regardess of the acton
taken upon the advce or counse, that s, whether the foregn corporaton s
actuay formed, organzed, or reorganzed.
If, n a partcuar case, the ad, assstance, counse or advce gven by any
person e tends over a perod of more than 1 day and not for more than 30 days,
such person, to avod the mutpe tng of returns, may te a snge return for
the entre perod. In such case, the return sha be fed wthn 30 days from the
frst day of such perod. If, n a partcuar case, the ad, assstance, counse, or
advce gven by any person e tends over a perod of more than 30 days, such
person may fe a return at the end of each 30 days ncuded wthn such perod
and at the end of the fractona part of a 30-day perod, f any, e tendng beyond
the ast fu 30 days. In each such case, the return must dscose a the requred
nformaton whch was not reported on a pror return.
(6) Speca provsons. (1) mpoyers. In the case of ad, assstance,
counse, or advse In, or wth respect to, the formaton, organzaton, or reorgan-
zaton of a foregn corporaton gven by n person n whoe or n part through
the medum of subordnates or empoyees (ncudng n the case of a corpora-
ton the offcers thereof), the return of the empoyer must set forth to the fu
e tent a nformaton prescrbed by these reguatons, ncudng that whch,
as an ncdent to such empoyment, s wthn the possesson or knowedge or
under the contro of such subordnates or empoyees.
(2) mpoyers. The obgaton of a subordnate or empoyee (ncudng In
the case of a corporaton the offcers thereof) to fe a return wth respect to
any ad, assstance, counse, or advce n, or wth respect to, the formaton,
organzaton, or reorganzaton of a foregn corporaton, gven as an ncdent
to hs empoyment, w be satsfed f a compete and accurate return as pre-
scrbed by those reguatons s duy fed by the empoyer settng forth a
of the Informaton wthn the possesson or knowedge or under the contro
of such subordnate or empoyee.
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3604.
142
Cerks , stenographers, and other subordnates or empoyees, renderng aM
or assstance soey of a cerca or mechanca character n, or wth respect
to. the formaton, organzaton, or reorganzaton of a foregn corporaton n:|
not requred to fe returns by reason of such servces.
(3) Partners. In the case of ad, assstance, counse, or advce n, or w .
respect to, the formaton, organzaton, or reorganzaton of a foregn corpora
ton gven by one or more members of a partnershp n the course of ts bus-
ness, the obgaton of each such ndvdua member to fe a return w r r
satsfed f a compete and accurate return, as prescrbed by these reguaton
s duy fed by the partnershp, e ecuted by a the members of the fre,
who gave any such ad, assstance, counse, or advce. If, however, the partwr
shp has been dssoved at the tme the return s due, ndvdua returns mres
be ted by each member of the former partnershp who gave any such ad.
assstance, counse, or advce.
(4) ttorneys-at-aw. n attorney-at-aw s not requred to fe a renn
wth respect to any advce gven or nformaton obtaned through the reatk -
shp of attorney and cent.
(5) Returns |onty made It two or more persons ad, assst, counse, o-
advse n, or wth respect to, the formaton, organzaton, or reorganzat
of a partcuar foregn corporaton, any two or more of such persons may. :
eu of fng severa returns, |onty e ecute and fe one return.
(c) Penates.- or crmna penates for faure to fe the returns requre
by secton 3604(a) and these reguatons, see secton 3004(c) quoted n sectm
2OD.0 of these reguatons.
Sec. 20D.2. orm of return. The returns under secton 20D.1 of these rep -
tons sha be made on orm 059. Such forms may, upon request, he procured
from any coector. ach person shoud carefuy prepare hs return so as to
set forth fuy and ceary the nformaton caed for theren. Returns wtks
have not been so prepared w not be accepted as meetng the requrement
of the Code.
Sec. 20D.3. Contents of returns. The return sha, n accordance wth t
provsons of these reguatons and the nstructons on the form, set forth th
foowng nformaton to the fu e tent such nformaton s wthn the knun
edge or possesson or under the contro of the person requred to fe the retort:
(1) The name and the address of the person (or persons) to whom and -
person (or persons) for whom or on whose behaf the ad, assstance, coun
or advce was gven
(2) compete statement of the ad, assstance, counse, or advce gven:
(3) Name and address of the foregn corporaton and the country under te
aws of whch t was formed, organzed, or reorganzed
(4) The month and year when the foregn corporaton was formed, organzed,
or reorganzed
(5) statement of how the formaton, organzaton, or reorganzaton of tte
foregn corporaton was effected:
(6) compete statement of the reasons for, and the purposes sought to
accompshed by, the formaton, organzaton, or reorganzaton of the foregn
corporaton:
(7) statement showng the casses and knds of assets transferred to t-
foregn corporaton n connecton wth ts formaton, organzaton, or reorgan-
zaton, ncudng a detaed st of any stock or securtes ncuded n art
assets, and a statement showng the names and addresses of the persons rt
were the owners of such assets mmedatey pror to the transfer
( ) The names and addresses of the sharehoders of the foregn cor ratos
at the tme of the competon of ts formaton, organzaton, or reorgauzatfc
showng the casses of stock and number of shares hed by each
(9) The name and address of the person (or persons) havng custody of
the hooks of account and records of the foregn corporaton and
(10) Such other nformaton as may be requred by the return form.
If a person ads, asssts, counses, or advses n, or wth respect to, t
formaton, organzaton, or reorganzaton of more than one foregn eorporat
a separate return must be fed wth respect to each foregn corporaton.
Rkc. 20D.4. erfcaton of return. returns requred by secton 36W 1
and these reguatons sha be verfed under oath or affrmaton. The oath
affrmaton may be admnstered by a person authorzed to admnster oath
for genera purposes by the aw of the Unted States, or of any State. Terrtory,
or possesson of the Unted States, or of the Dstrct of Coumba, wherw
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143
such oath or affrmaton Is admnstered, or by a consuar offcer of the Unted
States. Such returns e ecuted abroad may be attested free of charge before
Unted States consuar offcers. If a foregn notary or other offca havng
no sea sha act as attestng offcer, the authorty of such attestng offcer
sha be certfed to by some udca offca or other proper offcer havng
knowedge of the appontment and offca character of the attestng offcer.
Skc. 20D.5. Pace of fng returns. Returns requred by secton 3604(a) and
these reguatons sha be fed wth the Commssoner of Interna Revenue,
Washngton, D. C, attenton of the Income Ta Unt, Records Dvson.
Skc. 20D.6. ffectve date. These reguatons, wth the e cepton of paragraph
(4) of secton 20D.1(6) of these reguatons reatng to returns of attorneys-
at-aw, sha take effect upon the date approved paragraph (4) of secton
20D. ) of these reguatons sha take effect as of ebruary 10, 1939. These
reguatons supersede the provsons of Treasury Decson 4 10, approved une
20, 103 C. . 193 -1, 74 (Part 10, Tte 20, Code of edera Reguatons), as
made appcabe to the Interna Revenue Code by Treasury Decson 4 5,
approved ebruary 11, 1939 C. . 1939-1 (Part 1), page 390 (Part 405, Sub-
part , Tte 20, Code of edera Reguatons).
arod N. Graves,
ohn W. anes,
ctng Secretary of the Treasury,
C PT R 2. DDITION L INCOM T S.
SU C PT R . C SS PRO ITS T .
1939-35-99 7
T. D.4927
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 21
C SS-PRO ITS T .
Reguatons reatng to the e cess-profts ta mposed by Sub-
chapter of Chapter 2 of the Interna Revenue Code.
Washngton, D. C.
Tabe of Contents.
Secton.
21.0. Introductory.
21.1. Defntons.
21.2. Scope of ta .
21.3. Measure and rate of ta .
21.4. Method of computaton, e ampe.
21.5. Returns.
21.0. Payment of ta .
21.7. Credts aganst ta prohbted.
21. . Determnaton of ta , assessment, coecton.
21.9. Prevous reguatons superseded.
1 Sectons 21.0 to 21.0 ssued under the authorty contaned n sectons 62 and 603 of
the Interna Revenue Code (03 Stat., Part 1) and nterpret sectons 600 to 603 of the
Code (53 Stat.., Part 1).
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Secton 21.0. Introductory. (a) Chapter 6 (Capta Stock Ta|)
of the Interna Revenue Code (53 Stat., Part 1), amended by the
addton of subsecton (e) to secton 1202, by secton 301, Revenue
ct of 1931), approved une 29, 1939 (Pubc, No. 155, Seventy-s th
Congress, frst, sesson), provdes n part:
Sec. 1200. Ta .
(a) Domestc Corporatons. or each year endng uno 30, begn-
nng wth the year endng une 30, 1939, there sha be mposed upon
every domestc corporaton wth respect to carryng on or dong bus-
ness for any part of such year an e cse ta of 1 for each 1,000 of
the ad|usted decared vaue of ts capta stock.
(b) oregn Corporatons. or each year endng une 30, begnnng
wth the year endng une 30, 1939, there sha be Imposed upon every
foregn corporaton wth respect to carryng on or dong busness n the
Unted States for any part of such year an e cse ta equvaent to 1
for each 1,000 of the ad|usted decared vaue of capta empoyed n
the transacton of ts busness n the Unted States.
Sec. 1201. emptons.
(a) The ta es mposed by secton 1200 sha not appy
(1) Corporatons e empt from ncome ta . To any corporaton
enumerated n secton 101
(2) Insurance companes. To any Insurance company sub|ect
to the ta mposed by secton 201, 204, or 207.
(b) Common Trust unds.
or e empton of common trust funds from the capta stock ta ,
see secton 109(b) of Chapter 1.
Sec. 1202. d|usted Decared aue.
(a) Decaraton Year,
(1) The ad|usted decared vaue sha be determned wth respect
to 3-year perods begnnng wth the year endng une 30, 193 , and
each thrd year thereafter. The frst year of each such 3-year pe-
rod, or, n case of a corporaton not sub|ect to the ta mposed for
such year, the frst year of such 3-year perod for whch the cor-
poraton s sub|ect to such ta , sha consttute a decaraton
year.
(2) or the decaraton year of the frst 3-year perod the ad-
|usted decared vaue sha be the vaue as decared by the corpora-
ton n ts return under secton 601 of the Revenue ct of 193S
(52 Stat 505), for the year ended une 30, 193 , or n the case of
a corporaton not sub|ect to the ta mposed for such year, the
vaue as decared n Its return fed under ths chapter for the frst
year wth respect to whch t s sub|ect to the ta . or each sub-
sequent 3-year perod, the ad|usted decared vaue for a decara-
ton year sha be the vaue as decared by the corporaton n ts
return for such decaraton year. The vaue decared by a cor-
poraton n ts return for a decaraton year (whch decaraton
of vaue cannot be amended) sha be as of the cose of ts ast
ncome-ta ta abe year endng wth or pror to the cose of such
decaraton year (or as of the date of organzaton n the case of
a corporaton havng no ncome-ta ta abe year endng wth or
pror to the cose of such decaraton year).
(b) Subsequent Years.
(1) Domestc corporatons. or each year of any 3-yenr perod
subsequent to the decaraton year, the ad|usted decared vaue n
the case of a domestc corporaton sha be the vaue decared n the
return for the decaraton year pus
( ) the cash, and the far market vaue of property, pad n
for stock or shares,
( ) pad-n surpus and contrbutons to capta,
(C) ts net ncome,
(D) ts ncome whoy e empt from edera Income ta , and
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3604.
( ) the amount, f any, by whch the deducton for depe-
ton e ceeds the amount whch woud be aowabe f computed
wthout regard to dscovery vaue or to percentage depeton,
under secton 114(b) (2), (3), or (4) of Chapter 1 or a corre-
spondng secton of a ater Revenue ct
and mnus
() the cash, and the far market vaue of property, ds-
trbuted to sharehoders,
() the amount dsaowed as a deducton by secton 24(a)
(5) of Chapter 1 or a correspondng provson of a ater Reve-
nue ct, and
() the e cess of the deductons aowabe for ncome ta
purposes over ts gross ncome.
The ad|ustments provded n ths paragraph sha be made for
each ncome-ta ta abe year ncuded n the 3-year perod from
the date as of whch the vaue was decared n the return for the
decaraton year to the cose of the ast ncome-ta ta abe year
endng wth or pror to the cose of the year for whch the ta s
mposed by ths secton. The amount of such ad|ustment for each
such year sha be computed (on the bass of a separate return)
accordng to the ncome ta aw appcabe to such year.
(2) oregn corporatons. or each year of any 3-year perod
subsequent to the decaraton year, the ad|usted decared vaue n
the case of a foregn corporaton sha be the vaue decared n
the return for the decaraton year ad|usted (for the same ncome-
ta ta abe years as n the case of a domestc corporaton), n
accordance wth reguatons prescrbed by the Commssoner wth
the approva of the Secretary, to refect ncreases or decreases In
the capta empoyed n the transacton of ts busness n the
Unted States.
(c) Corporatons n ankruptcy or Recevershp. The capta-
stock ta year begnnng wth or wthn an ncome-ta ta abe year
wthn whch bankruptcy or recevershp, due to nsovency, of a do-
mestc corporaton, s termnated sha consttute a decaraton year.
In such case the ad|usted decared vaue of any subsequent year of
the 3-year perod sha be determned on the bass of the vaue decared
n the return for such decaraton year.
(d) Credt for Chna Trade ct Corporatons. or the purpose
of the ta mposed by secton 1200 there sha be aowed n the case
of a corporaton organzed under the Chna Trade ct, 1022 (42 Stat.,
40 (U. S. C, Tte 15. ch. 4)), as a credt aganst the ad|usted decared
vaue of ts capta stock, an amount equa to the proporton of such
ad|usted decared vaue whch the par vaue of the shares of stock of
the corporaton, owned on the ast day of the ta abe year by (1)
persons resdent n Chna, the Unted States, or possessons of the
Unted States, and (2) ndvdua ctzens of the Unted States or
Chna wherever resdent, bears to the par vaue of the whoe number of
shares of stock of the corporaton outstandng on such date. or the
purposes of ths subsecton shares of stock of a corporaton sha be
consdered to be owned by the person n whom the equtabe rght to
the ncome from such shares s n good fath vested and as used n
ths subsecton the term Chna sha have the same meanng as
when used n the Chna Trade ct, 1022.
(e) ddtona Decaraton Years. In the case of any domestc
corporaton, the year endng une 30, 1039, and the year endng une
30, 1040, sha each, f not otherwse a decaraton year, consttute an
addtona decaraton year f wh respect to such year (1) the ta -
payer so eects (whch eecton cannot be changed) n ts return fed
before the e praton of the statutory fng perod of any authorzed
e tenson thereof, and (2) the vaue decared by the ta payer s n
e cess of the ad|usted decared vaue computed under paragraph (1)
of subsecton (b). If, under ths subsecton, the year endng une 30,
1939, s a decaraton year, the computaton, under paragraph (1) of
subsecton (b), of the ad|usted decared vaue for the year endng
une 30, 1940, sha be made on the bass of the vaue decared for the
year endng une 30, 1939.
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(b) Subchapter of Chapter 2 of the Interna Revenue Code
provdes:
Sec. 600. Rate of Ta .
If any corporaton s ta abe under secton 1200 wth respect to any
year endng une 30. there sha be mposed upon ts net ncome for
the ncome-ta ta abe year endng after the cose of such year, an
e cess-profts tu equa to the sum of the foowng:
6 per centum of such porton of ts net ncome for such ncome-ta
ta abe year as s n e cess of 10 per centum and not n e cess of 15
per centum of the ad|usted decnred vaue
12 per centum of such porton of ts net ncome for such Income-ta
ta abe year as s n e cess of 15 per centum of the ad|usted decared
vaue.
Sec. 601. d|usted Decared aue.
The ad|usted decared vaue sha be determned as provded n sec-
on 1202 as of the cose of the precedng ncome-ta ta abe year (or
as of the date of organzaton f t had no precedng ncome-ta ta abe
year). If the ncome-ta ta abe year n respect of whch the ta
under secton 600 s mposed s a perod of ess than 12 months, such
ad|usted decared vaue sha be reduced to an amount whch bears the
same rato thereto as the number of mouths n the perod bears to 12
months.
Sec. 602. Net Income.
or the purposes of ths subchapter the net ncome sha be the some
as the net ncome for ncome-ta purposes for the year n respect of
whch the ta under secton 600 s mposed, computed wthout the de-
ducton of the ta mposed by secton 600, but wth a credt aganst
net ncome equa to the credt for dvdends receved provded n secton
26(b) of Chapter 1.
Sec. 60. . Other Laws ppcabe.
provsons of aw (ncudng penates) appcabe n respect of
the ta es mposed by Chapter 1, sha, nsofar as not nconsstent wth
ths subchapter, be appcabe n respect of the ta mposed by secton
600, e cept that the provsons of secton 131 of that chapter sha not
be appcabe.
S . 604. Pubcty of Returns.
or provsons wth respect to pubcty of returns under ths
subchapter, see subsecton (a) (2) of secton 55.
(c) Secton 53 of Chapter 1 of the Interna Revenue Code provdes
n part:
Sec 53. Tme and Tacf. for ng Retubns.
(a) Tme for ng.
(1) Genera rue. Returns made on the bass of the caendar
year sha be made on or before the 15th day of March foowng
the cose of the caendar year. Returns made on the bass of a
fsca year sha be made on or before the oth day of the thrd
month foowng the cose of the fsca year.
(2) tenson of tme. The Commssoner may grant a rea-
sonabe e tenson of tme for fng returns, under such rues and
reguatons as he sha prescrbe wth the approva of the Secre-
tary. cept n the case of ta payers who are abroad, no such
e tenson sha be for more than s months.
(b) To Whom Return Ma|e.

(2) Corporatons. Returns of corporatons sha be made to the
coector of the dstrct n whch s ocated the prncpa pace of
busness or prncpa offce or agency of the corporaton, or, f t has
no prncpa pnce of busness or prncpa offce or agency n the
Unted States, then to the coector at atmore, Md.
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(d) Secton 145 of Chapter 1 of the Interna Revenue Code pro-
vdes n part:
Sec. 145. Penates.
(a aure to e Returns. Submt Informaton, or Pay Ta .
ny person requred under ths chapter to pay any ta , or requred by
aw or reguatons made under authorty thereof to make a return,
keep any records, or suppy any nformaton, for the purposes of the
computaton, assessment, or coecton of any ta mposed by ths
chapter, who wfuy fas to pay such ta , make such return, keep
such records, or suppy such nformaton, at the tme or tmes requred
by aw or reguatons, sha, n addton to other penates provded by
aw, be guty of a msdemeanor and, upon convcton thereof, e fned
not more than . 10,000, or mprsoned for not more than one year, or
both, together wth the costs of prosecuton.
(1 ) aure to Coect and Pay Over Ta , or ttkmpt to Dkfeat
or vade Ta . ny person requred under ths chapter to coect, ac-
count for, and pay over any ta mposed by ths chapter, who wfuy
fas to coect or truthfuy account for and pay over such ta , and any
person who wfuy attempts n any manner to evade or defeat any ta
mposed by ths chapter or the payment thereof, sha, n addton to
other penates provded by aw, be guty of a feony and, upon convc-
ton thereof, be fned not more than . 10,000, or mprsoned for not more
than fve years, or both, together wth the costs of prosecuton.
(c) Person Defned. The term person as used n ths secton n-
cudes an offcer or empoyee of a corporaton or a member or empoyee
of a partnershp, who as such offcer, empoyee, or member s under a
duty to perform the act n respect of whch the voaton occurs.

(e) Secton 62 of Chapter 1 of the Interna Revenue Code
provdes:
Skc. 62. Rues and Reguatons.
The Commssoner, wth the approva of the Secretary, sha prescrbe
and pubsh a needfu rues and reguatons for the enforcement of
ths chapter.
(/) Pursuant to the above-quoted provsons of the Interna
Revenue Code and other provsons of the Code, the foowng regu-
atons are hereby prescrbed wth respect to the e cess-profts ta
mposed by the Interna Revenue Code:
Secton 21.1. Defntons. s used n these reguatons, the term
(a) d|usted decared rate means n the case of a domestc corporaton
the ad|usted decared vaue of ts capta stock us determned under secton
1202 of the Interna Revenue Code, as amended by secton 301 of the Revenue
ct of 1039, and the reguatons ssued respectng the capta stock ta
mposed by secton 1200 of such Code and n the case of a foregn corporaton
the ad|usted decared vaue of capta empoyed n the transacton of ts
busness n the Unted States as determned under such secton 1202, as
amended, and the reguatons ssued n reference thereto.
() Ta , e cept as otherwse ndcated, means the e cess-profts ta m-
posed by secton 600 of the Interna Revenue Code.
(c) Income-ta ta abe year means the caendar year, the fsca year
endng durng such caendar year, or the fractona part of a year, upon the
bass of whch the corporaton s net ncome s computed and for whch ts
ncome ta returns are made for edera ncome ta purposes.
(d) , Net ncome means (1) net ncome wthn the contempaton of
secton 21 of the Interna Revenue Code, or (2) n the case of an ncome-ta
ta abe year governed by the Revenue ct of 193 , net ncome wthn the
contempaton of secton 21 of the Revenue ct of 193 . Nether the amount
of ncome ta mposed by the Interna Revenue Code or by pror aws, nor the
amount of the e cess-profts ta mposed by the Interna Revenue Code or by
pror aws, sha be deducted from net ncome n computng the e cess-profts
ta and none of the credts aowed corporatons aganst net Income for ncome
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14S
tu purposes are appcabe n respect of the e eess-pronts ta e cept the credt
aganst net Income equa to the credt for dvdends receved provded r
secton 20(b) of the Interna Revenue Code and n secton 26(b) of tt
Revenue ct of 193 .
Sec. 21.2. Scope of taw. The e cess-profts ta , mposed by secton 600 (
the Interna Revenue Code, s mposed upon the net ncome of every corpora
ton for each ncome-ta ta abe year endng after the cose of any year ent:
une SO n respect of whch the corporaton s sub|ect to the capta ock u
mposed by secton 1200 of the Interna Revenue Code.
Se . 21.3. Measure and rate of ta . (a) Domestc and foreyn corporaton-
The tn s mposed n an amount equa to the sum of (1) 0 per cent of an ,
porton of the corporaton s net ncome for the Income-ta ta abe year as
e cess of 10 per cent and not n e cess of 15 per cent of the ad|usted decare
vaue pus (2) 12 per cent of such porton of ts net ncome for the noomotn
ta abe year as s n e cess of 15 per cent of the ad|usted decared vaue, as of
cose of the ast precedng ncome-ta ta abe year (or as of the date of orpt
znon f the corporaton had no precedng ncome-ta ta abe year).
(6) d| trd decared vaue. No varaton s permtted between the ad|u-
decared vaue set forth n the corporaton s capta stock ta return and t-
ad|usted decared vaue set forth n ts e cess-profs ta return, e cept that :
the case of an e cess-profts ta return for an ncome-ta ta abe year whch -
perod of ess than 12 months the ad|usted decared vaue set forth n ts cap-
stock ta return sha be reduced to an amount whch bears the same rato faerr
as the number of months n the perod bears to 12 months. The frst return n-
corporaton coverng the part of a year n whch t was ncorporated, or the ta
return of a corporaton coverng the part of the year n whch t was dssoved.
a return for 12 months and not for a perod of ess than 12 months, for U
purposes of these reguatons.
Sec. 21.4. Method of computaton, crumpe. The appcaton of the preva
of secton 21.3 of these reguatons may be ustrated generay by the foows
e a mpe:
ampe: The M Corporaton, the ncome-ta ta abe year of whch Is u
caendar year, s sub|ect to the capta stock ta mposed by secton 121 a-
amended, of the Interna Revenue Code, for the year endng une 30, 1939. T-
vaue decared n ts capta stock ta return for the year endng une 30. W-1
of ts capta stock as of the cose of Its precedng ncome-ta ta abe year (tt
caendar year 193 ) s 100,000. The net ncome of the corporaton for
caendar year 1939, determned under the Interna Revenue Code, s 25.(
(The net ncome for ncome-ta ta abe years begnnng after December 31,1
sha be determned under the Interna Revenue Code.) Durng ts ta abe n
the corporaton receved dvdends from corporatons sub|ect to ta aton un
Chapter 1 of the Interna Revenue Code, amountng to 5,000. The e eess-proS:
ta for the caendar year 19.39 s , 990, computed as foows:
Net ncome for caendar year 19. 9 25,0 1
Less:
Credt for dvdends receved (S5 per cent of 5,000) -
aance of net ncome 20,
Less:
10 per cent of the vaue decared n the capta stock tn return
for the year endng une 30, 1939, of the capta stock as of
December 31, 193 (10 per cent of 100,000) 10
Net ncome sub|ect to e cess-profts ta 10- 1
Less:
mount ta abe at 6 per cent, porton of net ncome u e cess of
10 per cent and not n e cess of 15 per cent of the ad|usted de-
cared vaue of the capta stock as of December 31, 193 ( 15,000
mnus 10.000)
mount ta abe at 12 per cent
cess-profts tn at 6 per cent (6 per cent of 5.000) 9-
cess-prots ta at 12 per cent (12 per cent of 5,750).
Tota e cess-profts ta ( 300 pus 000).
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149
22(b.)
Sec. 21.5. Returns. very corporaton whch s sub|ect to the capta
stock ta mposed by secton 1200 of the Interna Revenue Code, for any year
sha make an e cess-profts ta return for each ncome-ta ta abe year whch
ends after the cose of the year n respect of whch t s sub|ect to such capta
stock ta . There s no provson n the Interna Revenue Code whch authorzes
the makng of a consodated return by an affated group of corporatons for
the purpose of the e cess-profts ta mposed by secton COO of the Interna
Revenue Code. ccordngy, every corporaton whch s abe for the makng
of an e cess-profts ta return under secton 600 of the Interna Revenue Code
(for any ncome-ta ta abe year endng after tme 30, 1930), whether or not
such corporaton s a member of an affated group of corporatons, must make
ts e cess-profts ta return and compute ts net ncome separatey, wthout
regard to the provsons of secton 141 of the Interna Revenue Code.
The e cess-profts ta return sha be made wthn the tme prescrbed for
makng the corporaton s edera ncome ta return for the ncome-ta ta abe
year, and sha be made to the coector of nterna revenue to wom such
ncome ta return s requred to be made.
Sec. 21.6. Payment of ta . The e cess-profts ta for any ncome-ta ta abe
year sha be pad wthn the tme prescrbed for payng the edera ncome
ta for such ta abe year.
Sec. 21.7. Credts aganst ta prohbted. oregn ncome and profts ta es
may not be credted aganst the e cess-profts ta mposed by secton 600 of the
Code.
Sec. 21. . Determnaton of ta , assessment, coecton. The determnaton,
assessment, and coecton of the ta , and the e amnaton of returns and
cams n connecton therewth, w be made under such procedure as may be
prescrbed from tme to tme by the Commssoner.
Sec. 21.9. Prevous reguatons superseded. These reguatons supersede any
prevous reguatons reatve to e cess-profts ta mposed by secton 600 of the
Interna Revenue Code.
Guy T. evkrtno,
ohn W. anes,
( ed wth the Dvson of the edera Regster ugust 25, 1939, 10.20 a. m.)
. R NU CT O 193 .
ROM GROSS INCOM .
1939-32-9945
I. T. 3306
R NU CT OP 193 .
ccdent dsabty benefts receved by empoyees of the M Com-
pany, under a pan whch e pressy provdes that the empoyee may
eect to accept the benefts under the pan or to prosecute such
cams as he may have, consttute damages receved by agreement
wthn the contempaton of secton 22(b)5 of the Revenue ct of
193 .
dvce s requested reatve to the ta abty for edera ncome ta
purposes of accdent dsabty benefts receved by empoyees of the
M Company.
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22(b).
150
There has been n operaton for many years by the M Company,
whose empoyees receve the benefts n queston, a pan for empoyees
pensons, dsabty benefts, and death benefts. Wth few e cepton,
the pan has throughout ts e stence provded more bera accdent
dsabty payments than have been requred by State workmen s com-
pensaton aws. The pan specfcay provdes that accdent us-
abty benefts thereunder are not n addton to any cams at aw.
or cams under workmen s compensaton aws, whch the empoy
mght be entted to assert aganst the company e cept to the e tern
that benefts provded by the pan are n e cess of such cams.
In ths partcuar the pan provdes:
In case of accdent resutng n n|ury to or death of an empoyee whch
ttes such empoyee or hs benefcares to benefts under these reguat -
he or they may eect to accept such benefts or to prosecute such cams at 1|3
ns he or they may have aganst the company. If eecton s made to accept ft
benefts, such eecton sha be n wrtng and sha reease the company dm
n cams and demands whch the empoyee or hs benefcares may to
aganst t, otherwse than under these reguatons, on account of such accdw
If any persons other than the benefcares under these reguatons mght ep
assert cams aganst the company on account of the death of the empoyee, b
part of the death beneft under these reguatons sha be due or payabe o)
there have aso been devered to the commttee good and suffcent reeases of
cams, arsng from or growng out of the death of the empoyee, whch sod
other persons mght egay assert aganst the company. The rght d
the empoyee to accdent dsabty benefts under these reguatons sha top
f eecton to accept such benefts, as above provded, s not made wthn r
days after n|ury, or wthn such greater tme as the commttee sha, by resou-
ton duy entered on ts records, f for the makng of such eecton.
In case any beneft or penson sha be payabe under the aws now n for
or hereafter enacted of any State or country to any empoyee of the eompaa|
or hs benefcares under such aws, the e cess ony, f any, of the amoro
prescrbed n these reguatons above the amount of such beneft or penson
prescrbed by aw sha he the beneft or penson payabe under tes
reguatons.
The pan does not mpose an obgaton upon the empoyee to ac-
cept, or on the empoyer to pay, whch coud be denomnated a contract
or an agreement. On the contrary, the pan e pressy provdes tha
the empoyee may eect to accept the benefts under the pan or pur
such cams and demands as he may have otherwse than under the
pan. owever, f he eects to accept the benefts under the pan, he
s requred to reease the company from a cams or demands vru
he or hs benefcares may have aganst the company.
Secton 22(b)5 of the Revenue ct of 193 e cudes from gross
ncome damages receved whether by sut or agreement on account
of n|ures or sckness. The assocaton of the word agreement
wth the word sut n that secton ndcates an ntent to e cu
from gross ncome amounts receved by way of a settement agreement
entered nto n eu of the prosecuton of a sut. The evdent purpo
of the pan n the nstant case s that the acceptance of benefts there-
under sha be n eu of other cams an empoyee may have agan-1
the empoyer. Payments under such an arrangement consttute daff-
ages receved by agreement wthn the contempaton of secton
22(b).5, supra. That the amount receved under such an arrangement
s n e cess of the amount an empoyee mght otherwse receve -
mmatera, nasmuch as the amount s receved by agreement and fc
compensaton for n|ures or sckness.
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151
23(a), rt. 23(a)-.
rtce 22(b)-: emptons cusons from
gross ncome.
R NU CT O 193 .
1939-27-9 9
I. T. 3294
Dvdends and proceeds from maturng Government endowment
nsurance contracts are not sub|ect to edera ncome ta .
The Word War eterans ct and smar aws, reatng to the
aowance of benefts to veterans of the Word War, provded for
the ssuance of war rsk term nsurance and the converson of such
term nsurance to standard forms of fe nsurance, now known as
Government fe nsurance. Some of these contracts of nsurance w
mature n the near future. The queston s presented whether dv-
dends on maturng Government fe nsurance endowment contracts
or the proceeds thereof are sub|ect to edera ncome ta .
Secton 3 of the ct of ugust 12, 1935 (49 Stat., 607), entted
n ct to safeguard the estates of veterans derved from payments
of penson, compensaton, emergency offcers retrement pay and
nsurance, and for other purposes, provdes n part as foows:
Payments of benefts due or to become due an(| guch
payments made to, or on account of, a benefcary under any of the aws reatng
to veterans sba be e empt from ta aton .
It s hed that both the dvdends and proceeds from the maturng
Government endowment nsurance contracts are not sub|ect to ed-
era ncome ta . (See Mm. 4411, C. . -1, 497 (1936), and cf.
Lawrence v. Shaw, 300 U. S., 245.)
INCOM : P NS S.
rtce 23(a)-: usness e penses. 1939 0-10039
penses ncurred by , a retred noncommssoned Unted
States rmy offcer, n connecton wth successfu tgaton reat-
ng to an ncrease n hs retrement pay, are deductbe as bus-
ness e penses under secton 23(a) of the Revenue ct of 103 .
dvce s requested whether certan e penses ncurred by n
193 are deductbe for edera ncome ta purposes.
, the ta payer, a retred noncommssoned Unted States rmy
offcer, deducted n hs return for 193 the amount of doars rep-
resentng attorney s fees and msceaneous e penses pad by hm n
193 n connecton wth a sut nsttuted by hm. s retrement pay
had been based on the rank of second sergeant, and he found t
necessary to empoy an attorney to estabsh the fact that he shoud
have been retred as a frst sergeant. s a resut of the decson of
the court, receved 3a doars n back pay, whch he ncuded as
ncome n hs ncome ta return for 193 , and camed as deductons
the above-mentoned fees and e penses.
I. T. 3325
R NU CT O 103 .
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23(a), rt. 23(a)-2.
152
Secton 23(a) of the Revenue ct of 193 provdes that n com-
putng net ncome there sha be aowed as a deducton the foowng
e penses:
the ordnary and necessary e penses pad or ncurred durng
the ta abe year n carryng on any trade or busness .
In omhauser v. Unted States (276 U. S., 145 T. D. 4222, C. .
II-2, 2G7 (192 )) the Unted States Supreme Court hed that
where a former partner sued hs copartner for an accountng of re-
co) s of the dssoved partnershp and the sut was successfdy
defended, the copartner may be aowed the deducton of attorney s
fees arsng from the defense of the sut. The Court stated n part
as foows:
whore a sut or acton aganst a ta payer s drecty connected
wth, or pro matey resuted from, hs busness, the e pense n-
curred s a busness e pense wthn the meanng of secton 214(a), subdvson
(1), of the ct 191 .
In the nstant case, the tgaton arose out of s servce n the
Unted States rmy, whch servce was hs busness. (See nt
v. Stone Trary Co., 220 U. S., 107.) The tgaton pro matey
resuted from s servce n the Unted States rmy. Therefore,
even though hs retrement severed hs connecton wth the rmy, the
deductons here n queston shoud be aowed as busness e penses
wthn the meanng of secton 23(a) of the Revenue ct of 193 .
(Cf. ornhauser v. Unted States, supra.)
rtce 23(a)-2: Traveng e penses. 1939-37-10005
L T. 3314
R NU CTS O 1936 ND 193 .
The ta payer, a professona baseba payer empoyed by the M
aseba Cub of the cty of R, s not entted to deduct, for edera
Income ta purposes, the cost of hs meas and odgng whe vng
at a hote n that cty durng the absence of hs famy n the cty
of S.
dvce s requested concernng the deductbty of certan e penses
ncurred by n hs busness as a professona baseba pa rer.
states that hs home s ocated n the cty of S and that he s
empoyed by the M aseba Cub of the cty of R. Whe n the
atter cty, he pays hs own e penses, but when he s away from that
cty traveng wt the cub, hs e penses are pad by hs empoyer.
Part of the tme hs famy ves wth hm n the cty of R and he
does not ask a deduct on for hs e penses durng such perod, e con-
tends, however, that when he s vng n a hote n the cty of R, and
hs famy s n the cty of S, he s entted to a deducton on account
of the e penses so ncurred.
Secton 23(a) of the Revenue cts of 1936 and 193 provdes for
the deducton, n computng net ncome, of:
the ordnary and necessary e penses pad or ncurred durng the ta abe
year n carryng on any trade or busness, ncudng traveng e -
penses (ncudng the entre amount e pended for meas and odgng) whe
away from borne n the pursut of a trade or busness .
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153
23(a), rt. 23 (a)-9.
Secton 24(a) of those cts provdes that n computng net ncome
no deducton sha n any case be aowed n respect of
Persona, vng, or famy e penses.
The term home as used n secton 23(a) quoted above s to be
dstngushed from domce. The term home has been construed
to mean the prncpa pace of busness, post of duty, or pace of
empoyment. (Chares . Duncan v. Commssoner, 17 . T. ., 10 ,
affrmed wthout opnon n 47 ed. (2d), 10 2 George W. Lndsay v.
Commssoner, 34 . T. ., 40.)
The oard of Ta ppeas hed n Mort. L. er v. Commssoner
(5 . T. ., 11 1) that certan e penses camed by the ta payer dd
not consttute busness e penses. In that case the ta payer was em-
poyed at ammond, La. Whe so empoyed he made two or three
trps to vst hs famy at Mobe, a., where he mantaned hs
resdence, and made one trp to ouston, Te ., to secure empoyment.
e obtaned the empoyment sought, returned to ammond and re-
sgned hs poston there, and then proceeded to ouston. e camed
a deducton n the amount e pended for raroad fare and for meas,
odgng, and aundry whe on these trps. In decdng the case
aganst the ta payer, the oard sad n part:
We thnk the Commssoner n ths case correcty hed that raroad fare and
vng e penses pad out by ths pettoner durng the year 1922 were not de-
ductbe from gross ncome . In the opnon of the oard, traveng
and vng e penses are deductbe under the provsons of ths secton 214(a) 1,
Revenue ct of 1921 ony whe the ta payer s away from hs pace of busness,
empoyment, or the post or staton at whch he s empoyed, n the prosecuton,
conduct, and carryng on of a trade or busness. ta payer may not keep hs
pace of resdence at a pont where he s not engaged n carryng on a trade or
busness, as ths pettoner testfed was true n ths nstance, and take a deduc-
ton from gross ncome for hs vng e penses whe away from home. We thnk
secton 214(a) 1 ntended to aow a ta payer a deducton of traveng e penses
whe away from hs post of duty or pace of empoyment on dutes connected
wth hs empoyment Itacs supped.
It foows, therefore, that the ta payer s home, as that term s
used n secton 23(a) of the evenue cts of 1936 and 193 , s hs
prncpa pace of empoyment n the cty of R. Durng the perod
of empoyment whch he spent n that cty, he was not away from
home n the pursut of hs busness and, therefore, s not entted to
deduct the cost of meas and odgng ncurred at a hote n the cty
of R durng the absence of hs famy n the cty of S.
rtce 23(a)-9: Pensons Compensaton for 1939-41-10054
n|ures. I. T. 3329
R NU CTS OP 1936 ND 193 .
Payments made n 1937 and 193 by the M Company to the
wdow of an offcer-stockhoder who ded n anuary, 1937, though
not requred to be made by any contractua obgaton, are de-
ductbe by the corporaton as busness e penses. Such amounts
are gfts to the wdow, and, therefore, are not ta abe ncome to
her.
dvce s requested reatve to the proper treatment for edera
ncome ta purposes of certan payments made by the M Company
209190
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5 23(c), rt. 23(c)- .
154
to , the wdow of , a deceased offcer-stockhoder of that corpora-
ton. , a mnorty stockhoder and saared offcer of the M Com-
pany, ded on anuary , 1937. Durng 1937 the M Company pad
to , s wdow, doars a week, a tota of 52a doars for the
year, whch was the amount of saary woud have drawn had he
ved. Durng 193 the payments to were doars a month, or
12a doars for the year. These amounts were reported by the
corporaton as saares pad by t.
The mnutes of the corporaton for the year 1937 contan the
foowng:
Mr. passed away durng the frst week of anuary, 1937. s saary for
the year was to be a doars a week, whch w doars s to be pad to bs
wdow unt anuary 1, 103 . y order of the secretary and treasurer.
The mnutes for the year 193 contan the foowng:
The penson to be pad to for the year begnnng anuary 1, 193 , and
endng December 31, 193 , was authorzed at doars per month, and t was
understood that ths wns noncompusory, and was to be pad as deemed
advsabe by C, secretary-treasurer.
The amount of s saary for one year, whch was pad by the
corporaton n weeky nstaments to hs wdow, s deductbe by the
corporaton as a busness e pense under the provsons of artce
23(a)-9 of Reguatons 94 and 101, reatng to the Revenue cts of
1936 and 193 , respectvey. That artce reads n part as foows:
When the amount of the saary of an offcer or empoyee s pad
for a mted perod after hs death to hs wdow or hers, n recognton of
the servces rendered by the ndvdua, such payments may be deducted.
though the payments made to durng the year 193 n the
tota amount of 12, doars do not come specfcay wthn the above-
quoted anguage for the reason that they were not equa n amount to
the saary of the deceased offcer of the corporaton, nevertheess
such payments are deductbe by the corporaton. The provson of
the reguatons quoted above s construed to mean that payments
made by a corporaton under such crcumstances not n e cess of the
decedent s saary are propery deductbe by the payor corporaton
as ordnary and necessary busness e penses.
The amounts consttute gfts to and are, therefore, not ta abe
ncome to her. Wth respect to the sum receved by her n 1933,
the fact that t s termed penson does not e cude t from con-
sderaton as a gft snce the terms penson and gft are not
mutuay e cusve. When an aowance s pad by an organzaton
to whch the recpent has rendered no servce, the amount s deemed
to be a gft or gratuty and s not sub|ect to edera ncome ta n
the hands of the recpent.
rtce 23 (c)-1: Ta es. 1939-31-9932
I. T. 3303
R NU CT OP 103 .
or edera ncome ta purposes, rea and persona property
ta es n the State of Wyomng accrue on ebruary 1 of the ta
(caendar) year for whch the ta es are assessed.
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155
23(c), rt. 23(c)-I.
.dvce s requested as to the accrua date, for edera ncome ta
purposes, of property ta es n the State of Wyomng.
The aw mposng such ta es s found n chapter 115 of the
Wyomng Revsed Statutes, 1931, nnotated. Subsequent enact-
ments have not atered the sectons of that chapter pertnent to the
queston nvoved, whch read n part as foows:
115-101. Purposes for whch ta es eved Lmtatons upon amount. There
sha be eved and assessed upon the ta abe rea and persona property wthn
ths State n each year, the foowng ta es:

115-10 . Property sub|ect to ta aton. other property, rea and persona,
wthn ths State s sub|ect to ta aton n the manner heren drected, and ths
secton s ntended to embrace ands and ots n towns . udng or
mprovements erected upon ands, and a ands entered by preemp-
ton, or as desert and, sha be sub|ect to ta aton
whether patent for the same has been ssued or not, and when such fna proof
sha have been made before the 1st day of ebruary In any year, the and
so entered sha be sub|ect to ta aton for that year.

115-113. Lstng of persona property. persona property sha be sted
n the county where t may be on the 1st day of ebruary of the then current
year .
115-305. Grantor and grantee, whch sha pay ta es. s between the
grantor and grantee of any property, rea, persona or m ed, where there s
no e press agreement n wrtng as to whch sha pay the ta es that may be
assessed thereon, f such property s conveyed on or after the 1st day of an-
uary, then the grantor sha pay the ta es thereon for that year.
In Unted States v. nderson (269 U. S., 422, T. D. 3 39, C. .
-, 179 (192G)) t was stated wth respect to the proper accrua of
ta es for ncome ta purposes that:
In a technca ega sense t may be argued that a ta does not
accrue unt t has been assessed and becomes due but t s aso true that n
advance of the assessment of a ta , a the events may occur whch the
amount of the ta and determne the abty of the ta payer to pay It.
. Itacs supped.
In genera the poston of the ureau wth respect to the accrua
of property ta es s that ownershp of property on the date as of
whch assessment s made by the State ta ng authortes s the
event whch determnes the abty for property ta es, and that,
accordngy, the ta es shoud be accrued as of that date. (See G. C.
M. 15305, C. . I -2, 0 (1935), and cases cted theren.)
Under the aws of Wyomng, ands are sub|ect to ta aton on the
1st day of ebruary n each year and persona property s requred
to be sted for assessment as of that date. The ta abe status of
the property, therefore, reates to ebruary 1. Snce ownershp on
the date as of whch assessment s made by the State ta ng author-
tes s the event whch determnes abty, ownershp of property
on ebruary 1 f es the abty for the ta es thereon. It s hed,
therefore, that Wyomng property ta es, both rea and persona,
shoud be accrued for edera ncome ta purposes as of 1st day of
ebruary for each year.
The aw of Wyomng deang wth who sha pay the ta es as be-
tween grantor and grantee n the absence of a wrtten agreement
as to whch sha pay the ta s not concusve as between the owner
of the property and the ta ng authortes. Gorthe v. oard of
Commssoners of bany County, 44 Wyo., 71, Pac. (2d), 12.)
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IS 23(c), rt. 23(c)-.
15G
The court s statement n that case that ordnary property s ta-
abe ony to the person who s the owner thereof on the date to whch
assessments for the current year are referabe s n accord wth the
ureau s concuson that the accrua date of property ta es n
Wyomng s ebruary L
rtce 23 (c)-: Ta es. 1939-33-9954
I. T. 3307
R NU CTS OP 1936 ND 193 .
The occupaton ta mposed by the State of Utah on persons en-
gaged n mnng n that State accrues, for edera ncome ta pur-
poses, on the Inst day of the caendar year precedng that In whch
the statement for the ta abe year s requred to be fed wth the
State ta commsson.
dvce s requested reatve to the proper accrua date for edera
ncome ta purposes of the occupaton ta mposed by the State of
Utah on persons engaged n mnng n that State.
The ta n queston s mposed by chapter 101 of the Laws of Utah,
1937, effectve May 11, 1937, and s entted n act amendng sectons
0-5-55, 0-5-56, and 0-5-57, Revsed Statutes of Utah, 1933, reat-
ng to the assessment of mnes enactng new sectons mposng an
occupaton ta on a engaged n the busness of mnng or producng
metaferous ores provdng for the coecton and dsposton of
such occupaton ta f ng the tme n whch an acton for the co-
ecton thereof may be commenced f ng the dutes of the State ta
commsson f ng penates . Chapter 101 pro-
vdes n part:
Secton 1. Sectons amended.
Sectons 0-5-55 , Revsed Statutes of Utah, 1933, are amended to
read:
0-5-55. Occupaton ta and assessment hook of mne .
The State ta commsson must prepare each year a book caed the occu-
paton ta and assessment book of mnes, n whch must be entered a occupa-
ton ta es f ed and the assessment of a mnes n the State sub|ect to assess-
ment by t .

Sbo. . Occupaton ta nnua e empton.
cept as heren otherwse specfcay provded, every person engaged In
the busness of mnng or producng ore contanng god, sver, copper, ead,
ron, znc or other vauabe meta n ths State sha pay to the State of Utah
an occupaton ta equa to 1 per cent of the gross amount receved for or
the gross vaue of metaferous ore sod whch ta sha be n addton to a
other ta es provded by aw. Sad ta sha be denquent on the 1st day of
une ne t succeedng the caendar year when the ore or meta Is sod.

n annua e empton from the payment of the occupaton ta mposed by
ths act upon 20,000 n gross vaue of ore sha be aowed to each person,
provded but one e empton sha be aowed for one cam or group of cams
operatng under one ownershp as a mne.
Sec. 4. Statements.
very person engaged n the busness of mnng or producng metaferons
ore sha mRke and fe wth the ta commsson, on or before the 10th day of
ebruary of each year begnnng wth the year 193 on forms furnshed by
the ta commsson, a statement contnnng:
(1) The name, descrpton and ocaton of the mne or mnng cam owned
and operated by hm durng the precedng caendar year.
(2) The number of tons of ore mned durng the precedng caendar year
and the dsposton made of the same.
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157
23(c), rt. 23(c)-.
(3) The tota amount receved durng the precedng caendar year from the
sae of ore and metas.
(4) If a deducton s camed for mng, smetng, refnng, marketng or
transportng the ore or the products of the same from the pace where produced
to the pace where sod, the amount of deducton camed therefor.
(5) Such other reasonabe and necessary nformaton as the commsson may
requre for the proper enforcement of ths act.

Sec. 7. Date ta due tensons.
The ta mposed by ths act sha be due and payabe on or before the 1st
day of une of the year ne t succeedng the caendar year when the ore or meta
s sod .

Se :. 9. Notce of amount of ta .
Not ater than the frst Monday n May of each year, the ta commsson sha
f the amount of occupaton ta that each person sha pay. Immedatey there-
after the person whose occupaton ta s so f ed sha be notfed by ma, post-
age prepad, addressed to hs ast known pace of resdence, of the amount of the
occupaton ta so f ed.
rom the above-quoted provsons of the aw, t s cear that the
ta abe year wth respect to whch the occupaton ta pertans s the
caendar year precedng that n whch the statement s requred to be
fed wth the State ta commsson. Upon an accrua bass of account-
ng, true ncome for such precedng year can not be determned wth-
out takng nto account the occupaton ta based upon the gross
amount receved or the gross vaue of metaferous ore sod durng
such precedng year. Whe t s true that the ta s not assessed and
does not become due unt the year n whch the statement s requred
to be fed, yet at the end of the precedng ta abe year a the events
have occurred whch f the amount of the ta and determne the
abty of the ta payer to pay t. (See Unted States v. nderson,
269 U. S., 422, T. D. 3 39, C. . -, 179 (1926).)
. ccordngy, t s hed that, for edera ncome ta purposes, the
occupaton ta n queston accrues on the ast day of the caendar year
precedng that n whch the statement for the ta abe year s requred
to be fed wth the ta commsson of the State of Utah that s, for
the caendar year 1937, the ta accrued on December 31,1937, and for
the caendar year 193 , the ta accrued on December 31, 193 .
rtce 23 (c) -1: Ta es. 1939-40-10040
I. T. 3326
R NU CT O 103 .
mortgagor under a edera ousng dmnstraton nsured
oan, who keeps hs accounts on the cash recepts and dsburse-
ments bass, may deduct as ta es pad amounts of rea property
ta es advanced to the mortgagee ony for the ta abe year n
whch payment of such ta es s made by the mortgagee to the
proper ta ng authortes. If the accounts of the mortgagor are
kept on the accrua bass, the deducton of the amount of the ta
abty shoud be taken n hs return for the year n whch fas
the date as of whch the ta s assessed.
dvce s requested by the M Trust Co. concernng the year for
whch advances of rea property ta es made by mortgagors to mort-
gagees under edera ousng dmnstraton nsured oans are
deductbe for edera ncome ta purposes.
The M Trust Co. states that the edera ousng dmnstraton
ct provdes that the mortgagee sha coect monthy one-twefth of
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23(e), rt. 23(e)- .
15
the estmated ta es so that one month pror to the denquent date
of the ta es suffcent funds w be on hand wth whch to make the
payment and, f there s a shortage, the mortgagor sha pay t upon
request of the mortgagee. monthy recept for a edera ousng
dmnstraton payment shows that such payments are dvded as to
prncpa, nterest, ta es, fre nsurance, edera ousng dmns-
traton nsurance, and servce charges.
The M Trust Co. suggests that the borrower shoud deduct, for
edera ncome ta purposes, the amount of ta es pad to the com-
pany as mortgagee durng the ta abe year n whch such payme t
s made, even though the 193 State and county ta es coected from
the borrower durng 193 were not pad by the company to the ta ng
authortes unt anuary, 1939.
Wth respect to a ta payer (mortgagor) who keeps hs accounts on
the cash recepts and dsbursements bass, the deducton as ta es pad
of the amounts so advanced to the mortgagee may be taken ony for
the ta abe year n whch payment of the ta s made by the mort-
gagee to the proper ta ng authortes. (See rthur T. Gat t,
C ommssoner, 31 . T. ., 930, and dward agen v. Commt-
doner, 37 . T. ., .) If the mortgagor s accounts are kept on an
accrua bass, the deducton of the amount of the ta abty shoud
be taken n hs return for the year n whch fas the date as of whch
the ta s assessed. (See G. C. M. 15305, C. . I -2, 0 (1935),
and cases cted theren.)
S CTION 23(e). D DUCTIONS ROM GROSS INCOM :
LOSS S Y INDI IDU LS.
rtce 23(e)-: Losses by ndvduas. 1939-31-9933
I. T. 3301
R NU CT OP 193 .
and , husband and wfe, owned property as tenants by the
entretes. The property was damaged by hurrcane and
defrayed a of the e penses n reparng t.
ed, may deduct the entre amount of the oss actuay sus-
taned under secton 23(e) of the Revenue ct of 193 , but not n
e cess of the amount computed n accordance wth sectons 23()
and 113(b) of the ct. If the entre oss s camed as a deducton
by n hs separate return, t foows that no deducton a
aowabe n the return of .
dvce s requested reatve to the deductbty for edera ncome
ta purposes of a oss caused by hurrcane.
and , husband and wfe, owned property as tenants by the
entretes. In September, 193 , a hurrcane caused matera damage
to the property. defrayed a of the e penses n reparng the
property. The queston s presented whether may deduct n hs
separate return the entre oss caused by the hurrcane.
Secton 23 of the Revenue ct of 193 provdes n part as foows:
Deductons from gross ncome.
In computng net Income there sha be aowed as deductons:

(e) Losses by ndvduas. In the case of an ndvdua, osses sustaned
durng the ta abe year and not compensated for by nsurance or otherwse
(1) f Incurred n trade or busness or
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159
5 23(e), rt. 23(e)-.
(3) of property not connected wth the trade or busness, f the oss arses
from fres, storms, shpwreck, or other casuaty, or from theft. No oss sha
be aowed as a deducton under ths paragraph f at the tme of the fng
of the return such oss has been camed as a deducton for estate ta purposes
n the estate ta return.
Deducton of oss for property damaged or destroyed by hurrcane
s aowabe under secton 23(e) of the Revenue ct of 193 , supra,
n the amount of the oss actuay sustaned, but not n e cess of the
amount computed n accordance wth the provsons of sectons 23()
and 113(b) of that ct. (See G. C. M. 21013, C. . 1939-1 (Part 1),
page 101.)
It s hed that s entted to a deducton on hs ndvdua return
for the oss computed as above set forth, assumng, of course, that
f he cams the entre aowabe deducton hs wfe does not cam
any deducton for the oss n her return. (See generay G. C. M.
15530, C. . I -2, 107 (1935) G. C. M. 17570, C. . 1937-1, 193
. C. Ncodemus v. Commssoner, 2G . T. ., 125, acquescence,
C. . I -2,16 (1935) and George . Neracher v. Commssoner, 32
. T. ., 236, acquescence, C. . I -2, 15 (1935).)
rtce 23 (e)-: Losses by ndvduas. 1939-35-99 0
G. C. M. 2147
R NU CT OP 193 .
, who s a member of a partnershp engaged n the busness of
acceptng wagers on horse racng, and who aso personay bets
arge amounts wth handbooks other than those n whch the part-
nershp s nterested, may not reduce hs share of gans derved
by the partnershp from wagerng by the amount of hs ndvdua
net wngerng oss.
n opnon s requested whether the ta payer, , may take as a
deducton n hs edera ncome ta return hs net ndvdua gam-
bng oss to the e tent of hs share of partnershp gambng gans.
The ta payer s a member of a partnershp whch s engaged n the
busness of acceptng wagers on horse racng. e aso personay bets
arge amounts wth handbooks other than those operated by the
partnershp. net oss was sustaned by hm n 193 on such nd-
vdua wagerng transactons but net gambng profts were derved
by the partnershp. The deductbty of such ndvdua net oss
sustaned by to the e tent of hs share of partnershp gambng
gans s the queston presented.
Ony n a manner and to the e tent permtted by Congress may
the ta burden mposed thereby be demted or reduced. Loyd v.
Commssoner, 55 . (2d), 42 Ct. D. 542, C. . I-2, 26 (1932).)
Congress has prescrbed that Losses from wagerng transactons
sha be aowed ony to the e tent of the gans from such transac-
tons. (Secton 23(g), Revenue ct of 1936 secton 23(h), Revenue
ct of 193 .) Thus, reducton n ncome sub|ect to ta aton may
be effected by osses from wagerng to the e tent of gans whch
resut from wagerng. ta payer may not, however, reate the
character of ncome or oss of a venture n whch ho s a partner to
that of ncome or oss arsng from hs ndvdua actvty. Wth
certan e ceptons, the source to the ta payer of ncome or oss resut-
ng from partnershp actvty may be sad to be the partnershp
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160
tsef, regardess of the character of ts operatons. s stated n
ohnston v. Commssoner ( 6 . (2d), 732 Ct. D. 1247, C. . 1937-2,
23 ):
Though a partnershp s not a ta payer the partnershp s
a ta computng unt .
Whe t s true that each partner owns hs share of the net worth of the
partnershp of whch he s a member and consequenty hs dstrbutve
share of the partnershp net ncome s ta abe drecty to hm t s
equay true that the partnershp status has not been dsregarded n the scheme
of ncome ta aton set up by Congress. That scheme provdes n gen-
era for the carryng over nto hs own return of a partner s dstrbutve share
of partnershp ncome as computed n the partnershp nformaton return as so
much ordnary ncome wthout notcng ts source as shown n the partnershp
return e cept n those nstances for whch especa provson has been made.
In re|ectng the pettoner s rght to deduct a oss on a persona
sae of noncapta assets to the e tent of hs share of gan resutng
from a partnershp sae of noncapta assets, the court m the ohns-
ton case sad:
when the partnershp return shows net ncome, a partner s ds-
trbutve share s to be entered n hs own return as hs own ncome derved
from the partnershp wthout retanng the pecuar character t had n the
partnershp return uness Congress has e pressy so provded and then ony
for the purpose stated.
The venture n whch the ta payer s nterested apparenty s a
partnershp wthn the statutory defnton. (Secton 1001 (a)3,
Revenue ct of 1936 secton 901 (a)3, Revenue ct of 193 .)
Whether partnershp returns were actuay fed s mmatera. Snce
there e sts no e press statutory authorty permttng the gambng
ncome derved from partnershp transactons to be carred over to the
ta payer s return as such, or permttng hm to trace such ncome to
ts source wthn the partnershp, hs dstrbutve share of such part-
nershp gans must be regarded as an ndvsbe tem of ncome
( everng v. Smth, 90 . (2d), 590 Ct. D. 1297, C. . 193 -1, 277)
whch may not be characterzed n hs ndvdua return as gambng
gan. Nothng, therefore, s derved from the partnershp actvty
whch may be offset by any net oss sustaned by the ta payer n bs
ndvdua gambng actvtes.
It foows that the ta payer s share of the gans from wagerng
derved by the partnershp of whch he s a member may not oe re-
duced by hs net ndvdua wagerng oss.
. P. WeNC T|,
rtce 24-4: mounts aocabe to e empt ncome,
other than nterest.
R NU CT O 19 .
resdent foregn nsurance companes. (See I. T. 297, page 13T.)
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24, rt. 24-6.
rtce 24-6: Dsaowance of deductons for
unpad e penses and nterest.
1939-3 -10019
I. T. 3319
It NO CT O 193 .
ppcabty of secton 24(c) of the Revenue ct of 193 , reat-
ng to the dsaowance of unpad e penses and nterest, to the M
Company, whch uses the accrua method of accountng, fed ts
return for 193 on the caendar year bass, and whose bond nterest
whch accrued for the three months perod ended December 31,
193 , was not payabe unt pr 1, 1939.
dvce s requested reatve to the appcabty of secton 24(c)
of the Revenue ct of 193 , reatng to the dsaowance of unpad
e penses ncurred and nterest accrued, to the case of the M Company
under the foowng facts:
The M Company was ncorporated n 1910 and over 90 per cent
of ts outstandng stock s owned by two brothers, C and D. The
company uses the accrua method of accountng and fes ts returns
on the bass of the caendar year. In 191 frst mortgage bonds were
ssued for the retrement of the e stng mortgage on property of
the corporaton. The bonds contan nterest-bearng coupons whch
are due and payabe pr 1 and October 1 of each year and the
coupons have aways been pad by the corporaton when due. These
bonds are owned by C and D, the prncpa stockhoders.
t the cose of the caendar year 193 , the corporaton s fnanca
statement showed bond nterest accrued as of December 31, ncudng
nterest accrued from October 1,193 (the ast nterest payment date),
to December 31, 193 , but not yet pad. It s stated that nasmuch as
the nterest for the ast three months of the caendar year 193 was not
payabe unt pr 1,1939, t was mpractcabe to prepay such nter-
est wthn the 2 -month perod after the cose of the ta abe year as
specfed n secton 24(c), supra, snce the bonds are coupon bonds.
The ndvdua bondhoders keep ther books on the cash bass. It
s contended (1) that t s not the ntenton of the Revenue ct to
penaze the corporaton by the dsaowance of egtmate nterest
payments when the nterest payments are not beng wthhed for
the purpose of ta evason, and (2) that t s not reasonabe that the
corporaton shoud be requred to change ts method of accountng
or ts ta abe perod to correspond to the coupon dates.
Secton 24(c) of the Revenue ct of 193 reads as foows:
Unpad e penses and nterest. In computng net ncome no deducton sha
be aowed under secton 23(a), reatng to e penses ncurred, or under secton
23(b), reatng to nterest accrued
(1) If such e penses or nterest are not pad wthn the ta abe year
or wthn two and one-haf months after the cose thereof and
(2) If, by reason of the method of accountng of the person to whom
the payment s to be made, the amount thereof s not, uness pad, n-
cudbe n 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) If, at the cose of the ta abe year of the ta payer or at any tme
wthn two nnd one-haf months thereafter, 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 24(b).
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25, rt. 25-3.
1G2
The pertnent provsons of secton 24(b) of the Revenue ct of
193 read as foows:
(b) Losses from saes oe e changes of pbopebty.
(1) Losses dsaowed. In computng net Income no deducton sha In
any case be aowed n respect of osses from saes or e changes of
property, drecty or ndrecty
( ) etween members of a famy, as defned n paragraph (2) (D)
( ) cept n the case of dstrbutons n qudaton, between an
ndvdua and a corporaton more than 50 per centum In vaue of the
outstandng stock of whch s owned, drecty or ndrecty, by or for
such ndvdua

(2) tock ownershp, famy, and partnershp rue. or the purposes
of determnng, n appyng paragraph (1), the ownershp of stock

( ) n ndvdua sha be consdered as ownng the stock owned,
drecty or ndrecty, by or for hs famy

(D) The famy of an ndvdua sha ncude ony hs brothers
and ssters (whether by the whoe or haf bood), spouse, ancestors,
and nea descendants

In order for the provsons of secton 24(c) of the Revenue ct of
193 to operate to dsaow the deducton of any tem of accrued
nterest, t s essenta that a three factors set forth n that secton
be present wth respect to such tem of nterest. In the nstant case, a
three factors are ceary present and the case comes squarey wthn
the provsons of secton 24(c) of the statute. The ureau s wthout
authorty to e cude the M Company from the appcaton of the
statute to the accrued nterest n queston, wth respect to whch a
three factors set out n secton 24(c) are present, rrespectve of the
reason why payment of the accrued nterest was not made wthn the
ta abe year or wthn two and one-haf months thereafter.
It s concuded, therefore, that secton 24(c) of the Revenue ct of
193 s appcabe to the nstant case.
S CTION 25. CR DITS O INDI IDU L
G INST N T INCOM .
rtce 25-3: mount of persona e empton aowabe.
R NU CT OP 1D3 .
Ctzen of Unted States entted to benefts of secton 251. (See
L T. 3327, page 173.
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27(a), rt. 27(a)-3.
S CTION 27(a). CORPOR TION DI ID NDS P ID
CR DIT: D INITION IN G N R L.
rtce 27(a)-3: mounts used or rrevocaby 1939-30-9921
set asde to pay or to retre ndebtedness. I. T. 3299
R NU CT O 103 .
Where a corporaton s requred to make a depost of cash an-
nuay wth a trustee for bond retrement, or n eu thereof an
equvaent amount of ts bonds at par vaue, the cost of the bonds
purchased durng the year and so deposted rather than ther par
vaue measures the dvdends pad credt for that year under secton
27(a)4 of the Revenue ct of 193 .
dvce s requested reatve to the dvdends pad credt aowabe
. under the provsons of secton 27(a)4 of the Revenue ct of 193 n
the case of the M Corporaton. That secton provdes for the ncu-
son n the term dvdends pad credt of
mounts used or rrevocaby set asde to pay or to retre Indebtedness of any
knd, f such amounts are reasonabe wth respect to the sze and terms of such
Indebtedness. s used n ths paragraph the term ndebtedness means ony
an ndebtedness of the corporaton e stng at the cose of busness on Decem-
ber 31, 1937, and evdenced by a bond, note, debenture, certfcate of ndebted-
ness, mortgage, or deed of trust, ssued by the corporaton and n e stence at
the cose of busness on December 31, 1937, .
In 193 the M Corporaton had bonds, ssued n 1927 and 1931, out-
standng n the amount of 120a5 doars. The mortgage securng the
bonds contans a snkng fund provson requrng the corporaton
(1) to pay nto a snkng fund annuay on December of each year
6a doars to be used by the trustee n the purchase and retrement of
an equvaent amount of the outstandng bonds, or (2) to depost
wth the trustee for retrement, on or before December , bonds of
the company havng a par vaue equa to the amount requred to be
pad nto the snkng fund. On December , 193 , the M Corpora-
ton deposted wth the trustee for retrement bonds of the corpora-
ton havng a par vaue of G doars, a of such bonds havng been
acqured by the corporaton durng the caendar year 193 at a cost
prce whch was ess than the par vaue of the bonds. The queston
presented s whether, n computng the dvdends pad credt, the par
vaue of the bonds deposted or the cost thereof represents the
amounts used or rrevocaby set asde to pay or to retre ndebted-
ness wthn the meanng of secton 27(a)4 of the Revenue ct of
193 , supra.
It s hed that amounts used or rrevocaby set asde does not
mean the par vaue of bonds purchased durng the year by the cor-
poraton for depost wth the trustee, but rather the cost to the cor-
poraton of such bonds. or e ampe, f the corporaton purchased
100,000 par vaue of ts bonds at a cost of 75,000 and deposted
them pursuant to the terms of the snkng fund agreement, the atter
amount woud represent the credt aowabe under secton 27 (a)4,
supra, for the ta abe year n whch the purchase was made
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42, rt. 42-1. 164
rtce 27(a)-3: mounts used or rrevocaby set asde to
pay or to retre ndebtedness.
R NU CT OP 193 .
rtce 27(a)-3, Reguatons 101, amended. (See T. D. 494 ,
page .)
P RT I . CCOUNTING P RIODS ND M T ODS O
CCOUNTING.
S CTION 41. G N R L RUL .
rtce 41-1: Computaton of net ncome. 1939-29-9917
I. T. 329
R NU CT O 193 .
Treatment by borrowers of dscount or Interest pad n connecton
wth oans.
dvce s requested as to the treatment by borrowers of dscount
or nterest pad n connecton wth oans.
The M ank states that t has made a great many oans not
e ceedng fve years, and that the dscount or nterest on these oans
s deductbe n advance. Some of the bank s cents have nqured
whether the entre amount of the dscount or nterest shoud be taken
as a deducton n one year, or whether they are requred to pro rate
t over the fe of the notes coverng the oan.
The dscount or nterest pad by the bank s cents wth respect to
oans shoud be treated by the borrowers the same as dscount
or nterest pad n connecton wth other knds of oans. That s,
f the borrower reports hs ncome for edera ncome ta purposes
on the cash bass, the dscount or nterest s not actuay pad when
the money s borrowed and s therefore not deductbe by hm unt
the year n whch payment of the oan s made. If the borrower
reports hs ncome on the accrua bass, the dscount or nterest shoud
be deducted as t accrues.
S CTION 42. P RIOD IN W IC IT MS O
GROSS INCOM INCLUD D.
rtce 42-1: When ncuded n gross ncome. 1939-37-10006
I. T. 3315
R NU CT O 193 .
mortuary beneft whch was not payabe by an empoyer to an
empoyee, hs benefcary, or other persons uness the empoyee ded
wthn the term of hs empoyment contract dd not accrue to hm,
was not compensaton receved by hm, and shoud not be ncuded
n the return fed for hm for the porton of the ta abe year pror to
hs death. Nether does the amount of the mortuary beneft con-
sttute ta abe ncome to the desgnated benefcary to whom t was
pad.
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165
42, rt. 42-1.
dvce s requested reatve to the ta abty for edera ncome ta
purposes of a mortuary beneft pad by the M Lfe Insurance Co. to
, the benefcary named by , an empoyee of the company.
, the father of , was empoyed as an agent of the M Lfe Insur-
ance Co. mortuary beneft was payabe upon the death of meas-
ured by nsurance wrtten by hm n hs capacty as agent. The
beneft was payabe ony upon death, had no cash surrender or oan
vaue, and the rght thereto woud have termnated had , durng hs
fetme, dscontnued hs contract of empoyment wth the nsur-
ance company. , the son, was desgnated as the benefcary by the
father, who ded n ugust, 193 . The beneft was pad to pur-
suant to a resouton adopted by the board of drectors of the nsurance
company n 1937.
The resouton adopted by the board of drectors of the M Lfe
Insurance Co. reads as foows:
Resoved, That the II Lfe Insurance Company w pay as part compensaton
a mortuary beneft upon the death of any agent member whose empoyment con-
tract authorzng hm to soct for new nsurance for the company s n fu
force and effect at the tme of hs death, n addton to hs other compensaton, a
sum equa to doars per thousand of the busness wrtten and quafed by
hm under company rues durng the perod of hs membershp and upon whch
busness the second nsurance year s premum has been pad or sha be pad.
Resoved further, That such sum as sha become payabe as above sha be
pad to such benefcary as the deceased member sha have desgnated n wrt-
ten notce fed wth the company that f no such wrtten notce sha have been
so fed, the payment due sha be pad to such person or persons as the com-
pany may deem best entted to receve same.
Resoved, That the company sha hod such addton to Its reserve as the
actuares of the company sha deem suffcent to meet the mortuary benefts
accrung hereunder durng the year.
Secton 42 of the Revenue ct of 193 , reatng to the perod n
whch tems of gross ncome are ncuded, provdes n part as foows:
In the case of the death of a ta payer there sha be ncuded n
computng net Income for the ta abe perod n whch fas the date of hs death,
amounts accrued up to the date of hs death f not otherwse propery ncudbe n
respect of such perod or a pror perod.
It s hed that no part of the mortuary beneft n queston ever ac-
crued to , the decedent. Under the terms of the above-quoted reso-
uton, he woud never receve anythng, and hs benefcary, or the
person or persons deemed by the M Lfe Insurance Co. best entted
to receve the mortuary beneft, had no rght to receve anythng uness
ded wthn the term of hs empoyment contract. Ths was a cond-
ton precedent whch had to occur n order to estabsh any abty on
the part of the nsurance company. The death of estabshed the
abty of the corporaton. Snce, durng hs fe, had no rght
to receve ncome under the contract, no ncome accrued to hm. c-
cordngy, the mortuary beneft s not regarded as compensaton re-
ceved by or accrued to hm, and t shoud not be ncuded n the
return fded for the decedent for the porton of the ta abe year pror
to hs death. Nether does the amount of the mortuary beneft const-
tute ta abe ncome to , the benefcary.
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5 102, rt. 102-2. 166
P RT . R TURNS ND P YM NT O T .
S CTION 55. PU LICITY O R TURNS.
rtce 55(b)-5. Inspecton of orgna returns.
R NU CT OP 1 3 .
Reguatons governng the nspecton of ncome ta returns, orm
1042 , by the Department of Natona Revenue, Ottawa, Canad
(See T. D. 4936, page 101.)
SU TITL C SUPPL M NT L PRO ISIONS.
ON CORPOR TIONS.
rtce 101(6)-1: Regous, chartabe, scentfc, terary,
and educatona organzatons and communty chests.
R NU CT O 10 .
Determnaton of purpose of an organzaton. (See G. C. M.
21610, page 103.)
rtce 101(9)-1: Soca cubs.
R NU CT O 103 .
ffect of recept of ncome from nvestments on e empt status of
cub. (See I. T. 3302, page 105.)
rtce 101 (9)-1: Soca cubs.
R NU CT O 193 .
Cub easng ts physca property to another cub. (See I.T.
3339, page 106.)
S CTION 102. SURT ON CORPOR TIONS IMPROP RLY
CCUMUL TING SURPLUS.
rtce 102-2: Purpose to avod surta evdence burden
of proof defnton of hodng or nvestment company.
R NU CT O 193S.
Instructons to offcers and empoyees reatve to gvng partcuar
attenton to returns of corporatons whch mght be mpropery
accumuatng surpus. (See T. D. 4914, page 10 .)
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167 113(a), rt. 113(a)(5)- .
S CTION 112(f). R COGNITION O G IN OR LOSS:
IN OLUNT RY CON RSIONS.
rtce 112(f)-: Renvestment of proceeds of nvo-
untary converson.
R NU CT OP 193 .
rtce 112(f)-, Reguatons 101, amended. (See T. D. 4951,
page 110.)
S CTION 113(a). D UST D SIS OR D T RMINING
G IN OR LOSS: SIS (UN D UST D) O PROP RTY.
rtce 113(a) (5)-: ass of property ac- 1930-52-10125
qured by bequest, devse, or nhertance. I. T. 3340
R NU CT O 193 .
The optona vauaton of property for edera estate ta purposes,
permtted by secton 302 of the Revenue ct of 1926, as amended
by secton 202(a) of the Revenue ct of 1935, has no appcaton
to the bass for determnng gan or oss on the sae or other dspo-
ston of such property for purposes of the edera ncome ta .
dvce s requested whether the bass for gan or oss purposes of
property acqured from the decedent by w, or under the aw govern-
ng the descent and dstrbuton of property, s the far market vaue
of the property at the date of death of the decedent, where the e ecu-
tor has eectee to use the vaue as of the date one year after the de-
cedent s death n determnng the vaue of the gross estate, n accord-
ance wth the provsons of secton 302 of the Revenue ct of 1926, as
amended by secton 202(a) of the Revenue ct of 1935.
Secton 113(a) 5 of the Revenue ct of 193 prescrbes a snge
unform bass rue, for edera ncome ta purposes, appcabe to
a property passng from a decedent by w or under the aws govern-
ng the descent and dstrbuton of the property of a decedent. Ths
unform bass s the far market vaue of the property at the tme of
acquston, that s, the date of death of the decedent.
rtce 113(a) (5)- of Regdatons 101, nterpretatve of secton
113(a)5, provdes that the vaue of property as of the date of the
death of the decedent as apprased for the purpose of the edera
estate ta , or f the property s not apprased as of the date of death
of the decedent for such purpose, or f the estate s not sub|ect to
such ta , ts vaue as apprased as of the date of death of the decedent
for the purpose of State nhertance or transmsson ta es, sha be
deemed to be ts far market vaue at the tme of the death of the
decedent.
Secton 302 of the Revenue ct of 1926, as amended by secton
202(a) of the Revenue ct of 1935, reatve to the gross estate of a
decedent for edera estate ta purposes, has no appcaton to the
bass for determnng gan or oss on the sae or other dsposton of
such property for the purposes of the edera ncome ta .
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117, rt. 117-1.
16
S CTION 117. C PIT L G INS ND LOSS S.
rtce 117-1: Meanng of terms. 1939-36-9992
I.T. 3312
R NU CT O 193 .
Interest coupons detached from bonds of the M Company were
purchased by and redeemed by hm at maturty for an amount n
e cess of the cost to hm of such coupons. ed, the gan derved
consttutes ordnary ncome and not capta gan. The retrement
of such coupons s not governed by secton 117(f) of the Re venue
ct of 103 .
dvce s requested reatve to the manner of reportng the ncome
receved by from coupons detached from bonds of the M Company.
The M Company ssued bonds dated May , 1914, due to mature
May , 1944, wth 5 per cent and 2 per cent coupons attached.
though both the bonds and the 5 per cent coupons are caabe,
the 2 per cent coupons are not, and the bonds are bought and sod
ether wth or wthout the 2 per cent coupons. There has been no
defaut n the payment of the prncpa of the bonds or the nterest
thereon.
In anuary, 193 , purchased n the open market detached nterest
coupons of the M Company on whch he coected 60 nterest n
May, 193 , and n November, 193 . It s contended that when
redeemed the coupons and coected 60 thereon n May and November.
193 he reazed a gan of the amount coected n e cess of the cost
to hm of the coupons nstead of recevng nterest of 60 aso, that
he shoud treat these coupons as capta assets and report the gan
n Schedue of hs ncome ta return as gans from the sae or
e change of property rather than as nterest on corporaton bonds.
Capta gan, as contempated by the ncome ta aw, means capta
gan derved from a sae or e change. There was nether a sae
nor an e change of a capta asset when presented the 2 per cent
coupons for payment at ther maturty dates. Payment of the face
amount of the coupons at maturty consttuted merey the satsfacton
of an obgaton accordng to ts f ed terms. ohn . Watson. r.,-
Commssoner, 27 . T. ., 463, acquescence, C. . II-2, 14 (1933)
rthur . ravn, Trustee, v. Commssoner, 29 . T. ., 1161. ac-
quescence, C. . III-2, 3 (1934) and I. T. 1637, C. . II-, 36
(1923).) (Cf. I. T. 267 , C. . II-1,117 (1933).)
urthermore, the payment of the amount due on the coupons does
not consttute the retrement of bonds ssued by a corporaton wthn
the purvew of secton 117(f) of the Revenue ct of 193 , whch
provdes n part as foows:
Retrement of bonds, etc. or the purposes of ths tte, amounts receved
by the hoder upon the retrement of bonds, debentures, notes, or certfcates
or other evdences of Indebtedness ssued by any corporaton (ncudng those
ssued by a gevernraent or potca subdvson thereof), wth nterest cotpo -
or n regstered form, sha be consdered as amounts receved n e change
therefor.
The statute pany states that the bonds or other securtes contem-
pated are those wth nterest coupons or n regstered form. The
2 per cent coupons detached from bonds of the M Company have
become bearer nstruments of the ssung corporaton, but not bonds
wth nterest coupons or bonds n regstered form.
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169
11 , rt. 11 -1.
In vew of the foregong, t s hed that the amount coected by
on the coupons n e cess of ther cost to hm s ta abe as ordnary
ncome and not as a capta gan.
S CTION 11 . LOSS ROM W S S L S O
STOC OR S CURITI S.
rtce 11 1: Losses from wash saes of 1939 15-100 3
stock or securtes. G. C. M. 21496
R NU CT OP 1 3 .
Notes of the M Company purchased by and bonds of that
corporaton whch he sod on the same day, whch dffer wth
respect to nterest rates, nterest payment dates, and dates of ssu-
ance and maturty, are not substantay dentca securtes wthn
the meanng of secton 11 of the Revenue ct of 193 , even though
the notes are secured by a pedge of the bonds.
n opnon s requested whether a oss sustaned by the ta payer,
, on the sae of bonds of the M Company n 193 s sub|ect to the
wash saes provsons of secton 11 o the Revenue ct of 193 by
vrtue of hs purchase of notes of the same corporaton. The pert-
nent provsons of that secton are as foows:
Sec. 11 . Loss from wash saes of stock ob securtes.
(a) In the case of any oss camed to have been sustaned from any sae
or other dsposton of shares of stock or securtes where t appears that,
wthn a perod begnnng 30 days before the date of such sae or dsposton
and endng 30 days after such date, the ta payer has acqured (by purchase or
by an e change upon whch the entre amount of gan or oss was recognzed
by aw), or has entered nto a contract or opton so as to acqure, substantay
Identca stock or securtes, then no deducton for the oss sha be aowed
under secton 23(e)2 nor sha such deducton be aowed under secton 23(f)
uness the cam s made by a corporaton, a deaer n stocks or securtes, and
wth respect to a transacton made n the ordnary course of ts busness.
On anuary 5, 193 , the ta payer sod 26a doars par vaue of the
M Company s frst and refundng 5 per cent bonds of 1966. On the
same date he purchased 26a doars par vaue of the same company s
7 per cent convertbe notes of 1932. The sae of the bonds resuted
n a oss of 10a doars. The bonds are dated anuary 1, 1913, and
mature n 1966. The notes are dated September 1, 1922, and matured
on September 1, 1932, but are n defaut both as to prncpa and
nterest. The nterest rate on the bonds s 5 per cent and on the
notes, 7 per cent. The nterest payment dates on the bonds are
anuary 1 and uy 1. The nterest payment dates on the notes are
March 1 and September 1, athough at the present tme payments on
account of prncpa and nterest are beng made on anuary 1 and
uy 1 pursuant to court order. The entre ssue of the notes s
secured by a pedge of y doars of the bonds. The queston pre-
sented s whether the bonds and notes are substantay dentca
SGC 111 11 ICS.
In I. T. 1365 (C. . 1-1, 151 (1922)) t was hed that the second
4 per cent Lberty bonds and the fourth 4 4 per cent Lberty
bonds are not substantay dentca property wthn the meanng
of secton 214 (a) 5 of the Revenue ct of 1921, the counterpart n

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11 , rt. 11 -.
170
that ct of secton 11 of the Revenue ct of 193 . It was stated n
that rung that:
Su stantay dentcn property does not Incude a of one knd or cass
of property, the meanng gven to property of a ke knd under secton
202(c), Revenue ct of 1921, but Is mted to property whch s the same to
n mportant partcuars. Important features of securtes are ther earnn|
power or nterest rate vaue of assets, tangbe and ntangbe, or securty
and condtons of retrement, or, n the case of bonds, the date of maturty.
The market vaues and dates of maturty of the second Lberty Loan 4 4 P
cent bonds and the fourth Lberty Loan 4 per cent bonds are dfferent.
Ths of tsef shows that there s no substanta dentty between these bond .
It was hed n I. T. 2672 (C. . II-1, 72 (1933)) that two bomb
of the same face vaue ssued by the same muncpaty at the same
rate of nterest, but of dfferent dates of ssue and havng dfferent
nterest payment and maturty dates, were not substantay dentca
securtes. One of the bonds was ssued n 1927 and matures n 197 ,
and the other was ssued n 1930 and matures n 19 0. The nterest
payment dates were May 1 and November 1, and pr 1 and October
1 respectvey.
In I. T. 2734 (C. . II-2,73 (1933)) t was hed that the e change
of fourth Lberty Loan 4 per cent caed or uncaed bonds for new
Treasury bonds maturng October 15, 1945, consttuted a transacton
n whch gan or oss woud be recognzed for ncome ta purpose ,
or, n other words, that the bonds were not substantay dentca.
Muncpa bonds maturng on or before une , 1943, were e -
changed for refundng bonds dated as of the nterest payment date
ne t precedng une 30,1933, and maturng n ebruary , 1963, sub-
|ect to redempton at an earer date. The bonds had the same par
vaue and bore the same rate of nterest. They were hed not to be
substantay dentca. (I. T. 2 96, C. . I -1, 96 (1935).)
In I. T. 277 (C. . TTT-1. 79 (1934)) Seres debentures of a
corporaton were e changed for Seres debentures of the same
corporaton. The former were ssued under an ndenture dated n
1929 and the atter under a suppementa ndenture dated n 1930.
oth seres matured on the same date and had the same nterest rate
and nterest payment dates. The ony dfferences were the one year
dfference n dates of ssuance and the dfference n the amounts
redeemed annuay. Of the Seres debentures, the amount of
.5 doars was to be redeemed annuay and of the Seres deben-
tures the amount of .3 a doars. It was hed that n vew of the fact
that the two seres had the same maturty dates, the same nterest
payment dates, and the same rate of nterest, they were substantay
dentca securtes.
It s obvous from the ureau rungs summarzed above that the
notes and bonds n the nstant case are not substantay dentca
securtes. Gvng the term the utmost eastcty aowed by the ru-
ngs, t can not be hed where two securtes dffer n nterest rates,
nterest payment dates, dates of ssuance, and dates of maturty that
they are substantay dentca. urthermore, the fact that the notes
n the nstant case, beng n defaut, mght be satsfed from the pro-
ceeds of the sae of the pedged bonds does not make the two sub-
stantay dentca.
In addton to the essenta dfferences n deta between the two,
there s aso a dfference n knd. Notes and bonds are two dfferent
knds of securtes. Whe the e act rghts of ther hoders depend
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171
131, rt. 131-1.
upon ther specfc terms, nether n common parance nor n ega
effect are they substantay dentca knds of securtes. (See
etcher Cyc. Corp., voume 6, secton 2635, et seq.)
ccordngy, t s the opnon of ths offce that the notes of the M
Company purchased by and the bonds of that company sod by hm
are not substantay dentca securtes. The oss ncurred on the
sae s, therefore, not sub|ect to the wash sae provsons of secton
11 of the Revenue ct of 193 .
. P. Wenche,
SUPPL M NT O CR DITS G INST T .
rtce 131-1: nayss of credt for ta es. 1939-36-9993
I. T. 3313
R NU CTS OP 1932, 1934, 1936, ND 193 .
The 4 per cent ta mposed by the razan Income Ta ct, and
covered by artce 174, razan Income Ta Reguatons, modfed
to une 20,1932, Is an ncome ta and may be taken as a credt under
secton 131 of the Revenue cts of 1932, 1934, 1936, and 193 .
dvce s requested as to the treatment for edera ncome ta pur-
poses of the 4 per cent ta mposed by the razan Government upon
certan ncome remtted to the M Company, a domestc corporaton, by
the razan branch of that company. The ncome of the razan
branch of the M Company was ta ed by the razan Government at
the reguar corporaton ta rate of 6 per cent. n addtona ta of 4
per cent was aso eved on the profts of the razan branch to the
e tent that the profts were remtted to the Unted States. The ques-
ton s whether ths 4 per cent addtona ta mposed by the razan
Income Ta ct, as set forth n artce 174 of the razan Income
Ta Reguatons, modfed to une 20, 1932, s aowabe as a credt
under secton 131 of the Revenue cts of 1932,1934,1936, and 193 .
rtce 174 of the reguatons referred to provdes n part as foows:
ta of per cent s payabe on Income beongng to resdents abroad, e cept
In the case of profts or dvdends whch, havng aready pad proportona ta In
the possesson of the frm or company, w ony pay another 4 per cent when they
beong to a resdent abroad.
Par. 1. The ta referred to n ths artce w be deducted at the actua source,
when handng over, remttng, utzng or credtng the ncome.
The ncome ta , as set forth n the reguatons approved by ecu-
tve Decree 17,390 of uy 26,1926, of the razan Government wth
modfcatons made durng each succeedng year to and ncudng
1932, appes to a ncome and profts earned n raz. The ta s at
the rate of 6 per cent on the net earnngs of concerns operatng for
proft. ncome remtted to resdents abroad s sub|ect to an per
cent ta , uness consstng of dvdends or profts aready sub|ected to
ta , n whch case the rate s 4 per cent.
It s hed that the ta of 4 per cent n queston s an ncome ta
wthn the meanng of secton 131 of the Revenue cts of 1932, 1934,
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I 143, rt. 143-2.
172
1936, and 193 , and, may be taken as a credt on ncome ta returns
fed by the M Company for the years 1932 to 193 , ncusve, sub|ect,
however, to the mtaton provsons of secton 131 of the respectve
cts.
T SOURC .
rtce 143-2: ed or determnabe annua 1939-42-10062
or perodca ncome. G. C. M. 21575
R NU CTS O 1936 ND 193S.
Przes awarded by the M Insttute to nonresdent aen artsts
do not come wthn the meanng of the term f ed or determnabe
annua or perodca Income. Consequenty, wthhodng Is not
requred wth respect thereto.
n opnon s requested whether przes awarded by the M Insttute
to nonresdent aen artsts are sub|ect to wthhodng under secton
143(b) of the Revenue cts of 1936 and 193 .
The M Insttute hods an art e hbt each year n the cty of R
at whch there are e hbted pctures by artsts of many natonates,
ncudng ctzens of the Unted States. Cash przes are awarded to
the artsts whose pctures are seected by the |udges as beng the best
pctures n the e hbt. These przes are sometmes won by nonres-
dent aen ndvduas. The queston nvoved s whether the
nsttute s requred to wthhod ta from przes awarded by t to
nonresdent aen artsts for the years 1936, 1937, and 193 .
Secton 143(b) of the Revenue cts of 1936 and 193 reads n part
as foows:
Nonresdent aens. persons, n whatever capacty actng, hav-
ng the contro, recept, custody, dsposa, or payment of nterest rent,
saares, wages, premums, or other f ed or determnabe annua or
perodca gans, profts, and ncome, of any nonresdent aen ndvd-
ua, sha deduct and wthhod from such annua or per-
odca gans, profts, and ncome a ta equa to 10 per centum thereof .
rtce 143-2 of Reguatons 94 and 101 reads n part as foows:
ed or determnabe annua or perodca ncome. Ony f ed or determ-
nabe annua or perodca ncome s sub|ect to wthhodng. The ct specfcay
ncudes n such ncome, nterest, dvdends, rent, saares, wages, premums,
annutes, compensatons, remuneratons and emouments.
Income s f ed when t s to be pad n amounts defntey predetermned.
Income Is determnabe whenever there s a bass of cacuaton by whch the
amount to be pad may be ascertaned. The ncome need not be pad annuay
f t s pad perodcay that s to say, from tme to tme, whether or not at
reguar ntervas.
In S. M. 975 (C. . 1, 1 4 (1919)) t was hed that amounts won
n horse races n the Unted States by horses beongng to a non-
resdent ndvdua were not sub|ect to wthhodng under the Reve-
nue ct of 191 . Such amounts were consdered not to consttute
annua or perodca ncome. In O. D. 907 (C. . 4, 232 (1921))
t was hed that a commsson pad on account of a snge transacton
was not f ed or determnabe annua or perodca ncome wthn
the meanng of secton 221(a) of the Revenue ct of 191
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173
251, rt. 251-1.
It s the opnon of ths offce that the przes awarded by the
M Insttute to nonresdent aen artsts durng the years 1936, 1937,
and 193 do not come wthn the meanng of the term f ed or
determnabe annua or perodca ncome and are not, therefore,
sub|ect to wthhodng under secton 143(b) of the Revenue cts of
1936 and 193 .
. P. Wenche,
R NU CT O 193 .
resdent foregn nsurance companes. (See L T. 3297, page 137.)
SUPPL M NT . NONR SID NT LI N INDI IDU LS.
S CTION 212. GROSS INCOM .
rtce 212-2: cuson of earnngs of foregn 1939-30-9922
shps from gross ncome. I. T. 3300
R NU CT OP 193 .
Trndad does not satsfy the equvaent e empton requrements
of sectons 212(b) and 231(d) of the Revenue ct of 193 .
SUPPL M NT . POSS SSIONS O T UNIT D ST T S.
S CTION 251. INCOM ROM SOURC S WIT IN
POSS SSIONS O UNIT D ST T S.
rtce 251-1: Ctzens of the Unted States and 1939-40-10041
domestc corporatons dervng ncome from I. T. 3327
sources wthn a possesson of the Unted States.
( so Secton 25, rtce 25-3.)
R NU CT O 193 .
The provsons of secton 251(f) of the Revenue ct of 193 pre-
cude the aowance to a ctzen of the Unted States entted to the
benefts of secton 251 of a persona e empton of more than 1,000.
ta payer entted to the benefts of secton 251 of the evenue
ct of 193 may not wave such benefts n order to obtan credt
for the persona e empton prescrbed In secton 25(b) of that ct
dvce s requested as to the persona e empton to be aowed , a
ctzen of the Unted States, for the caendar year 193 .
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251, rt. 251-1.)
174
s ncome ta return for the year 193 dscoses that s an offcer
n the Unted States rmy and that from anuary 1, 193 , to Novem-
ber 1,193 , he was on duty wthn the Unted States, recevng for tat
perod a saary of doars whch he reported as ta abe ncome n
hs return. In the ast two months of that year he served wth the
rmy n a possesson of the Unted States, and he cams that hs
saary for those two months s e empt from edera ncome ta under
the provsons of secton 251 of the Revenue ct of 193 . The ta -
payer was marred and vng wth hs wfe durng the entre ta abe
year.
Secton 251 of the Revenue ct of 193 provdes as foows:
(a) Genera rue. In the case of ctzens of the Unted States or domestc
corporatons, satsfyng the foowng condtons, gross ncome means ony gros
ncome from sources wthn the Unted States
(1) If 0 per centum or more of the gross ncome of such ctzen or
domestc corporaton (computed wthout the beneft of ths secton), for tb
3-year perod mmedatey precedng the cose of the ta abe year (or for
such part of such perod mmedatey precedng the cose of such ta abe
year as may be appcabe) was derved from sources wthn a possesson
of the Unted States and

(3) If, n case of such ctzen, 50 per centum or more of hs gross ncome
(computed wthout the beneft of ths secton) for such perod or snch part
thereof was derved from the actve conduct of a trade or busness wthn
a possesson of the Unted States ether on hs own account or as an
empoyee or agent of another.

(f) Credts aganst net ncome. ctzen of the Unted States entted to
the benefts of ths secton sha be aowed a persona e empton of ony 1,(W
and sha not be aowed the credt for dependents provded n secton 2o(b)(2).
The ncome receved by for the months of November and Decem-
ber, 193 , meets the requrements of secton 251, supra, and, therefore,
he s entted to e empton from edera ncome ta on hs saary
for that perod.
The persona e empton to whch s entted s 1,000. The pro-
vsons of secton 251(f), supra, are mandatory and precude the ta -
payer from wavng the benefts of secton 251 and camng the
persona e empton of 2,500, prescrbed n secton 25(b) of the Rev-
enue ct of 193 , even though such acton woud reduce hs ta
abty.
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175 22(a), rt. 22(a)-.
INCOM T RULINGS. P RT II.
R NU CTS O 1937 ND 1936.
SU TITL . G N R L PRO ISIONS.
D INITION.
G. C. M. 20960
R NU CT OP 1936 ND PRIOR R NU CTS.
The decson of the Crcut Court of ppeas for the fth Crcut
In tewart v. Commssoner (95 ed. (2d), 21), reatng to a hus-
band s rght to convey communty ncome to hs wfe under the
aws of Te as, does not requre modfcaton of G. C. M. 1 34
(C. . 1937-2, 6 ), reatng to the communty property aws of
Caforna, whch rung was based on everng v. ckman (70
ed. (2d), 9 5).
n opnon s requested whether, n vew of the decson n Stewart
v. Commssoner (95 ed. (2d), 21), any modfcaton shoud be
made of G. C. M. 1 4 (C. . 1937-2, 5 ) hodng that the decson
n everng v. ckman (70 ed. (2d), 9 5) shoud be foowed by
the ureau n certan Caforna cases.
In evernc| v. ckman, supra, t appeared that a husband and
wfe resdng n Caforna oray agreed n 1907 that the earnngs of
each shoud be and reman the separate property of the earner.
Snce that tme they adhered to the agreement, each mantanng
separate bank accounts, makng separate nvestments, and payng hs
or her own e penses. or the year 1923 the ureau took the poston
that the earnngs of the wfe consttuted part of the ta abe ncome
of the husband regardess of the agreement. The oard of Ta
ppeas hed that the husband was not ta abe upon the ncome of
the wfe. That decson was affrmed by the Crcut Court of p-
peas for the Nnth Crcut. The court hed that under the aw of
Caforna, as decded by the hghest court of that State, an agree-
ment between a husband and wfe that the future earnngs of each
sha be the separate property of the earner s vad and enforceabe
and has the ega effect ot convertng such earnngs from the status of
communty property to that of separate property upon the moment
of acquston. Reyng prncpay upon the decson of the Unted
States Supreme Court n Poe v. Seaborn (2 2 U. S., 101, Ct. D. 259,
C. . I -2, 202 (1930)) to the effect that earnngs shoud be ta ed
upon the bass of ownershp, the court further hed that snce, n
vew of the agreement, the earnngs of the wfe never became com-
munty property, they shoud not be ta ed as such.
In G. C. M. 1 4, supra, t was stated:
Ths offce has reached the concuson that the decson n e-
verng v. ckman, supra, shoud be foowed n determnng the ta abty
of husband and wfe resdng n Caforna who have entered nto a vad
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22(a), rt. 22(a)- .
176
ngrccment provdng that the earnngs of each sha be the separate property of
the earner.
G. C. M. 003 , supra, G. C. M. 0953. supra, and G. C. M. 1410 , supra, are
revoked, and a memoranda of ths offce Inconsstent herewth are modfed
accordngy. It s recommended that nouaequescences n oard of Ta ppeas
decsons on ths ssue be wthdrawn.
In Stewart v. Commssoner, supra, t appeared that Mrs. Stewart,
a resdent of Te as, upon the death of her frst husband n 1922.
acqured a substanta estate consstng of rea and persona property.
In 1925 she marred arry Stewart, from whom she was dvorced
n 1934. On March 19, 1927, by wrtten nstrument, her husband
conveyed, assgned, and reeased to her a of hs nterest n ther
communty property and a ncome therefrom theretofore receved,
or whch thereafter mght be receved by ether of them or to whch
ether of them mght be entted. The nstrument aso provded that
the ntenton of the partes was to make a of such property the
separate property of tne wfe. Treatng the e ecuton of ths nstru-
ment as havng termnated ther communty status under Te as aw
wth respect to her property, the husband and wfe fed separate
returns for the year 1930. She reported a of the ncome from her
separate estate, deducted therefrom a of the e penses and other
tems permtted under the appcabe Revenue ct, and returned nd-
vduay the net ncome thus computed.
The Commssoner treated the ncome of husband and wfe as
communty ncome rrespectve of the e ecuton of the nstrument.
The oard of Ta ppeas affrmed the Commssoner s determna-
ton. (Mee sperson Stewart v. Commssoner, 35 . T. ., 406.)
On appea to the fth Crcut, the court hed that athough under
Te as aw a husband may convey communty property to hs wfe
as a separate estate t must be n e stence at the tme when the con-
veyance s made. The court thus hed that the nstrument by whch
the husband attempted to assgn hs share of the communty ncome
thereafter receved by the wfe durng coverture was neffectve
under the aw of Te as. Consequenty, when such ncome was there-
after receved, the husband had a one-haf nterest theren ( opkns
v. acon, 2 2 U. S., 122), whch, under the prncpe announced n
Lucas v. ar (2 1 U. S., I), coud not be assgned so as to reeve
hm of abty for ncome ta es thereon. The court accordngy
hed that the ncome and deductons must be apportoned n equa
parts between the husband and wfe, thus affrmng the decson of
the oard of Ta ppeas. ppcaton for wrt of certorar was
not fed.
carefu e amnaton of the decsons n the ckman and Stewart
cases ndcates that, under the theory upon whch they were decded,
there s no confct between them. It s we recognzed that property
reatonshps between husband and wfe n communty pro| erty
States, and the effect of agreements wth respect to such reatonshps,
are determned by the aw of the State n whch they resde. (Poe v.
Seaborn, supra cf. nderson v. Commssoner, 7 ed. (2d), 636.)
Two dfferent States were nvoved n the ckman and Stewart cases.
Under the aw of one State (Caforna), t s hed that a husband
and wfe can sever the communty reatonshp wth respect to future
ncome. (Wren v. Wren, 100 Ca., 276, 34 Pac, 775.) Under the aw
of the other (Te as), such an attempted severance w not be gven
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177 22(b), rt. 22(b)(2)-2.
ega effect. rame v. rame, 120 Te as, 61, 36 S. W. (2d), 152.)
The court n the ckman case, supra, decded that, snce under the
Caforna aw a husband and wfe can by agreement change the
communty reatonshp as to future ncome, there s no reason why
such ncome shoud be reported on a communty bass for edera
ncome ta purposes. On the other hand, the court n the Stewart
case, supra, decded that, snce under the Te as aw a husband and
wfe can not by agreement change the communty reatonshp as to
future ncome, such ncome must be reported on a communty bass.
It s, therefore, the opnon of ths offce that the decson n the
Stewart case does not requre a modfcaton of G. C. M. 1 4, supra,
to the effect that the ckman case shoud be foowed n substantay
smar stuatons arsng n Caforna. owever, n vew of the
decson n the Stewart case, the prncpe theren announced shoud
be foowed wth regard to agreements between spouses n the State
of Te as whereby an attempt s made to sever the communty rea-
tonshp wth respect to future communty ncome.
. P. Wenche,
ROM GROSS INCOM .
rtce 22(b) (2)-2: nnutes. 1939-39-10026
I. T. 3322
R NU CT OP 1936.
Ta abty of payments receved under the provsons of a refund
annuty contract
I. T. 3140 (C. . 1937-2, 62) modfed.
urther consderaton has been gven to the queston of the ta abe
status of certan payments made to n 1936 under a refund annuty
contract. Ths queston was prevousy consdered n I. T. 3140
(C. . 1937-2, 62).
Pursuant to (he terms of a refund annuty contract, became payee
of certan perodc payments to be made durng the fe of , hs wfe,
who purchased the contract and was desgnated as the annutant. The
contract further provded that the agreed perodc payments were to
contnue after the death of unt the aggregate payments receved
equaed the consderaton pad for the annuty contract. The rghts
of the wfe ( ) as annutant were contngent upon her outvng her
husband and were ost by reason of her death durng hs fetme.
s payee of the annuty durng the fe of , was abe to ta
on such payments n the manner and to the e tent provded by sec-
ton 22(b)2 of the Revenue ct of 1936, pertanng to the method of
ta ng amounts receved as an annuty. y the e press terms of the
contract, however, such payments were to be made ony durng the
fetme of the sad . Upon her death, the perodc payments were
contnued by vrtue of the aternatve or refund provsons of the con-
tract. The queston presented s the proper treatment for edera
ncome ta purposes of the payments receved after the death of .
It s evdent that the payee ( ) acqured, upon ssuance of the
contract, an ndefeasbe rght to the payments to be made thereunder
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23(c), rt. 23(c)- .
17
by reason of the renqushment by the purchaser ( ) of both the
rght to change the benefcary and the rght to demand the surrender
vaue of the contract. Ths feature of the nstant stuaton ds-
tngushes t from one n whch the annuty contracts are revocabe
at the opton of the purchaser. (Cf. Guaranty Trust Co. of New
York, ecutor under the Last W and Testament of Ro y M. Smth,
v. Commssoner, 16 . T. ., 314, and Chemca ank Trust Co.
et a., ecutors of the state of rank . Sasce, v. Commssoner. 37
. T. ., 535, acquescence, C. . 1939-1 (Part 1), 31.) Ths stua-
ton s further dstngushabe from that n the Smth case, supra,
by reason of the fact that the rghts under the present contract were
acqured by gft durng the fetme of the donor and not as part of
the estate of the decedent passng upon death. The nstant transac-
ton s, therefore, to be treated for edera ta purposes as a transfer
or gft nter vvos. The bass for determnng the ta due under the
e stng crcumstances s cost to the donor, whereas the vaue of a
rght passng to a refund benefcary upon the death of another (as n
the Smth case) s the commuted vaue of the future payments as of
the date of death.
It s, accordngy, hed that , the benefcary under the contract, s
not sub|ect to ta wth respect to the refund payments made there-
under unt the payments made n the future, when added to the pay-
ments prevousy receved ta -free, equa the consderaton pad for
the contract.
I. T. 3140 (C. . 1937-2, 62) s modfed to the e tent that t con-
fcts wth the foregong concuson.
INCOM : P NS S.
rtce 23 (a)-9: Pensons Compensaton for n|ures.
R NU CT OP 1936.
Payments by corporaton to wdow of deceased offcer-stockhoder.
(Sec. I. T. 3329, page 153.)
rtce 23(c)-: Ta es.
R NU CT O 1936.
Occupaton ta mposed by State of Utah Ln 1937 on persons engaged
n mnng. (See I. T. 3307, page 156.)
rtce 23(c)-: Ta es.
R NU CT O 1936.
Me can ta on partcpatons receved from o producton. (See
I. T. 3320, page 191.)
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179
23(d), rt. 23(d)-.
N 23(d). D DUCTIONS ROM GROSS INCOM :
S O S R OLD R P ID Y CORPOR TION.
| (d)-: Ta on bank or other stock. 1939-29-991
G. C. M. 21329
R NU CT O 1936.
The ta on bank shares n Pennsyvana, whch s a ta on the
sharehoders athough pad by the bank, s an aowabe deducton
to the bank under secton 23(d) of the Revenue ct of 1936, for
the ta abe year n whch pad, regardess of the bank s method of
accountng.
n opnon s requested whether Pennsyvana banks empoyng the
accrua bass of accountng may deduct the Pennsyvana ta on
ther shares pad n 1937 on ther 1937 edera ncome ta returns.
Deducton of ta es of sharehoders pad by corporatons s pro-
vded for by secton 23(d) of the Revenue ct of 1936 and artce
23(d)- of Reguatons 94, whch read as foows:
Secton 23(d):
Ta es of sharehoder pad ty corporaton. The deducton for ta es aowed
by subsecton (c) sha be aowed to a corporaton n the case of ta es m-
posed upon a sharehoder of the corporaton upon hs nterest as sharehoder
whch are pad by the corporaton wthout rembursement from the share-
hoder, but n such cases no deducton sha be aowed the sharehoder for
the amount of such ta es.
rtce 23 (d)-:
Ta on tank or other stock. anks or other corporatons payng ta es as-
sessed aganst ther sharehoders on account of ther ownershp of the shares
of stock ssued by such corporatons wthout rembursement from such share-
hoders may deduct the amount of ta es so pad. The ct specfcay pro-
vdes, however, that n such cases the sharehoders may not deduct the amount
of the ta es. The amount so pad shoud not be Incuded n the ncome of the
sharehoder.
The ta n queston s a ta on the sharehoders and not on the
bank. The banks are requred to fe reports on or before ebruary
15, showng the actua vaue of ther shares as of the precedng De-
cember 31. The Commonweath of Pennsyvana makes a settement
of the ta based upon the actua vaue of the shares as of the pre-
cedng December 31, but no ta s due the Commonweath unt 60
days after the settement of the ta has been made.
The ta abe year of the Pennsyvana ta on shares of banks s the
caendar year mmedatey precedng the fng of the return con-
sequenty, the ta setted and coected n 1937 s a ta for the pre-
cedng caendar year ended December 31, 1936. Settement of the
ta s made by the department of revenue n accordance wth the
provsons of the fsca code appcabe to State ta es n genera.
fter such settement the department sends a copy thereof to the
bank showng the amount of ta due on the shares. The settement
must be posted n a conspcuous pace n the bank, so as to gve
notce to the sharehoders of the amount of ta . The offcers of any
bank, on behaf of ts sharehoders, or any sharehoder hmsef, may
appea to the department of revenue wthn 90 days after the date
of settement. ( sca Code, Tte 72, Purdon s Penna. Stats. nno.,
secton 07.)
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24, rt. 24-5.
1 0
Secton 1951 of tte 72, Purdon s Penna. Stats. nnotated, as
amended, provdes as foows:
It sha be the duty of every bank or savngs Insttuton, wthn a perod
of 60 days after the date of such settement by the department of revenue, to
coect the amount of sad ta from ts sharehoders and to pay the same to
the State treasurer through the department of revenue.
It s pan that the ta s a ta upon sharehoders and not upon
banks, and t has been specfcay so hed n Commonweath v.
Schuyk Trust Co. (315 Pa., 429, 173 t., 309), not overrued on
ths pont by Schuyk Trust Co. v. Pennsyvana (296 U. S., 113).
Such beng the case, payment of the ta by a bank s purey vo-
untary ana can not be consdered the abty of the bank.
It s the opnon of ths offce, therefore, that the ta on bank
shares n Pennsyvana, whch s a ta on the sharehoders athough
pad b the bank, s an aowabe deducton to the bank under sec-
ton 23(d) of the Revenue ct of 1936, for the ta abe year n whch
pad, regardess of the bank s method of accountng.
. P. Wenche,
Chef Counse, ureau of Interna Revenue,
than nterest.
R NU CT O 1930.
rtce 24-5: Losses from saes between mem- 1939-45-100S4
bers of famy and between ndvduas and I. T. 3334
corporatons.
R NU CT O 103 .
In the year 036, , a ma|orty stockhoder of the M Company, a
famy corporaton, transferred to that company certan stocks
n qudaton of hs ndebtedness to the company. On some of the
transfers gans were reazed and on others osses were sustaned.
ed, the gans reazed consttute ta abe ncome but the osses
sustaned are not deductbe n vew of the provsons of secton
24(a)6 of the Revenue ct of 1036.
dvce s requested reatve to the deductbty, for edera ncome
ta purposes, of the osses sustaned by , a ma|orty stockhoder of
the M Company, a famy corporaton, through the transfer of
severa bocks of stock to the corporaton n qudaton of hs
ndebtedness thereto where gans were aso reazed on other smar
transfers.
Durng the year 1936, was presdent of the M Company and
owned more than 50 per cent of the stock of the company, the reman-
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25, rt. 25-3.
der of the stock beng owned by members of hs famy. owed the
corporaton as of December 31, 1935, the sum of 71a doars. Durng
the year 1936, he transferred to the corporaton n parta qudaton
of the debt shares of stock at an aggregate prce of 64a: doars. The
transacton resuted n a gan wth respect to some of the shares of
stock and a oss wth respect to other shares. Computng the gan
or oss on the sae of each bock of stock separatey, t s found that
osses aggregated 10ar doars and that gans aggregated 9. doars
and that, consderng the transfers as a whoe, a net oss of doars
was sustaned.
Inasmuch as the M Company s a u famy corporaton, and osses
sustaned on the sae or e change of stocks by to the corporaton
are not deductbe n vew of the provsons of secton 24(a)6 of the
Revenue ct of 1936, the queston has been rased as to whether a
of the stocks transferred shoud be consdered as a unt resutng n
a net oss of a doars on the transfer, or whether the transfer of each
bock of stock shoud be consdered as a separate transacton and
the gans derved be reported as ncome but the osses sustaned not
aowed as a deducton.
In vew of the specfc provsons of secton 24(a)6 of the Revenue
ct of 1936 to the effect that no deducton sha n any case be
aowed n respect of osses from saes or e changes of property,
drecty or ndrecty, between an ndvdua and a cor-
poraton n whch such ndvdua owns, drecty or ndrecty, more
than 50 per centum n vaue of the outstandng stock, t s apparent
that the osses sustaned by n the transfer to the M Company of
partcuar bocks of stock may not be offset aganst the gans derved
from the transfer to that company of other bocks of stock, thereby
reducng the amount of the ta abe ncome derved from the transfers,
and, n effect, aowng osses specfcay prohbted by statute. c-
cordngy, the aggregate gan of 9a doars represents ta abe ncome
to and no deducton from gross ncome s aowabe wth respect
to the osses of 10a doars.
S CTION 25. CR DITS O INDI IDU L G INST
N T INCOM .
Where a husband fed a tmey return and camed the fu |ont
persona e empton of 2,500 and hs wfe fed a denquent return
for the same ta abe year, the porton of the ont persona
e empton not requred to render the husband s return nonta abe
Is aowabe to the wfe as a credt aganst her net ncome.
dvce s requested whether a wfe who fed a denquent return
s entted to that porton of the |ont persona e empton whch s
not requred by the husband to render hs ncome, reported n a
tmey return, nonta abe.
rtce 25-3: mount of persona e empton
aowabe.
R NU CT O 1936.
1939-43-10070
I. T. 3332
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25, rt. 25-3.
1 2
On March 7, 193 , , the husband, fed an ncome ta return.
orm 1040 , for the ta abe year 1937 whch showed that he was
marred and vng wth hs wfe durng the entre ta abe year. In
answer to the queston whether the ncome or deductons of both hus-
band and wfe were ncuded n the return he answered No. The
return dscosed a net ncome of 3,125.0 and an earned ncome
credt of 312.50, and camed the fu |ont persona e empton
of 2,500 and a credt of 400 for a dependent. Thereafter, t was
ascertaned that the ta payer s wfe, , had ta abe ncome and, snce
such ncome was not ncuded n the husband s return, she was
requested to fe a return. She e ecuted and fed a denquent return
on orm 1040 . cams that she s entted to a porton of the
|ont persona e empton.
Upon e amnaton of the husband s return, t was found that he
was entted to a credt of 00 for dependents nstead of the 400
camed, and that he requred ony 2,012.5 of the |ont persona
e empton to render hs return nonta abe.
Secton 25(b) of the Revenue ct of 1936 provdes n part:
Credts for both norma ta and surta . There sha be aowed for the pur-
poses of the norma ta and the surta the foowng credts aganst net ncome:
(1) Persona e empton. husband and wfe vng together sba
receve but one persona e empton. The amount of such persona e empton
sha be 2,:100. If such husband and wfe make separate returns, the persona
e empton may be taken by ether or dvded between them.
rtce 25-3 of Reguatons 94 provdes n part:
mount of persona e empton aowabe. husband and wfe
vng together have but one persona e empton, whch s 2,500. If they makf
separate returns, each may cam one-haf of the persona e empton, or sue
e empton may, In accordance wth an agreement entered nto by them, be
taken by ether or dvded between them In any proporton.
y aowng a credt of 00 for dependents nstead of the 400
credt orgnay camed by hm, ony 2,012.5 of the |ont persona
e empton of 2,500 s requred to render hs return nonta abe.
Under these crcumstances, t s hed that the porton of the |ont
persona e empton not used as a credt n the husband s return
4 7.42) s aowabe to the wfe as a credt aganst her net ncome.
Cf. I. T. 2090, C. . III-2,163 (1924).)
ttenton was caed n ths case to the decson of the oard of
Ta ppeas n Mrs. Carmen . Green v. Commssoner (11 . T. .,
1 4), n whch the oard hed (syabus):
Where a wfe makes no return of her Income and t s not reported by her
husband n a |ont return, and the entre persona e empton s aowed the
husband, she s not entted to cam a part of the persona e empton In
return fed for her by the Commssoner under secton 3170 It. S.
The decson n the Green case s not appcabe to a case (such as
the nstant one) n whch the entre e empton has not been used by
ether spouse and where both the husband and the wfe fed separate
returns, even though the return of one spouse was denquent.
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43, rt. 43-1.
P RT I . CCOUNTING P RIODS ND M T ODS O CCOUNTING.
S CTION 43. P RIOD OR W IC D DUCTIONS
ND CR DITS T N.
The rtsh natona defense contrbuton ta Imposed under sec-
ton 19, Part III of the rtsh nance ct, 1937 (1 tfw. and 1
Geo. 6, ch. 54), Is accruabe, for edera Income ta purposes, for
the Unted States ta abe year n whch fas the end of the rtsh
chargeabe accountng perod upon the profts of whch the natona
defense contrbuton ta s subsequenty computed and assessed.
or e ampe, such ta on profts for the chargeabe accountng
perod pr 1, 1937, to November 30, 1937, s accruabe n the ed-
era ncome ta return of a corporaton for the caendar year 1937.
dvce s requested as to the year of accrua of the rtsh natona
defense contrbuton ta assessed aganst and payabe by the London
branch of the M Company n 193 .
The M Company empoys the accrua method of accountng and
fes ts edera ncome ta returns on the bass of the caendar year.
The ta n queston s mposed under the rtsh nance ct of
1937, whch was passed uy 30, 1937. The ta , assessed on the Lon-
don branch of the M Company on October 5, 193 , and payabe on or
before November 4, 193 , s based on the earnngs of the branch for
the perod of eght months, pr 1, 1937, to November 30, 1937, the
atter date beng the end of the accountng year of that branch, whch
perod was used by the rtsh ta authortes n determnng the
assessment for the reguar ta on the ncome of the branch.
The natona defense contrbuton ta s provded for under Part
III of the rtsh nance ct, 1937 (1 dw. and 1 Geo. 6, ch. 54).
Pertnent sectons of the act read n part as foows:
19. -(1) There sha be charged, on the profts arsng n each chargeabe
accountng perod fang wthn the fve years begnnng on the 1st day of pr,
1937, from any trade or busness to whch ths secton appes, a ta (to be
caed the natona defense contrbuton ) of an amount equa to 5 per cent of
those profts n a case where the trade or busness s carred on by a body cor-
porate and 4 per cent of those profts n any other case.

(2) Sub|ect as hereafter provded, the trades and busnesses to whch ths
secton appes are a trades or busnesses of any descrpton carred on In the
Unted ngdom, or carred on, whether personay or through an agent, by
persons ordnary resdent n the Unted ngdom.

20. -() or the purpose of the natona defense contrbuton, the profts ars-
ng from a trade or busness n each chargeabe accountng perod sha be sep-
aratey computed, and sha be so computed on Income ta prncpes as adapted
In accordance wth the provsons of the fourth schedue to ths act

(2) or the purpose of the natona defense contrbuton the e -
presson chargeabe accountng perod means
(1) any accountng perod determned as aforesad whch fas whoy wthn
the fve years begnnng on the 1st day of pr, 1937 and
1939-34-996
I. T. 3309
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43, rt. 43-1.
1 4
() n a case whore any such accountng perod fas party wthn and party
wthout the sad fve years, such part of that perod as fas wtha those fte
years.

24.-() The natona defense contrbuton sha be assessed and coected b|
the Commssoners of Inand Revenue n accordance wth the provsons of
Part I of the ffth schedue to ths act, and sha be due and payabe at Uk
e praton of one month from the date of the assessment .

25-(1) The amount of the natona defense contrbuton payabe n resptct
of the profts arsng from a trade or busness n any chargeabe aeconnt
perod sha be aowed to be deducted as an e pense n computng for the pur-
pose of ncome ta the profts and gans arsng from that trade or busness
that perod.
Secton 9 of the fourth schedue reads as foows:
9. No deducton sha be made on account of abty to pay or the Daymen:
of Unted ngdom ncome ta or the natona defense contrbuton.
The ureau has hed that rtsh ncome ta es on gans and proft
accrue on the frst day of the rtsh ta year of assessment, for t
appears that under the rtsh ncome ta act, abty for the pay-
ment of rtsh ta es s dependent upon whether the rtsh ta -
payer contnues n busness durng the year of assessment. (See
G. C. M. 10613, C. . I-1, 173 (1932).) It has aso been hed by
the ureau that the natona defense contrbuton s an ncome ta .
(See I. T. 3171, C. . 193 -1, 192.) though the computaton of
profts for the purpose of the natona defense contrbuton s based
on ncome ta prncpes, there s no provson that abty for the
payment of the natona defense contrbuton s dependent upon
whether the ta payer contnues n busness durng the year of assess-
ment, and, therefore, the concuson as to the accrua date of ta es
under the rtsh ncome ta act contaned n G. C. M. 10613, supra,
s not appcabe to the natona defense contrbuton ta .
s the natona defense contrbuton s an ncome ta , a credt may
be camed for such ta es pad or accrued. Inasmuch as such ta
s mposed on profts for the chargeabe accountng perod of the
rtsh ta payer, the ta becomes a abty of the ta payer on the
ast day of hs accountng perod when the queston of proft or no
proft s defntey determnabe.
It s hed that the natona defense contrbuton ta , mposed under
secton 19, Part III of the nance ct, 1937, may be accrued, for
edera ncome ta purposes for the Unted States ta abe year n
whch fas the end of the rtsh chargeabe accountng perod upon
the profts of whch the natona defense contrbuton ta s subse-
quenty computed and assessed.
Inasmuch as the books of the M Company are kept on the accrua
bass and t fes ts edera ncome ta returns on the caendar year
bass, the natona defense contrbuton ta assessed aganst and pay-
abe by ts London branch on or before November 4, 193 , on proft-
for the chargeabe accountng perod of pr 1, 1937, to November
30,1937, s accruabe n ts edera ncome ta return for the caendar
year 1937.
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101, rt. 1.01(6)- .
SU TITL C SUPPL M NT L PRO ISIONS.
ON CORPOR TIONS.
rtce 101(6)-1: Regous, chartabe, scentfc, terary,
R NU CT O 1936.
21610, page 103.)
rtce 101 (6)-1: Regous, chartabe, scen- 1939 42-10003
tne, terary, and educatona organzatons I. T. 3330
and communty chests.
R NU CT O 1936.
The M Organzaton, whch conducts study courses for the bene-
ft of Indvduas connected wth bankng nsttutons of the cty
of S and vcnty, s entted to e empton from edera ncome
ta aton under the provsons of secton 101(6) of the Revenue
ct of 1930, ts entertanment features beng merey ncdenta for
the purpose of stmuatng nterest In Its educatona actvtes.
dvce s requested whether the M Organzaton s entted to
e empton from edera ncome ta aton under the provsons of
secton 101(6) of the Revenue ct of 1936 as an educatona organ-
zaton.
The M Organzaton was ncorporated under the aws of the State
of R for the purpose of promotng the educatona wefare of nd-
vduas connected wth bankng nsttutons of the cty of S and
vcnty. No stock s outstandng or has ever been ssued and no
part of ts earnngs s credted to surpus or nures to the beneft of
any ndvdua, t does not, drecty or ndrecty, carry on propa-
ganda or otherwse attempt to nfuence egsaton. Competent n-
structors are empoyed and cassrooms are furnshed for the presenta-
ton of the study courses prescrbed for the organzaton. Its
actvtes are carred on through commttees desgnated as educa-
tona, membershp, and entertanment. The entertanment commt-
tee s an au ary to the other commttees wth the essenta and
rmary purpose of conductng entertanment to create and stmu-
ate nterest n the educatona purposes of the organzaton, ts
actvtes beng merey ncdenta to the prmary purpose of educa-
ton. Te tbooks and books for coatera readng are purchased for
resae at cost to students takng the severa courses. nonproft-
makng professona magazne contanng tems of nterest and assst-
ance to the members s pubshed as a part of the actvty undertaken
to stmuate nterest n membershp and n the educatona phases
of the organzaton.
209196 to 7
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5 111, rt. 111-1.
1 6
Durng the current schoastc year, courses are offered n the var-
ous bankng sub|ects wth nstructon by the N Unversty and 0
Unversty professors and specasts n aws affectng banks. Credt
s gven by these unverstes for the hours spent n such work.
Whe t s not necessary to be a banker n order to take one or more
of the courses, membershp n the organzaton s requred of a
person desrng regstraton as a student. ttendance records are
kept and a student s not permtted to take a fna e amnaton uness
he has attended 0 per cent of a ectures. na e amnatons are
gven n each course and a passng mark of 75 per cent s requred.
The present membershp s composed of empoyees of banks of the
communty and banks ocated wthn 25 mes of the cty of S. The
ncome of the organzaton s derved prncpay from membershp
dues, tuton, and contrbutons from the banks of the cty of 5
and vcnty and s dsbursed for operatng e penses.
ased upon the foregong, t s hed that the M Organzaton s
entted to e empton under the provsons of secton 101(6) of te
Revenue ct of 1936. Ths rung s aso appcabe under the cor-
respondng provsons of the Revenue ct of 193 and of the Intern
Revenue Code.
rtce 101(9)-1: Soca cubs.
R NU CT O 93 .
Cub easng ts physca property to another cub. (See I.T.
3339, page 106.)
S CTION 111. D T RMIN TION O MOUNT O ,
ND R COGNITION O , G IN OR LOSS.
rtce 111-1: Computaton of gan or oss. 1939-37-10t 7
( so Secton 117, rtce 117-1.) I. T. 33W
R NU CTS O 1934 ND 1936.
The transfer of securtes by the trustees of a testamentary trust
created under the w of to the benefcary of the trust n
satsfacton of annuty payments provded for n the w, such
transfer havng been made at a prce n e cess of the bass of the
securtes n the hands of the trust, resuted In gan to the trust
(sub|ect to the capta gan provsons), measured by the dfference
between the bass of the securtes n the hands of the trust and
the amount of the obgaton satsfed by the transfer.
dvce s requested whether transfers of shares of stock by th
trustees of the trust created under the w of , n satsfacton of an
annuty provded for n the w, shoud be consdered as saes of
such stock resutng n gan to the trust for edera ncome ta
purposes.
Under the w of , the trustees were authorzed to se the trust
property for the purpose of renvestng the proceeds, or of makng a
dvson of the trust estate, or n carryng out any provson of such
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117, rt. 117-1.
trust. The testator drected that 7a doars be pad monthy to hs
wfe out of ncome of the trust or, f necessary, out of the corpus, so
ong as she remans unmarred. Durng the years 1935, 1936, and
1937, due to a shortage of cash, the trustees of the testamentary trust
transferred certan shares of stock, a part of the corpus of the estate,
to the wdow n satsfacton of the monthy annuty of 7 doars
payabe to her. The prce at whch the stock was transferred was
substantay n e cess of the bass of such shares n the hands of
the trust. The queston presented s whether the transfers resuted
n ta abe gans to the trust, and, f so, the measure and treatment
of such gans for edera ncome ta purposes.
It has been hed that the payment by a testamentary trustee of a
genera egacy by the transfer of securtes at market vaue to the
egatee consttutes a sae or other dsposton of the securtes from
whch a gan or oss s derved, and that the amount reazed there-
from s the amount of the obgaton dscharged by the transfer.
(Susman v. aton, 15 . Supp., 113, affrmed, 3 . (2d), 1019,
certorar dened, 299 U. S., 573.) In the case of etty Rogers et at.
v. Commssoner (103 ed. (2d), 790, affrmng 37 . T. .| 97), the
court hed that the conveyance of property n consderaton of the
canceaton of a debt was a sae of property and that the transac-
ton resuted n a capta oss.
It s hed, therefore, that the transfer of the securtes n satsfac-
ton of the annuty payments here n queston resuted n a capta
gan to the trust equa to the dfference between the bass of the
securtes n the hands of the trustees and the amount of the obga-
ton satsfed by the transfer. The gan must be ncuded n the
gross ncome of the trust to the e tent provded n secton 117(a) of
the evenue cts of 1934 and 1936.
S CTION 112(f). R COGNITION O G TN OR LOSS:
rtce 112(f)-: Renvestment of proceeds of nvountary
converson.
R NU CT O 193f.
page 110.)
rtce 117-1: Meanng of capta assets. 1939-35-99 1
G. C. M. 21497
R NU CTS O 1934 ND 1936.
bnnk. mortgage fnance company, or a budng and oan asso-
caton whch s offerng for sae parces of rea estate on whch It
bus been compeed to forecose s hodng property prmary for
sae to customers n the ordnary course of trade or
busness wthn the provsons of secton 117(b) of the Revenue
cts of 1934 and 1936, and the gans or osses ncurred n such
saes are to be treated as ordnary gans or osses and not as capta
gans or osses.
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117, rt. 117-1.)
1
n opnon s requested whether, under the Revenue cts of 1931
and 1936, gans derved or osses sustaned by budng and oan asso-
catons, mortgage fnance companes, and banks n dsposng of re
estate whch has been taken over by such nsttutons on defaut o
mortgage oans consttute capta gans or osses.
It s contended that propertes thus dsposed of are not capta
assets snce, as a necessary ncdent of the busness of makng osr
on rea estate and as authorzed and contempated under ther cor-
porate charters, such propertes are acqured and hed prmary k
sae.
Secton 117(b) of the Revenue cts of 1934 and 1936 provdes
foows:
Defnton of capta assets. or the purposes of ths tte, capta asset
means property hed by the ta payer (whether or not connected wth hs trat
or busness), but does not ncude stock In trade of the ta payer or other prop-
erty of a knd whch woud propery be ncuded n the Inventory of the U
payer f on hand at the cose of the ta abe year, or property hed by the tu
payer prmary for sae to customers n the ordnary course of hs trade
busness.
Under the above provson of aw, rea property s not ncuded
wthn the meanng of the cause stock n trade of the ta payer or
other property of a knd whch woud propery be ncuded n the
nventory of the ta payer f on hand at the cose of the ta abe vcar.
( ohn S. Phpps v. Commssoner, 19 . T. ., 1293 I. T. 2555,
C. . -, 306 (1931).) ccordngy, the queston remans whether
the rea estate nvoved n the nstant case s propery to be consdered
as property hed prmary for sae to customers n the
ordnary course of trade or busness.
Pror to the Revenue ct of 1934. the provson read (secton
101(c) of the Revenue ct of 1932) property hed pr-
mary for sae n the course of trade or busness. Under
ths provson, rea property taken over on forecosure by budng
and oan assocatons, mortgage fnance companes, and banks and
hed by them for sae woud be ncuded. (Cf. Iarr. v. MarLavgh/n,
15 ed. Supp., 1004.) The egsatve hstory of secton 117(b) of
the Revenue ct of 1934 ndcates that the words to customers
were added for the purpose of makng t mpossbe for peope trad-
ng on ther own account to cam that they were not sub|ect to the
provsons of secton 117. rtce 117-1 of Reguatons 101, reat
to the Revenue ct of 193 , refers to a deaer n rea estate as hod
ng and prmary for sae to customers. (Cf. Wetnhotue
Cronn, G Conn., 250, 36 t., 45, and uus Goodman v. Com
doner, 40 . T. ., 22.)
It s the opnon of ths offce that a bank, mortgage fnance com-
pany, or a budng and oan assocaton whch s offerng for
parces of rea estate on whch t has been compeed to forecos
s hodng property prmary for sae to customers n the ordnary
course of trade or busness wthn the provsons of
ton 117(b) of the Revenue cts of 1934 and 1936, and that gam or
osses ncurred n such saes are to be treated as ordnary ga s 01
osses and not as capta gans or osses.
, P. Wenche,
Chef Counse, ureau of Interna Revenue
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117, rt. 117-3.
rtce 117-1: Meanng of capta assets.
R NU CT O 1936.
Settement of pecunar egaces by the transfer of securtes be-
ongng to a trust. (See L T. 3316, page 1 6.)
rtce 117-1: Meanng of capta assets. 1939-4 -10104
I. T. 3336
R NU CTS OP 1934 ND 19.16.
ppcabty of G. C. M. 21497 (page 1 7, ths uetn) to nsur-
ance companes other than fe nsurance conpnnes.
G. C. M. 21497 (page 1 7, ths uetn), whch hods that a bank,
mortgage fnance company, or a budng and oan assocaton whch
s otterng for sae parces of rea estate on whch t as been con-
poed to forecose s hodng property prmary for sae to custom-
ers n the ordnary course of trade or busness, wthn
the provsons of secton 117(b) of the Revenue cts of 1934 and
1936, and that the gans or osses ncurred on such saes are to be
treated as ordnary gans or osses and not as capta gans or osses,
s appcabe under smar crcumstances to nsurance companes
other than fe nsurance companes.
rtce 117-3: Determnaton of perod for whch 1939-34-99G9
capta assets are hed G. C. M. 21507
R NU CT OP 1936.
In determnng the percentage of the capta gan reazed on the
sae of a patent to be reported for ta aton under secton 117 of the
Revenue et of 1936, the date on whch the orgna nventon form-
ng the bass of the patent was reduced to actua practce shoud be
used as the begnnng of the perod for whch the patent was hed.
Recommended that I. T. 3112 (C. . 1937-2, 139) be revoked.
In vew of the decson of the oard of Ta ppeas n Samue .
Descher et a. v. Commssoner (36 . T. ., 732), advce has been
requested as to the correctness of I. T. 3112 (C. . 1937-2, 139) 5 n
whch t was hed that n determnng the percentage of the capta
gan reazed on the sae of a patent to be reported for ta aton under
secton 117 of the Revenue ct of 1936, the date on whch etters
patent were ssued shoud be used as the begnnng of the perod for
whch the patent was hed.
In Samue . Descher, supra, t was hed that n determnng
whether certan patents whch were transferred had been hed for
more than two years, and hence consttuted capta assets wthn the
meanng of secton 101 of the Revenue ct of 1932, the date on whch
the orgna nventon formng the bass for the patent was reduced
to actua practce shoud be used as the begnnng of the perod. In
that case the oard stated n part:
s to certan others among the nventons, patents had not been ap-
ped for at the tme of the transfer or had not been ssued two years pror to
that tme. owever, some of these nventons, we have found, were deveoped
and perfected more than two years pror to ther transfer to the Descher Tube
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f 131, rt. 131-1.
190
Ms, Inc., and these Inventons had been emboded In a m constructed u
operated by the pettoners at the . M. yers Co. pant, n whch ther fas
bty and vaue were demonstrated. They were thus reduced to practce m
than two years pror to ther e change.
Under the common aw, the property rght of the nventor, to make, use k
vend, was recognzed. The patents ssued under statute are merey the pan:
of the rght to e cude others from that use for a perod of 17 years. The s-
ventor s property rght n hs nventon does not come nto beng upon hs oS
ranng of a patent but e sts pror to that tme upon hs reducton of an or:
na nventon to actua practce. (Crown De f Too Co. v. Nye Too d fwfc
Works, 261 U. S., 24 S Whee Corporaton v. Sterng Motor Truck Co., 5
ed. (2d), 56 .) s the court sad In the ast cted case
rom the foregong, t w be seen that the rreducbe quantum of the n-
ventor s rght n the res the nventon , even under the common aw, s that:
makng, usng and vendng. The edera Consttuton and the statutes pass
thereunder smpy make that rght e cusve. The statutes certany do m
curta the natura rght they enarge t
We thnk, therefore, that pettoners had a property rght In each of the
ventons whch they had reduced to practce. These rghts represented sca-
thng of e changeabe vaue whch the partnershp possessed snce t was a
to e change them for a vauabe consderaton. (See aycr v. Wer. 1
oward, 477 Indvdua Drnkng Cup Co. v. Osnun-Cook Co., 220 ed.,
crshcy Manufacturng Co., 14 . T. ., 67 affrmed, 43 ed. (2d), 20 0m
Washngton, Sr., 36 . T. ., 74.)
The Commssoner acquesced n the decson of the oard upon th
pont. (C. . 193 -1, 9.)
The hodng of the oard n the Descher case s contrary n prn-
cpe to the rung n I. T. 3112, supra, and t s accordngy recom-
mended that I. T. 3112 be revoked.
. P. Wenche,
rtce 117-3: Determnaton of perod for whch 1939-34-W1
capta assets are hed. L T. 3310
R NU CT O 1936.
L T. 3112 (C. . 1937-2,139) s revoked, n vew of G. C. M. 21501
(page 1 9, ths uetn).
rtce 131-1: nayss of credt for ta es.
R NU CT O 1036.
The 4 per cent ta mposed by the razan Income Ta ct and
covered by artce 174, razan Income Ta Reguatons. (See L T.
3313, page 171.)
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191
131, rt. 131-1.
.RTrcL 131-1: nayss of credt for ta es. 1939-3 -10020
( so Secton 23 (c), rtce 23 (c)-.) I. T. 3320
R NU CT OP 1036.
The Me can proportona rate ta of 10 per cent on partc-
patons receved from o producton mposed by artces 26 and 27
of Chapter I , thrd schedue, of Ley de Impuesto sobre a
Renta, s not an ncome ta wthn the purvew of secton 1151 of
the Revenue ct of 1930, and no credt s aowabe therefor
aganst Unted States ncome ta . The amount of such Me can
ta , however, s aowabe as a deducton under secton 23(c)
of the ct.
dvce s requested whether the proportona rate ta of 10
Der cent pad by to the Me can Government s an ncome ta
wthn the meanng of secton 131 of the Revenue ct of 1936, reat-
ng to credts for ncome ta es mposed by foregn countres.
owns nterests n o wes n Me co from whch he derves
substanta ncome, and n hs return for the year 1937 he camed
credt, under secton 131 of the evenue ct of 1936, on account of
a pad to the Me can Government. Ths ta , eved under artces
16 and 27 of the Me can aw Ley de Impuesto sobre a Renta,
mounted to 2 | doa-s and s based upon the gross recepts from
) producton n the amount of 2 0o doars. Durng the year 1937,
he ta payer e pended 32a doars for repars and other msce-
aneous tems on the wes, but ths amount was not taken nto
onsderaton by the Me can Government n computng the ta due
from the ta payer.
The transaton of the aw Ley de Impuesto sobre a Renta s
aased upon the 1934 edton pubshed by nton menez and n-
corporates a amendments promugated up to une 15, 1937. Pert-
ent provsons of the aw are found under Chapter I, Genera Pro-
vsons, artce 1, and under Chapter I , thrd schedue, n artces
6 and 27.
Chapter I, Genera Provsons, artce 1, reads as foows:
rtc.k 1. The foowng are abe for payment of Income ta :
I .
II. oregners domced n the Repubc or abroad whose ncome or profts
re derved from sources of weath wthn natona terrtory or busness trans-
crons effected theren.
Chapter I , thrd schedue, artces 26 and 27, reads n part:
btck 20. The foowng are ncuded under ths schedue:
I. Ta payers who, normay or occasonay, receve partcpatons, ether n
be form of rentas or otherwse, from the e potaton of the subso or conces-
ons granted by the edera or State Governments or muncpates.

rtce 27. Income Incuded under Secton I of the precedng artce sha be
omputed n ts entrety

The ta payabe on the tota yeary ncome of the ta payer sha be cacuated
n the manner ad down n the reguatons but n a cases and kewse n
coordance wth the reguatons the proportona 10 per cent rate estabshed
n ths tarff on the ta abe ncome must be pad n advance, at the tme of Its
ecept.
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5 04(e).1
192
It appears that the proportona rate ta of 10 per cent, whch
was pad by , s based on gross recepts and, hence, s n the nature
of an e cse ta and s not an ncome ta wthn the purvew of sec-
ton 131 of the Revenue ct of 1936. (See I. T. 32 , C. . 1937-1
(Part 1), page 139, and ctatons theren.)
It s, accordngy, hed that such ta , mposed under artces 26 and
27 of the Me can aw Ley de Impuesto sobre a Renta, s not an
ncome ta for the purposes of secton 131, supra, and no credt may
be aowed therefor aganst Unted States ncome ta . The amount
of such Me can ta s, however, aowabe as a deducton under
secton 23 (c) of the Revenue ct of 1936.
T SOURC .
rtce 143-2: ed or determnabe annua or
perodca ncome.
R NU CT O 193 .
Przes awarded to nonresdent aen artbts. (See G. C. M. 21575,
page 172.)
R NU CT O 1930.
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193 5 22(a), rt. 22(a)-1.
INCOM T RULINGS. P RT III.
R NU CTS O 1935 ND 1934 OR PRIOR CTS.
SU TITL . G N R L PRO ISIONS.
D INITION.
rtce 22(a)-: What ncuded n gross ncome.
R NU CT O 1934.
greements between husband and wfe resdng n the State of Ca-
forna and Te as wth respect to communty ncome. (See G. C. M.
20960, page 175.)
I. T. 3335
R NU CT O 192 .
Revocaton of I. T. 26 1 (O. . II-1, 93 (1933)).
dvce has been requested whether I. T. 26 1 (C. . II-1, 93
(1933)) shoud be revoked n vew of the fact that the nonacques-
cence n the case of Regnad ncke v. Commssoner (39 . T. .,
510 nonacquescence, C. . 1939-1 (Part 1), 47) has been wthdrawn
(page 12, ths uetn).
The oard of Ta ppeas hed n the ncke case (syabus):
The pettoner had certan shares of stock. Smar shares were seng on
the market at prces far In e cess of the cost of the pettoner s stock. e sod
hs shares at cost to hs mnor daughter and three famy trusts. Shorty
thereafter the purchasers sod the shares on the market at a proft. Icf, the
pettoner reazed no proft from the transactons.
In that case the dfference between the cost (seng prce) and the
vaue of the property transferred was treated as a gft and gft ta
pad thereon.
I. T. 2G 1 hed (syabus):
The ta payer, ntendng to make a gft of 5,000 n vaue to each of hs ch-
dren, conveyed to one chd n 1931 certan rea estate havng a far market
vaue of ,r 00, and receved a mortgage thereon for 3,500. The basc cost
of the property was 4,500.
The transacton represents a gft to the e tent of 5,000 of the vaue of the
property and a sae as to 3,500 of such vaue. Seven-seventeenths
( 3,500/ ,500) of the cost ( 4,500), or 1, 52.94, represents the bass to the
ta payer of that part sod. In the hands of the chd the bass of the property
s ten-seventeenths ( 5,000/ ,500) of the cost to the donor, or 2,047.0(5, pus
3,500, the amount whch the chd s obgated to pay for the part purchased.
In vew of the fact that I. T. 26 1. supra, s contrary n prncpe
to the decson of the oard of Ta ppeas n the ncke case, that
rung s revoked.
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22(a), rt. 22(a)-2.)
194
rtce 22(a)-2: Compensaton for persona
servces.
1939-49-10113
Ct, D. 1425
INCOM T R NU CT O 1934 D CISION O COURT.
1. Gross Income Saaby of udge op Unted States Court of
Customs and Patent ppeas Consttutonaty of Ta .
The saary of a |udge of the Unted States Court of Customs and
Patent ppeas apponted pror to une C, 1932, s ncudbe n
ta abe gross ncome under the provsons of secton 22(a) of the
Revenue ct of 1934. That court s a egsatve court rather than
a consttutona court, and the ta mposed does not voate the pro-
vson of rtce III of the Consttuton prohbtng dmnuton of
compensaton durng contnuance n offce.
2. Rehearng Dened.
Petton for rehearng dented March 29, 1939.
3. Certorar Dened.
Petton for certorar dened October 9, 1939.
Unted States Crcut Court of ppeas fob the Seventh Cbcutt.
Oscur . and and osephne . and, pettoners, v. Commssoner of Intend
Rrrente, respondent.
102 . (2d), 157.
Petton for revew of d cson of the Unted States oard of Ta ppeas.
ebneb, Crcut udge: Ths s an appea from a decson of the oard of
Ta ppeas, and nvoves a defcency n ncome ta es for the years 1934 and
1935.
Pettoner Oscar . and was on March 4, 1923, apponted an assocate |udge
of the Unted S tates Court of Customs ppeas (now caed the Unted States
Court of Customs and Patent ppeas). e took the oath of offce on March 5,
1923. The Commssoner of Interna Revenue determned that hs saary as
|udge of that court was sub|ect to ncome ta and the oard approved.
The ony queston presented s whether the saary of a |udge of the Unted
States Court of Customs and Patent ppeas apponted pror to une 6, 1932, s
ncudbe n ta abe gross ncome.
Secton 22(a): Gross ncome ncudes gans, profts, and ncome derved
from saares, wages, or compensaton for persona servce, of whatever knd
and n whatever form pad, or from professons, vocatons, trades, busnesses,
commerce, or saes, or deangs n property, whether rea or persona, growng
out of the ownershp or use of or nterest n such property aso from nterest,
rent, dvdends, securtes, or the transacton of any busness carred on for
gan or proft, or gans or profts and ncome derved from any source whatever.
In the case of Presdents of the Unted States and |udges of courts of the
Unted States takng offce after une 6, 1932, the compensaton receved as such
sha be ncuded n gross ncome and a cts f ng the compensaton of such
Presdents and |udges are hereby amended accordngy. (Revenue ct of 1334
ch. 277, 4 Stat, 6 (5 U. S. C, Tte 26, secton 22.)
Pettoners contend that Congress can not consttutonay Impose the ta , and
n support of ther contenton urge that the Court of Customs and Patent p-
peas s a court estabshed under rtce III of the Consttuton and that a ta
mposed upon ts udges voates that provson of rtce I prohbtng
dmnuton of compensaton durng contnuance n offce.
rtce III, secton 1, of the Consttuton provdes: The udca Power
of the Unted States, sha be vested n one supreme Court, and n such Inferor
efore vans, Sparks, and ebneb, Crcut uuots.
ebruary 27, 1939.
OPINION.
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195
22(a), rt. 22(a)-2.
Oourts as the Congress may from tme to tme ordan and estabsh. The
udges, both of the supreme nud nferor Courts, sha hod ther Offces durng
e - d ehavour, and sha, at sated Tmes, receve for ther Servces, a Com-
pensaton, whch sha not be dmnshed durng ther Contnuance n Offce.
On the other hand respondent contends that the saary of the pettoner s
not consttutonay protected aganst dmnuton, snce that court s a egs-
utve court rather than a consttutona court.
We beeve the answer s to be found n parte akete Corp n (279 U. S.,
4:- ). In that case t was contended that the Court of Customs ppeas was
an nferor court created by Congress under secton 1, rtce III of the Con-
sttuton, and n dscussng ths contenton the court sad (page 44 )): Whe
rtce III of the Consttuton decares, n secton 1, that the |udca power
of the Unted States sha be vested n one Supreme Court and n such nferor
courts as the Congress may from tme to tme ordan and estabsh, and pre-
scrbes, n secton 2, that ths power sha e tend to cases and controverses of
certan enumerated casses, t ong has been setted that rtce III does not
e press the fu authorty of Congress to create courts, and that other artces
nvest Congress wth powers n the e erton of whch t may create nferor
courts and cothe them wth functons deemed essenta or hepfu n carryng
tose powers nto e ecuton. ut there s a dfference between the two casses
of courts. Those estabshed under the specfc power gven n secton 2
of rtce III are caed consttutona courts. They share n the e ercse
of the |udca power defned n that secton, can be nvested wth no other
|ursdcton, and have |udges who hod offce durng good behavor, wth no
power n Congress to provde otherwse. On the other hand, those created
t y Congress n the e erton of other powers are caed egsatve courts. Ther
functons aways are drected to the e ecuton of one or more of such powers
and are prescrbed by Congress ndependenty of secton 2 of rtce III
and ther |udges hod for such term as Congress prescrbed, whether t be a
f ed perod of years or durng good behavor.
Nevertheess, the ground upon whch the akete decson was reached,
pettoners argue, have been removed by subsequent decsons and we are
asked to dsregard the akete case entrey. edera Rado Commsson v.
Neson ros. ond d Mortgage Oo. (2 9 U. S., 266) Od Coony Trust Co. v.
Commssoner (279 U. S., 716 Ct D. 0. C. . III-2, 222 (1929) ) dety
Natona ank v. Swope et a. (274 U. S., 123) and other cases are cted. We
have carefuy read these cases and consdered the arguments advanced, but
we are unabe to hod that the Supreme Court Intended to recede from the
pronouncements of the akete case.
We are fortfed n our decson by the anguage used n Wams v.
Tntcd States (2 9 U. S., 553), where the Court sad (page 571): urther
refecton tends ony to confrm the vews e pressed n the akete opnon
as to the status of the Court of Customs ppeas, and we fee bound to reaffrm
and appy them. nd gvng these vews due effect here, we see no escape from
the concuson that f the Court of Customs ppeas s a egsatve court, so
aso s the Court of Cams. The Court then hed that the saary of a |udge
of a egsatve court coud be dmnshed.
The pettoners aso urge that the ast sentence of the secton of the statute
nvoved operates to e cude hs saary snce he was apponted pror to une
6, 1932, on the ground that the menton of one thng mpes the e cuson of
another thng e presso unus est e cuso aterus. Ths ma m s not of
unversa appcaton, but s to be apped ony as an ad n arrvng at ntenton.
(Unted States v. arnes. 222 TT. S., 513.) It shoud never he foowed to the
e tent of overrdng a dfferent ntent of the egsature. (Consumers Co. v.
Cty of Chrago, 313 111., 40 .) Congress ntended to use Its power to the fu
e tent, and by ths ct t was the ntenton of Congress to put money nto the
edera Treasury by mposng a ta upon pretty much every sort of ncome
subect to the edera power. ( evcrng v. Stockhoms nskda ank,
293 U. S., 4, 9 ICt D. 7, C. . TII-2, 299 (1934)1.)
The sentence we are consderng frst appeared n the aw as secton 22(a)
of the Revenue ct of 1932 (ch. 209, 47 Stat., 17 ), e cept that the phrase fter
une 6, 1932, read after the date of the enactment of ths ct. The date of
enactment of the 1932 ct was In fact une 6, 1932, and, when these provsons
were reenacted In 1934, there occurred the above change n phraseoogy merey
to preserve contnuty.
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22 (b), rt. 22 (b) (4)-. 196
The Revenue ct mmedatey pror to the 1932 ct (the Revenue rt d
192 , ch. 52, 45 Stat, 791) contaned no provson n secton 22(a) comparaU
to the ast sentence of the 1932 and 1934 cts. nd under the 192 rt tb
saares of a udges of egsatve courts were ncuded n gross ncot-
pursuant to the genera provsons of secton 22(a). The saares of |ur
of consttutona courts were not Incuded. (See vans v. Gore. 253 U. S,
245 T. D. 30,17, C. . 3, 93 (1920) .) In passng the Revenue ct of I .
Congress beeved t had the power and t was undertakng to ta the saary
of |udges of consttutona courts, provded the statute apped ony to after-
apponted |udges.
It s obvous that gross ncome as defned n the statute s a-ncusve sod
Incudes saares from any source whatever, e cudng ony those |udzra
whose saares are protected by the Consttuton. It s cear to us that r
was the ntenton of Congress to enarge, not to reduce, the number sub|M
to the payment of ncome ta . It was never ntended to e empt those arwd|
pany wthn the provsons of the e stng aw. To hod wth pettoners
t woud be necessary to say that Congress, n makng cear ts ntenton to ta
the saares of a after-apponted udges, mpedy e empted the saares of
|udges aready ceary ta abe under the e stng aw. We can not br
ourseves to the beef that Congress ever Intended such a resut. Laws shoud
receve a sensbe constructon. The ma m urged by pettoners s not pro-
ductve of such sensbeness.
The order of the oard of Ta ppeas s affrmed.
ROM GROSS INCOM .
rtce 22(b) (4)-: Interest upon State 1939-34-9371
obgatons. CtD. U
ncome ta revenue act op 1934 decson op cocrt.
Gross Income empton Interest on Obgatons of Potca
Subdvson of State Notes Gven by age.
Interest receved by the ta payer on notes gven by a vage n
parta payment of the purchase prce of rea property s e empt
from edera ncome ta , as such notes are obgatons of a pot-
ca subdvson of a State wthn the meanng of secton 22(b)(4)
of the Revenne ct of 1934. The word obgatons n the stat-
ute was ntended to e tend ony to those obgatons whch were
created n the e ercse of the borrowng power but whore credt
s obtaned n consderaton for a promse to pay money n the
future, together wth nterest on that money, there s no vad
ground for makng a dstncton between nterest pad on bonds
duy ssued and nterest pad on notes duy devered.
Unted States Crcut Court of ppeas for the Second Crcut.
Commssoner of Interna Revenue, pettoner, v. enry on L. Meyer,
respondent.
104 ed. (2d), 155.
Petton to revew a decson of the oard of Ta ppeas redetermnng a defcent
Income ta es for 1934. ffrmed.
efore L. and, Chase, nnd Patterson, Crcut udges.
May 22, 1939.
opnon.
Chase. Crcut udge: The respondent In 1932 purchased certan and In
vage of Suffern, N. Y., whch some of the nhabtants of the vage
desred to have t acqure for pubc use. s purchase of the and was duo
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197 22(b), rt. 22(b) (4)-.
o assure ts avaabty for such use n the event that the vage dd decde
o take t e pad 15,000 for t and ncurred e penses of 19 .33 n connec-
on wth the purchase. On anuary 16, 1933, the board of trustees of the
age of Suffern voted to purchase the property from the respondent and to
ay hm what he had e pended for t. e thereupon conveyed the property
o the vage and receved as the consderaton for the deed cash to the amount
f 1,19 .33, and the duy e ecuted promssory notes of the vage for the
emander of the purchase prce. There were fve of these notes whch were
ated anuary 15, 1933, and a bore Interest at the rate of 5 per cent payabe
Ptuannuay unt maturty. The frst was for 2,000 payabe on uy 15, 1933
he ne t two were for the same amount payabe on the 15th of uy n 1934 and
935, respectvey and the ast two were each for 4,000. One of them was
ayabe on the snne day of uy n 1936 and the other one year ater. The
nterest on the notes then unmatured was pad by the vage to the respondent
n 1934 to the amount of GO0. e faed to Incude t n hs return of Income
or that year as he camed t to be e empt from such ta aton under secton
12(b)(4) of the Revenue ct of 1934. The Commssoner treated such nterest
s ta abe ncome, however, and determned a defcency based n part thereon.
The oard of Ta ppeas redetermned the defcency and n so dong hed
hat such nterest was e empt from ta aton. The Commssoner has brought
hs petton to revew the redetermnaton of the oard. The ta abty of such
nterest s the ony ssue before us.
It has een agreed that the vage of Suffern s a potca subdvson of the
State of New York. Secton 22(b)(4) of the Revenue ct of 1934 provded,
tter aa, that nterest upon the obgatons of a potca subdvson of a
State shoud not be ncuded n gross ncome and shoud be e empt from
a aton.
The pettoner contends that ths statute s not appcabe to nterest pad
n these notes, gven n part payment of the purchase prce of property ac-
nred, upon the theory that they were not Issued by the vage actng by Its
consttuted authortes empowered to Issue such obgatons as provded by
rtce 22(b)(4) of Treasury Reguatons 6. No queston s rased as to the
uthorty of the person who sgned the notes to do so on behaf of the vage:
or s t camed that the notes were not egay enforceabe obgatons of the
Tage accordng to ther terms. The argument s that they were not the knd
)f obgatons covered by the statute because they were not e ecuted n the
e ercse of the borrowng power of the vage ke bonds duy authorzed,
ssued and sod for the purpose of borrowng money.
In Unted States Trust Co. of New York v. nderson (65 ed. (2d), 575
Ct D. 736, C. . II-2, 104 (1933) ), we hed that nterest pad by the cty
f New York on a condemnaton award was not e empt from ta aton nnder
he smar provsons of the Revenue ct of 1926 and n so dong dstngushed
mch nterest from that pad on obgatons ssued under the borrowng power
)f the cty. That sort of nterest was but part of the award tsef. (See
atmore Oho R. R. v. Commssoner, 7 ed. (2d), 400 Pheps v. Unted
States, 274 U. S., 341.) It was payabe not by vrtue of any contract under
vhch credt was obtaned but because requred by aw as part of the |ust
compensaton for what was condemned nnd taken n nvtum for pubc use.
It s manfest that the word obgatons n the statute was not ntended
o e tend to every obgaton whch ncuded the pnyment of nterest but ony
o those obgatons whch were created n the e ercse of the borrowng power.
fSee everng v. Stockhom , etc., ank, 293 U. S., 1 C,t. D. 7, C. . III-2,
99 (1934). .) ut where credt s obtaned n consderaton for a promse
o pay money n the future, together wth nterest on that money, there s
o vad ground for makng a dstncton between Interest pad on bonds
uy ssued and nterest pad on notes duy devered. In ths nstance the
rage purchased the property n part on ts credt and gave ts nterest-bearng
otes for the remander of the purchase prce not pad n cash. If nstead
)f buyng the property In the frst pace to keep t avaabe for purchase by
:he vage, the ta payer had advanced the money to the vage on ts notes
nd the vage had bought the property drecty there woud have been a
atent e ercse of the borrowng power. That, too, woud have been pan
nough had the vage sod ts bonds to rase the needed money. The practca
ffect of what t dd from the standpont of ts borrowng power was the same
when t gave ts nterest bearng notes for property nstead of for cash. Its
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23(c), rt. 23(c)- .
193
obgatons were Issued wthn the above reguatons when ts notes rerc
devered to the respondent to obtan credt on obgatons ncurred under ts
borrowng power. Such crcumstances brng the nterest pad on the nota
wthn the scope of the above statute and make t e empt from ta aton
( ngs County D. Co. v. Commssoner, 93 ed. (2d), 33 Norfok Nat, a
v. Commssoner, 66 ed. (2d), 4 .)
ffrmed.
rtce 23(c)-1: Ta es. 1939-31-9
a. D. M
1. Deducton Ta es Pad or ccrued Wthn Ta abe Year-
Len Upon Rea Property Mnnesota Law.
ta payer reportng on the cash recepts and dsbursements
bass s not entted to a deducton, under secton 23(c) of the
Revenue ct of 1934, for 1933 ta es pad n 1934 on Mnnesota rea
estate acqured n ugust, 193. , through the purchase of a sherffs
certfcate of mortgage forecosure sae, snce under the aws of
Mnnesota the ta es assessed became a en on the property on May
1. 1C33, athough the amount thereof had not at that tme been
ascertaned or eved and they were not due and payabe unt
anuary, 1934. The ta es accrued on May 1, 1933, whe the and
was n other ownershp, and the payment of them by the pur-
chaser was merey a payment of part of the cost of acqurng the
property.
2. Decson ffrmed.
Decson of the Unted States oard of Ta ppeas 19:57)
(36 . T. ., 593) affrmed.
3. Certorar Dened.
Petton for certorar dened anuary 16, 1939.
Unted States Crcut Court of ppeas for the ghth Crcut.
Car . Lfson, dmnstrator of the state of en|amn Lfson, Dercate,
Sophe Lfson, pettoners, v. Commssoner of Interna Revenue, respondent.1
9 ed. (2d), 50 .
On petton to revew decson ot Unted States oard of Ta ppeas.
efore Gardner, Sanborn, and Thomas, Crcut udges.
ugust 1 ,193 .
opnon.
Sanborn, Crcut udge, devered the opnon of the court.
Ths s a petton to revew an order of the oard of Ta ppeas (36 . I
.., 593) redetermnng a defcency n ncome ta es of Sophe Lfson and en|mn 1
Lfson, her husband, for the year 1934 occasoned by the dsaowance of
deducton, from ther |ont gross ncome, of an tem of 19,2 .31 represents
the payment n 1934 by Sophe Lfson of ta es for the year 1933 upon rea estate
n St. Pau, Mnn., known as the Mnnesota udng.
The Mnnesota Pudng In 1932 beonged to Lncon Deveopment Co., whW
n May of that year mortgaged t to esher ngneerng Constructon Co.
1 See . C. M. 21373, page 4, ths uetn.
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199
23(c), rt. 23(c)- .
Ths mortgage was forecosed and the property was bd n at forecosure sae on
October 7, 1032, by the mortgagee. On ugust 16, 1933, Sophe Lfson purchased
the sherff s certfcate of mortgage forecosure sae. The perod wthn whch
the property coud have been redeemed from the forecosure e pred October 7,
1933, and on or about October 16, 1933, Sophe Lfson went Into possesson. The
1933 ta es upon the property became a en as of May 1,1933, athough the amount
of the ta es had not at that tme been ascertaned or eved and they were not
due and payabe unt anuary, 1934.
The Revenue ct of 1934 (ch. 277, secton 23(c), 4 Stat., 6 0, 6 ) provded
that n computng net ncome there shoud be aowed as a deducton Ta es
pad or accrued wthn the ta abe year (wth certan e ceptons not here
matera).
The Commssoner and the oard of Ta ppeas were of the opnon that
ta es upon the Mnnesota udng for the year 1933 accrued on May 1, 1933,
and that, snce the budng at that tme dd not beong to Sophe Lfson and
she acqured t after that date sub|ect to the en of the ta es, the payment
of these ta es n 1934 dd not entte her to a deducton.
The pettoners contend: (1) that the ta es dd not accrue on May 1, 1933,
because a of the events whch f ed the amount of the ta es and whch deter-
mned the abty of the ta payer to pay them had not then occurred, and
because there was no persona obgaton mposed by the aws of Mnnesota
upon owners of rea estate wth respect to rea estate ta es the ta beng
made a charge aganst, and en upon, the and ony (2) that, snce Sophe
Lfson and her husband made ther |ont return upon a cash bass, they were
entted to a deducton for ta es pad wthn the ta abe year
regardess of when such ta es accrued or became a en and (3) that f the
doctrne of reaton s to be nvoked to make the 1933 ta es a en as of May 1,
1933, the same doctrne shoud be nvoked to make Sophe Lfson the owner
of the rea estate as of May, 1932, when the mortgage upon whch her tte s
based was e ecuted.
That Sophe Lfson acqured the Mnnesota udng after May 1, 1933, and
that at the tme she acqured t the ta es for 1933 were, by State statute, a
charge aganst and a en upon t, can not be controverted. She certany had
no nterest n ths rea estate unt ugust 16, 1933. The abty of the rea
estate for the ta es to be eved n 1933 and the en for those ta es had then
accrued.
When one purchases and whch s sub|ect to a en for ta es, the subsequent
payment of those ta es by the purchaser does not consttute an aowabe de-
ducton from gross ncome, for the reason that the ta es accrued whe the
and was n other ownershp and the payment of them s merey a payment of
a part of the cost of acqurng the property.
The fact that the amount of the ta es here nvoved had not been defntey
ascertaned at the tme the en attached does not ater the stuaton. (The
WaUh-McGurc Co. v. Commssoner (6 Cr.), 97 . (2d), 9 3, opnon fed
Mason s Mnnesota Statutes. 1927, secton 10 1, provdes that a rea estate sha be
sted and assessed every even numbered year wth reference to Its vaue on May 1 preced-
ng the assessment. Mason s Mnnesota Statutes, 1927, secton 2191, provdes: The
ta es assessed upon rea property sha bo a perpetua en thereon from and
Incudng May 1 n the year In whch they are eved, unt they are pad: but, as between
grantor and grantee, such en sha not attach unt the frst Monday of anuary of the
year ne t thereafter. The en of the State for .a es upon rea estate attnehc on the
1st dav of May n the year they are eved. ( unne s Mnnesota Dgest, Second d.,
secton 9161 ate ower Mere-Smth v. Mnnesota Iron Co., 195 Mnn., 313, 262
N W St. : Natona ond d Securty Co. v. o.ns, 96 Mnn., 119, 121, 104 N. W.,67
State v Northwestern Te. change Co., 0 Mnn., 17, 2 N. 1090: State v. en.
79 Mnn. 131, 1 N. W., 763 Count / of Martn v. Drake. 40 Mnn.. 137, 139, 41 N. W.,
42 Merchant ank du. Co. v. Uevernt ( Cr.), 4 1 (2d), 47 , 4 0 ft. D. 11 9.
C. . 1937-1, 1S9 Thompson v. Unted states (1). C. Mnn.), . (2d), 175 oy .
ft Ne v. Commssoner, 1 . T. ., 727. 729 Lcamnuton ote Co. v. Commssoner,
26 . T. ., 1U04, 1006-1007 Coqnet Co-operatve Socety v. Commssoner, 21 It. T. .,
744. 74 .)
a See Merchants ank da. Co. v. evcrng ( Cr.) ( 4 P. (2d), 47 . 4 1)
Ieverng v. Mssour State -fc Ins. Co. ( Cr.) (7 P. (2d), 77 , 7 1) ak Cor-
poraton v. Commssoner (7 cr.) (60 . (2d). 204) The Wash-McGvre Co. v. Com-
mssoner (6 Cr.) (97 . (2d), 9 3, opnon ted une 7, 193 ) Caforna Santary
Co y. Commssoner (32 . T. .. 122 : Te as Coca-Coa ottng Co. . Commssoner
(30 . T. ., 736) Leamngton ote Co. v. Commssoner (26 . T. .. 1004) : Grand
ote Co. v. Commssoner (21 . T. . 90) sse v. Commssoner (15 . T. .,
1270, 1274) ohn ancock Mutua Lfe Ins. Co. v. Commssoner (10 . T. ., 736).
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23(c), rt. 23(c)-.
200
une 7, 103 .) There s no mert n the contenton that rea estate ta es do
not accrue 4 uness they become a persona obgaton of the owner of the
and. They accrue n Mnnesota when they become a charge aganst and
en upon the and ta ed.
The order of the oard was correct, and s affrmed.
rtce 23(c)-1: Ta es.
Ct. D. 1410
INCOM T R NU CT O 19.12 D .CISION O COURT.
1. Deducton Ta es Pad or ccrued Wthn Ta abe Year
Len Upon Rea Property Washngton Law.
The ta payers, husband and wfe, reportng on the cash recepts
and dsbursements bass, are entted to a deducton, under secton
23(e) of the Revenue ct of 1932, for ta es pad by the wfe n
1032 on rea estate stuated n the State of Washngton whch
she, as devsee under her father s w, acqured on pr 5, 1931,
the date of the attcr s death, snce the State statute provdes that
the en for ta es sha attach on the 1st day of March of each year,
e cept that as between a grantor and grantee the en sha not
attach unt the frst Monday n ebruary of the succeedng year.
The devsee was a grantee wthn the meanng of the State statute,
and therefore the en dd not attach unt ebruary, 1032.
2. Decson ffrmed.
Decson of the Unted States oard of Ta ppeas (1037)
(35 . T. ., 50 ) affrmed.
Unted States Crcut Court ok ppeas for the Nnth Crcut.
Commssoner of Interna Revenue, pettoner, v. Mrs. Ouendoen C. Pestchcfff,
respondent.
Commssoner of Interna Revenue, pettoner, v. Theodore Pcstchccft,
respondent.1
100 . (2d), 62.
Upon petton to revew a decson of the Unted States oard of Tn ppeas.
efore Gabrecht, anet, and eat, Crcut udges.
November 1 , 103 .
OPINION.
aney, Crcut udge: The Commssoner of Interna Revenue has fed a pet-
ton to revew a decson of the oard of Ta ppeas whch permtted respond-
ents n ther ncome ta return for the year 1032, to deduct the amount of ta es
pad durng that year on rea property acqured by respondents under a devse
In 1931.
Respondents were, at tmes matera heren, husband and wfe. On pr 5,
1931. the wfe s father ded, eavng a w, by the terms of whch rea estate
n Washngton was devsed to the wfe. decree, n the probate proceedng,
confrmed the devse on Decem er 31, 1931. The wfe, durng 1932, pad
4,266.69 as ta es on the property devsed to her. In ther ncome ta return (or
the year 1932, whch was made on the cash bass, respondents camed a
deducton for the amount of the ta es pad. Pettoner audted the return and
ad|usted the net ncome by dsaowng the deducton for ta es, and assessed
defcency n the ta of 309.22, on the ground that the ownershp of property
n the State of Washngton on March 1 Is the event whch determnes the
ccrue. To grow to to be added to to nttach Itsef to as a subordnate or
accessory cam or demand arses out of, and Is oned to, ts prncpa tus, costs acrro
to a udgment, and nterest to the prncpa debt. The term s aso used of ndependent
or orgna demands, and then means to arse, to happen, to come nto force or e stence:
to vest as In the phrase. The rght of acton dd not accrue wthn s years.
v. Dubuque. U. S. 470. 476.) ar-k s Law Dctonary, second edton, pse 1
See aso usbank v. Unted State (7 Cr.) (50 . (2d), 409) Words and Phrases,
partcuary the thrd and fourth seres.
1 See G. C. M. 21373, page 2. ths uetn.
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201
23(c), rt. 23(c)-.
abty for both rea estate and persona property ta es and f es the amount,
though not ascertanabe on that date. Upon petton for revew, the oard
determned that there was no defcency, on the ground that the ta es assessed
ou rea estate for the year 1931 dd not, under the statutes of Washngton as
construed by ts courts, attach and become a perfected en on sad reaty pror
to October, 1931, n whch month the ta evy s made In that State. The
Commssoner fed n ths court a petton to revew that decson
y Remngton s Rev. St. of Washngton, secton 13G6, tte to rea property
of a deceased vests n the hers or devsees mmedatey upon the death. Rea
property s sub|ect to assessment and ta aton on March 1 of each year.
(.Secton 11111.) The assessment year commences on the 1st day of March and
ends on the ast day of ebruary n each year. (Secton 11242.) The board
of county commssoners s requred to evy ta es at ts October sesson, and
on or before the second Monday n October n each year, to certfy to the
county assessor of the county the amount of ta es eved upon the property n
the county. (Sectons 1123 . 11239.) The county audtor s requred to dever
to the county treasurer the ta ros of hs county for such assessment year
on the frst Monday n anuary ne t succeedng the date of evy of ta |s,
but no coecton thereof sha be made pror to the frst Monday n the foowng
ebruary. (Secton 11243.)
Secton 112(55 provdes n part:
The ta es assessed upon rea property sha be a en thereon from and In-
cudng the 1st day of March n the year n whch they are eved unt the same
are pad, but as between a grantor and grantee such en sha not attach unt
the frst Monday n ebruary of the succeedng year.
The Revenue ct of 1932, secton 23(c) (47 Stat., 169), appcabe here, pro-
vdes that Ta es pad or accrued wthn the ta abe year sha be aowed
as a deducton n computng net ncome. It does not mt the deducton to cases
where the ta payer owns the property on whch the ta es are pad, but teray
Incudes the case where a ta payer pays ta es on property not owned by hm.
The admnstratve nterpretaton of the statute, however, mts the deducton to
the person who owned the property at the tme the en for the ta es attaches.
(G. C. M. 6007 (C. . III-2, 94).) Subsequent ta cts have contaned the
same provson as the Revenue ct of 192 , the ct under whch the admnstra-
tve nterpretaton above referred to, was made. The admnstratve nterpreta-
ton therefore stands approved by Congress. (Massachusetts Mutua Lfe ns.
Co. v. Unted States. 2S U. S., 209, 273 Ct. D. a3 , C. . II-1, 2 6 (1933) .)
Therefore, the rght to the deducton Is dependent upon the date upon whch
the en for the ta es attached. oth of the partes hereto rey upon the aw
of Washngton as the determnatve factor In ascertanng such date, and we
consder the cause upon that assumpton. (Of. urnet v. arme, 2 7 U. S., 103,
110 Ct. D. 611, C. . I-2, 210 (1932) . See aso Wech v. crckhoff
(C. C. . 9), 4 . (2d), 295, 29 Ct. D. 11 0, C. . -2, 355 (1936) , and cases
cted.) If t attached pror to pr 5, 1931, the deducton can not be permtted.
We may here assume that the en attached on March 1,1931, uness the deceased
father and wfe were n the poston of grantor and grantee, thus makng
appcabe the provson n secton 11265 that as between a grantor and grantee
such en sha not attach unt e frst Monday n ebruary of the succeedng
year. Snce a grantee s one to whom a grant s made, we must determne
whether or not a devse s ncuded wthn the term grant. Pettoner con-
tends that a grant does not Incude a devse.
In ancent tmes, the word grant had a mted meanng and ncuded
ony a conveyance of Incorporea rghts whch were transferabe ony by deed.
(2 Tffany on Rea Property (2d d.), sectons 427. 1567.) The word now s a
generc term appcabe to a transfers of rea property. ( ack s Law Det.
(3d d.), 55.) It s defned In Webster as a transfer of property, rea or
persona, by deed or wrtng. See aso: aentne s Law Det., 561: 1
ouver s Law Det. (Rawe s 3d rev.), 1379 4 Words and Phrases, 3151.
Thus the broad meanng of the word woud now Incude a devse. That the
restrcted meanng of grant was not ntended by the Washngton Legsature
Is shown, we thnk, by the hodngs that the reaton of grantor and grantee
s created by the condemnaton of and by a cty. (. ethany Presbyteran
rtce 151 of Reguatons 77, promugated under the Revenue ct of 1932, provdes:
In genera ta es are deductbe ony by the person upon whom they are mposed
. Ths reguaton does not ad the souton of the queston before us, because
In Washngton a ta on rea property Is not a persona abty aganst the owner.
(Cer v. aus . 57 Wash., 2 , 10G Pnc. 145.)
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23(c), rt. 23(c)- .
202
Church v. Sratte, 154 Wash., 529 Port of Seatte v. Tcscr state, 3 Wash..
166, 172.) We must nduge the presumpton that the egsatve authorty n
enactng secton 11205, supra, used words n ther ordnary sense and wth the
meanng commony attrbuted to them.1 The ordnary accepted meanng of
grant s as above ndcated.
further pont whch suggests tsef, reates to the knd of a controversy to
whch It was ntended that the phrase as between a grantor and grantee
woud be appcabe. Shoud the statute be construed to mean but n a con-
troversy soey between a grantor and grantee as to who s abe for unpad
ta es, such en sha not attach unt the frst Monday n ebruary of the
succeedng year In other words, s the provson whch postpones the date
when the en attaches, mted to a controversy soey between a grantor and
grantee In ethany Presbyteran Chvrch v. Seatte, supra, and Port of Seatte
v. Yeser, supra, suffcent of the awards to pay unpad ta es was eft on depost
n the regstry of the court n the condemnaton proceedng. The ta ng
authortes made cams to the deposts. though the grantees (the partes
who brought the condemnaton proceedng) were st nomna partes to the
proceedng, actuay the rea partes were the ta ng authortes and the grantors
(the owners of the property condemned), and the actua controversy was
between such partes. In any vew, the Supreme Court of Washngton dd not
restrct the appcaton of the statute to controverses soey between grantors
and grantees. We thnk t s mped n these cases that such appcaton Is not
so restrcted.
s thus construed, we thnk the en dd not attach unt the ebruary after
respondents acqured the property, and they are entted to the deducton.
ffrmed.
rtce 23(c)-1: Ta es. 1939-31-9937
Ct. D. 1411
ncome ta revenue apt of 1932 decson of court.
1. Deducton Ta es Pad ob ccrued Wthn Ta abe Yeab
Rea and Persona Property Wsconsn Law.
The ta payer, a Wsconsn busness corporaton, keepng ts books
on an accrua bass, s entted to deduct, n ncome ta returns
fed for fsca years ended une 30, 1933, and une 30, 1934, the
amount of rea and persona property ta es assessed for the years
1032 and 1933, respectvey, and whch were due and payabe before
ebruary 1 of the succeedng year. though the State statute
provdes for assessment of such ta es as of May 1 of each year,
the ta rate s not f ed unt November and the ta es are not due
and payabe unt the foowng anuary. The abty therefor
does not accrue, wthn the meanng of secton 23(c) of the
Revenue ct of 1932, unt the events by whch such abty s
f ed have occurred.
2. Decson ffrmed.
Decson of the Unted States oard of Ta ppeas (1937) (30
. T. ., 1147) affrmed.
Unted States Crcut Court of ppeas for the Seventh Crcut.
Commssoner of Interna Revenue, pettoner, v. Patrck Cudahy amy Co.,
respondent.
102 ed. (2d), 930.
Petton for rpvnw of dfoson of the Unted Stntes oard of Ta ppeas.
efore Sparks, Tseanor, and ernbr, Crcut udges.
March 1, 1939.
opnon.
Sparks, Crcut udge: The queston here presented s: When, under secton
23(c) of the Revenue ct of 1932, do persona and rea property ta es n the
25 R. C. L., fR .
See G. C. M. 21373, pager 2, ths uetn.
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203
23(c), rt. 23(c)-.
State of Wsconsn accrue as abtes so as to be deductbe from gross ncome
n ta returns made on the accrua bass.
Respondent s a Wsconsn busness corporaton. It keeps Its books on an
accrua bass, for a fsca year endng une 30 of each year. Its ncome ta
return s due October 15 of each year. In these ta returns for the years
endng une 30, 1933 and 1934, t deducted 560 for persona property ta es,
and 59,715 for rea property ta es assessed for the year 1932 and due and
payabe before ebruary 1, 1933, and 525 for persona property ta es, and
55, 62 for rea property ta es assessed for the year 1933 and due and payabe
before ebruary 1, 1934. The Commssoner aowed the tems camed as a
deducton for the year 1934 to be deducted for the year 1933, and deducted the
sum of 56,192 whch represented tota rea and persona property ta es
assessed as of May 1, 1934, for the year 1934, but dsaowed any deducton for
ta es for the year 1932. Ths ad|ustment was n accordance wth a depart-
menta rung to the effect that n Wsconsn, property ta es accrue on May 1
of each year, and a ta payer s entted to deduct such ta es ony on the bass
that they accrue as of that date.
The foowng provsons of the Wsconsn statutes are pertnent to the
queston here presented:
Sec. 70.10. rea and persona property sha be assessed as
of the 1st day of May n such year e cept as provded n secton 70.13. rea
property conveyed to any county by ta deed before the frst Monday n ugust
of any year shn not be ncuded n such assessment for such year.
Sec. 74.01. ta es eved upon any tract or parce of and and a costs,
charges and Interest thereon sha be a en thereon unt pad e cept as other-
wse provded by aw and a ta es eved upon any ands and a
costs, charges and nterest thereon sha aso be a en on a ogs, wood and
tmber cut upon such ands subsequent to the 1st day of May n the year n
whch such ta es are eved .
Sec. 74.02. s between grantor and grantee of any and, when there s no
e press agreement as to whch sha pay the ta es assessed thereon for the
year n whch the conveyance s made, f such and s conveyed on or before
the 1st day of December, then the grantee sha pay the same but If conveyed
after that date, then the grantor sha pay them .
In accordance wth further provsons of the statute, the ta ros, athough
based on vauatons as of May 1 of each year, were not actuay made up unt
some tme ater, and t was not unt n November that the ta rate was f ed,
whe the ta ros were not devered by the ta commssoner to the cty
treasurer wth hs warrant for the coecton of the ta es unt the second
Monday n December of each year.
The rung to whch the Commssoner referred n makng hs decson not
to aow the deducton here camed was entered n response to a queston rea-
tve to the deducton of rea property ta es, as between buyer and seer, on
certan parces of rea estate whch were transferred n the State of Wsconsn
ns of May 1, 1930. (See Cumuatve uetn II-1, 1933, I. T. 2694, page 107.)
It was there hed that the ta es accrued on May 1, 1930, and were deductbe
by the vendor, and that f the amount, thereof were pad by the vendee, It
shoud be consdered as a part of the cost of the property. The rung quoted
secton 70.0(1 of the Statutes, 1929, set forth above as secton 70.10, whch pro-
vdes that property s to be assessed as of May 1. There was no reference to
secton 74.G2 above, whch provdes, n effect, that ownershp as of December
1 sha determne the ncdence of the ta on rea property, athough ths pro-
vson of the statute was then n effect
It s cear that the entre emphass s paced by the Commssoner upon the
fact of assessment, under the Wsconsn ct, as of May 1. We are of opnon
that that fact aone s not controng. The word assessment, as used n
the decsons and statutes, has varous meanngs. Propery speakng t docs
not ncude the evy of ta es athough sometmes the words assess, assessed,
or assessment are used n a statute as ncudng both the evy and the assess-
ment n assessment, strcty speakng, s an offca estmate of the sums
whch are to consttute the bass of an apportonment of a ta between the
ndvdua sub|ects of ta aton wthn the dstrct It does not, therefore, of
tsef ay the charge upon ether person or property, but t s a step premnary
thereto, and whch s essenta to the apportonment s the word s more
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20-4
commony empoyed, an assessment conssts In the two processes of stng thr
persons, property, etc., to be ta ed, and of estmatng the sums whch are to
be the gude n an apportonment of the ta between them. (Cooey on Ta a-
ton (4th d.), voume 3, secton 1044. See aso vansve t 1. R. Co. v. m
11 Iud., 214.)
We thnk It can not be sad that abty for the ta es accrues unt the
events by whch that abty s f ed have occurred. Ths appears to be n
harmony wth the constructon paced upon the ta ng statute by the Ws-
consn authortes. rtce 507.1 of the Wsconsn Income Ta Reguatons pro-
vdes that property ta es are deductbe n the year n whch they are assess
but that no accrua for such ta es may be deducted on any return for a fsca
year endng pror to November 30. Ths s consstent wth the provsons of
secton 74.62 that as to rea estate whch Is conveyed on or before December 1
the grantee sha be abe for the ta es, but If after that date, the grantor sha
pay them.
The supreme court, n Spear v. Door County (65 Ws., 29 ), stated that th
rue goes upon the theory that the ta es are not a specfc en upon rea
estate unt the ta ro s competed and the ta es e teudcd on such ro.
(Sec aso Patterson v. Cappon, 125 Ws., 19 .) It s aso to be noted that f
rea property s conveyed to any county before ugust of any year, t sha Wt
be ncuded n the assessment for such year.
The Commssoner consders t sgnfcant that n 1929 the Wsconsn statate
was amended to provde for assessment of rea property as of May 1, as per-
sona property had been assessed pror to the amendment. Snce we do not
consder the fact of assessment as the controng factor n determnng when
the abty for the ta accrues, and are of opnon that the Wsconsn con-
structon of s statutes s In harmony wth ths nterpretaton, we do not agree
wth the Commssoner as to the sgnfcance of the amendment.
The Commssoner aso contends that ta es may accrue at a date pror to
the tme when the amount of the ta can be defntey ascertaned, ctng
Unted States v. nderson (269 U. S., 422 T. D. 3 39, C. . -, 179 (1926)11
and Contnenta Te L. Co. v. Unted States (2 6 U. S., 290 Ct. D. 494, C. .
I-1, 200 (1932) ). We do not consder the Contnenta case anaogous to the
one here presented.
The nderson case hed that muntons profts ta es due under the Revenne
ct of 1916 for that year but payabe In 1917, must be deducted n the year
1916 when they accrued, rather than n 1917 when they were pad. It Is cear
from a readng of the opnon n that case that a the events had occurred
by whch the amount was f ed, and that the ta was essentay one on the
Income of the earer year, 1916. The Court sad: In a technca ega sense
t may be argued that a ta does not accrue unt t has been assessed and
becomes due but t s aso true that n advance of the assessment of a btt
a the events may occur whch f the amount of the ta and determne the
abty of the ta payer to pay t In ths respect, for purposes of accountng
and of ascertanng true ncome for a gven accountng perod, the muntons
ta here n queston dd not stand on any dfferent footng than other accrued
e penses appearng on appeee s books. In the economc and bookkeepng sense
wth whch the statute and Treasury decson were concerned, the ta es had
accrued. It shoud be noted that secton 13(d) makes no use of the words
accrue or accrua but merey provdes for a return upon the bass upon
whch the ta payer s accounts are kept, f t refects ncome whch s precse
the return nssted upon by the Government.
In the case at bar, pror to the cose of ts fsca year on uno 30, and the
date by whch t was requred to fe ts ncome ta return. October 15, ony
one of the events had occurred by whch the ta payer s abty was to be
ascertaned, namey, the assessment as of May 1, by whch ony the vauaton
upon whch t was to ho ta ed was f ed. The nctua rate of the ta was not
known unt the evy In November, and the ta dd not become due and payabe
unt the foowng anuary. Under these crcumstances we thnk t can not he
sad that the abty accrued durng the fsca year as of whch the ta was
assessed so that the deducton had to be taken as of that year.
The decson of the oard of Ta ppeas s affrmed.
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203
23(e), rt. 23(e)-.
rtce 23 (c) -1: Ta es. 1939-31-9934
I. T. 3303
R NU CT O 192 .
I. T. 2633 (C. . I-2, 77 (1932)) and I. T. 2G94 (C. . II-1,
107 (1933)), nvovng the accrua date of Wsconsn rea property
ta es, are revoked n vew of G. C. M. 21373 (page 2, ths uetn).
S CTION 23(e). D DUCTIONS ROM GROSS INCOM :
LOSS S Y INDI IDU LS.
rtce 23(e)-: Losses by ndvduas. 1939-34-9972
G. C. M. 21503
R NU CT O 102 .
Where a contract to se stock on a stock e change for ess than
the bass thereof was entered Into on December 31, 1930, and de-
very of the stock was made In the reguar way on anuary 2,
1931, the oss on the transacton was ncurred n the year 1930 and
consttutes a proper deducton for that year. G. C. M. 12570 (C. .
III-1, 114 (1934)) revoked.
In G. C. M. 12570 (C. . III-1, 114 (1934)) t was hed that
where a contract to se stock on a stock e change was entered nto
on December 31, 1930, and devery of the stock was made n the
reguar way on anuary 2, 1931, the oss, f any, was ncurred n the
year 1931 and consttutes a proper deducton for that year.
In Rum v. Commssoner ( 3 . (2d), 257) the Crcut Court of
ppeas, Second Crcut, n consderng a smar ssue, stated:
Losses must be reazed before they are deductbe. (re v.
Wener, 279 U. S., 333, 49 S. Ct, 337, 73 L. d., 720.) ut when the evdence of
reazaton s a sae of persona property, t s not aways necessary to dever
the property before there may be a deducton of a oss. It Is enough that the
obgaton to dever s so f ed that the oss s reasonaby certan n fact and
ascertanabe n amount. (Lucas v. mercan Code Co., 2 0 U. S., 445, 50 S. Ct,
202, 74 L. d., 53 , 07 L. d., 1010.) ere the transacton was so far advanced
n December that the pettoner was bound to dever the stock to the broker at
a prce whch was then determned by the sae the broker made. That sufccd
to make the oss certan and estabshed the amount. Moreover, the ntenton of
the pettoner and the broker beng that the partcuar shares then owned by the
pettoner shoud be devered to the broker, t foows that tte to them passed
to the broker n December. ( offman v. Commssoner, 71 . (2d), 929 (C. C. .
2).) The oss was accordngy a reazed n 192 , and so was deductbe n
that year.
Smar concusons were reached by the Crcut Court of ppeas,
S th Crcut, n untngton Natona ank v. Commssoner (90
. (2d), 76), and Commssoner v. Robnson and Commssoner v.
Mott, both reported n 103 . (2d), 1009, and by the Crcut Court
of ppeas, Seventh Crcut, n Commssoner v. Dashe (100 .
(2d), 625).
In vew of the poston taken by the crcut courts of appeas as
ndcated by the decsons above referred to, G. C. M. 12570 s revoked.
. P. Wenche,
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23(e). rt. 23(e)-3.
20G
rtce 23(e)-2: ountary remova of 1939-35-99
budngs. I. T. 3311
R NU CT O 191 .
Loss on demoton of budngs. O. . 773 (C. . 4, 164 (1921))
revoked.
dvce s requested reatve to the correctness of O. D. 773 (C. .
164 (1921)), whch reads as foows:
ta payer sustans no deductbe oss In the demoton of SO per cent of h
budng for the purpose of reconstructon. The amount e pended s an nws-
ment of capta and shoud be consdered as a part of the cost of reconstructon
rtce 23(e)-2 of Reguatons 101 provdes:
ountary remova of budngs. Loss due to the vountary remova ot
demoton of od budngs, the scrappng of od machnery, equpment, etc
ncdent to renewas and repacements s deductbe from gross ncome. Wbon
a ta payer buys rea estate upon whch s ocated a budng, whch he proceed
to raze wth a vew to erectng thereon another budng, It w be consderr
that the ta payer has sustaned no deductbe oss by reason of the demoton
of the od budng, and no deductbe e pense on account of the cost of srt
remova, the vaue of the rea estate, e cusve of od mprovements, beng
presumaby equa to the purchase prce of the and and budng pus the CO
of removng the useess budng.
Reguatons under pror Revenue cts have contaned smar
provsons.
The anguage of O. D. 773, supra, s too broad, snce t gnores the
dstncton made n the cases of ta payers who purchase property
wth the ntent at the tme of purchase to demosh the budng
thereon and erect a new one and those who purchase property wthout
such ntent. (See generay Provdence ourna Co. v. roderch
104 ed. (2d), 614, and cases cted theren.) urthermore, t s not
n accord wth the frst sentence of artce 23(e)-2 of Reguatons 101,
supra.
O. D. 773, supra, s, therefore, revoked.
rtce 23(e)-3: Loss of usefu vaue. 1939-46-101
a D. 1421
1. Deducton Loss eged Destructon of aue or Moros
Carrb Certfcates by Change n Statute.
motor carrer whch, pror to 1934, had purchased certfcates
of pubc convenence and necessty, authorzed by a State statute
the effect of whch was to grant a monopoy to carrers then n
operaton, was not entted to a deducton n 1934 on account of
aeged oss n vaue of the certfcates because of new egsaton
whch n that year removed the monopostc features of the cert-
fcates, but aowed contnued operaton. The statute under wuch
the certfcates were ssued, and not the certfcates themseves, con-
ferred the monopoy, and the destructon of that statute dd not
destroy the certfcates or ther vaue.
2. Decson ffrmed.
Decson of the Unted States oard of Ta ppeas (193 ) (37
. T. ., 576) affrmed.
3. CumoR M Dened.
Petton for certorar dened October 9, 1939.
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207
23(e), rt. 23(e)-3.
Unted States Crcut Court or ppeas for tub Nnth Crcut.
Consodated reght Lnes, Inc., a Corporaton, pettoner, v. Commssoner of
Interna Revenue, respondent.
101 . (2d), 13.
Cpon petton to revew a decson of the Unted States oard of Ta ppeas.
efore abbecht, aney, and Stephens, Crcut udges.
ebruary 16, 1939.
OPINION.
aney, Crcut udge: The queston presented s whether or not a deducton
from gross ncome may be taken for an aeged oss of a monopoy n the fed of
transportaton for hre. The oard approved the dsaowance of the oss by
respondent.
In 1921 the State of Washngton began to reguate motor carrers operatng
for the transportaton of persons and property for compensaton between f ed
termn or over a reguar route n that State. Reguaton was effected by ssung
or wthhodng certfcates of pubc convenence and necessty. Issuance of such
certfcates to carrers operatng on anuary 15, 1921, was requred. Compettve
nes coud obtan certfcates, after hearng, ony when the e stng ne faed
to provde satsfactory servce. Certfcates ssued had a substanta vaue and
coud be sod, assgned, eased, transferred, nherted, mortgaged and were ta abe
as persona property. (Laws of 1921, ch. 111.) The effect of the act as descrbed
by the oard, was to grant monopoes to those carrers n operaton on
anuary 15, 1921, and the frst comers thereafter n other terrtory, and to
perpetuate the monopoes n successors who acqured the certfcates of pubc
convenence and necessty by purchase or otherwse.
Pursuant to the act the severa certfcates nvoved heren were ssued upon
payment to the State of a 25 fee for each certfcate.
Pettoner, a Washngton corporaton, was ncorporated on ugust 29, 1929, and
acqured pror to anuary 17, 1934, the above-mentoned certfcates at a cost of
S-1,3 .9 .
y Ch. 55 of the traordnary Sesson Laws of 1933, whch became effectve
anuary 17, 1934, the monopostc characterstcs whch e sted under the act of
1921 were destroyed. s a resut, many competng common carrers by truck
began operatng over routes served by pettoner, pettoner s rates were reduced,
and ts tonnage decreased. The record does not dscose whether or not there was
a correspondng decrease of proft.
In Its Income ta return for the year 1934, pettoner camed that the destruc-
ton of the monopostc rghts by the 1934 act bad destroyed the vaue of the cer-
tfcates ssued under the 1921 act, and therefore t had sustaned a deductbe oss
In the amount of 4,3 .9 , the cost of the certfcates to t. Itespondent ds-
aowed the deducton and assessed a defcency n the sum of 11,927.19. The
oard hed:
The monopostc character of the certfcates Is not, so far as the
record shows, a thng separate and apart from the rght to carry on a busness
under them. In other words, there s no showng that the certfcates were
bought and sod ke shares of stock or bonds whch are so often hed by the
owner for ncome or apprecaton wthout thought of hs engagng n the bus-
ness whch gves vaue to the securtes. Such monopostc features as the cer-
tfcates had were. In fact, effectve ony f the hoMer engaged In the busness
to whch the certfcate reated. If he dd not conduct the busness authorzed
and dd not do It In such a way as to furnsh servce satsfactory to the ssung
department, certfcates coud be ssued to others to serve the same terrtory and
thus destroy the pettoner s monopoy. Thus, the monopoy granted by the
certfcates can not be vewed as a thng separate and: dstnct from the other
rghts granted and dutes mposed by them. The monopoy was ony one eement
that gave them vaue.
It further hed:
ssumng n the present case that the monopostc features of the certfcates
ssued under the 1921 statute had some vaue apart from the operatve rghts, and
that the monopostc features were destroyed by the 1934 egsaton, the pet-
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5 23(1), rt. 23(1)-2.
20
toner has not shown what part of cost Is attrbutabe separatey to those fea-
tures. ence t has not estabshed ts bass for gan or oss.
Decson was entered n favor of respondent, and pettoner seeks revew of
such decson.
We thnk the oard s decson was rght
The certfcates ssued under the 1921 act conferred no monopoy. The an-
guage of the certfcates, so far as s here matera, smpy stated that the app-
cant s hereby authorzed to furnsh a partcuar knd of servce. No state-
ment was contaned theren that a monopoy was thus granted for such partcu-
ar servce. The authorty granted by the certfcate remaned unchanged after
the 1934 act Pettoner retaned the same authorty to furnsh the partcuar
servce after 1934 that t had before. No change, ether enargng or restrctng
rghts under the certfcates, was made by the 1934 act.
The monopoy en|oyed by pettoner sprang from the provsons of the 1921
act whch paced upon the approprate State department the mtaton that t
coud ssue further permts to operate n the same terrtory ony when the
e stng auto transportaton company servng such terrtory w not
provde the same to the satsfacton of such department Thus a rue of as
specfyng the duty of the department had the effect of creatng a monopoy, Dot
aone by ssuance of the certfcate, but couped wth the desre and abty ct
the certfcate-hoder to furnsh the servce to the satsfacton of the
department. These atter thngs were merey means of effectng, not creatng,
the monopoy.
Destructon of the statute whch put an end to the monopoy dd not destroy
the certfcates, nor ther vaue. The thng destroyed was the rght of monopoy
conferred by the statute, not by the certfcate. What nterest dd pettoner
have n the rue of aw, decared by statute No person has a vested nterest
n anv rue of aw enttng hm to nsst that t sha reman unchanged for hs
beneft (New York Centra R. R. Co. v. Whte, 243 U. S., 1 , 19
Second mpoyers Labty Cases, 223 U. S., 1, 50.) Whatever rght the statute
conferred on pettoner was sub|ect to the rght of the State to change t. When
pettoner purchased the certfcates, t dd not purchase a monopoy, bnt the
menns by whch t mght take advantage of a monopoy conferred by statute.
It now has had no oss of such means, for they e st now as before. We thnk
pettoner suffered no oss on the certfcates, for the thng destroyed was not
part thereof.
ffrmed.
S CTION 23(1). D DUCTIONS ROM GROSS
INCOM : D PR CI TION.
rtce 23()-2: Deprecabe property. 1939-51-10122
Ct. D. 1430
INCOM T R NU CT OP 102 D CISION O SUPR M COURT.
1. Dkhuctton from Gkoss Income Deprecaton owabe to
k kk under 99-year ease where transacton between
Lessee and Trustee was n Reaty a Mortgage Loan.
corporaton occuped and used n ts busness three budngs,
the ega tte to two of whch, and an assgnment of a 99-year ease
to the thrd, were n a bank as trustee for certan and-trust certf-
cate hoders. t the tme of the transfer of the propertes to the
trustee bank, n 192 , a three budngs were eased back to the
corporaton by the trustee for 99 years, wth opton to renew and
purchase. ed, That the oard of Ta ppeas |ustfaby con-
cuded, from a consderaton of a the evdence, that the transac-
ton between the corporaton and the trustee, n wrtten form a
transfer of ownershp wth a ease back, was n reaty a mortgage
oan secured by the property nvoved, and that, n computng ts
net ta abe ncome for 1930 and 1931, the corporaton was entted
to the statutory aowance for deprecaton of budngs.
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209
23(1), rt. 23()-2.
2. Decson ffrmed.
Decson of the Unted States Crcut Court of ppeas, S th
Crcut (1039) (101 . (2d), 72S), affrmng decson of the Unted
States oard of Ta ppeas (1935) (32 . T. ., C33), affrmed.
Supreme Coubt of the Unted States.
Guy T. eve rng, Commssoner of Interna Revenue, pettoner, v. The . f R.
Lazarus d Co.
60 S. Ct., 209.
On wrt of certorar to the Unted States Crcut Court of ppeas for the S th Crcut
December 4, 1939.
opnon.
Mr. ustce ack devered the opnon of the Court
In computng ts net ta abe ncome for 1930 and 1931, respondent camed
deprecaton on three budngs occuped and used n ts busness as a depart-
ment store. Durng those years, the ega tte to two of these propertes and an
assgnment of a 99-year ease to the thrd were In a bank as trustee for certan
and-trust certfcate hoders. These propertes had been transferred to the
trustee by the respondent n 192 and the trustee had at the same tme eased
a three back to respondent for 99 years, wth opton to renew and purchase.
In camng the deducton, respondent nssted that the capta oss from wear,
tear, and e hauston of the budngs was fang upon t, thus enttng t to
the statutory aowance for deprecaton of budngs.1 The Commssoner ds-
aowed ths deducton on the ground that the statutory rght to deprecaton
foows ega tte. Revewng the evdence, the oard of Ta ppeas concuded
that the transacton between respondent and the trustee bank was n reaty a
mortgage oan and ordered the deducton aowed, and the crcut court of
appeas affrmed. Upon facts whch t consdered In a essenta respects
dentca, the Court of ppeas for the Dstrct of Coumba hed deprecaton
not aowabe.4 ecause of the dfferent resuts reached by the courts of appea,
we granted certorar.
The edera ncome ta s amed at net ncome determned from gross ncome
ess tems such as necessary e penses Incurred or capta consumed n earnng
t. Thus, the controng statute permts a tn payer n computng net ncome to
deduct a reasonabe aowance for e hauston, wear and tear.
Whe It may more often be that he who s both owner and user bears the burden
of wear and e hauston of busness property n the nature of capta, one who
Is not the owner may nevertheess bear the burden of e hauston of capta
nvestment. Where t has been shown that a essee usng property n a trade or
busness must ncur the oss resutng from deprecaton of capta he has
nvested, the essee has been hed entted to the statutory deducton.
ere, the ta payer used busness property n whch t had a deprecabe capta
Investment, provded t had not recovered ts nvestment through a sae. The
oard In substanta effect found that the nstrument under whch the ta -
payer purported to convey ega ownershp to the trustee bank was n reaty
1 Revenue ct of 102 fe. 32, 45 Stat., 791, 790- 00). In computng net ncome then
sha be aowed hs deductons:
Deprecaton. reasonabe aowance for the e hauston, wear and tear of property
used In the trade or busness, Incudng a reasonabe aowance for obsoescence. In tha
case of property hed by one person for fe wth remander to another person, the deducton
sha he computed as f the fe tenant were the absoute owner of the property and sha be
aowed to the fe tenant. In the case of property hed In trust the aowabe deducton
sha be apportoned between the Income benefcares and the trustee In accordance wth the
pertnent provsons of the nstrument crentug the trust, or. In the absence of such prov-
sons, on the bass of the trust Income aocabe to each.
32 . T. .. 033. The oard found the deprecabe fe of the property to be 00 years.
Instead of 40 as orgnay camed by respondent.
101 . (2d), 72 cf. Commssoner v. . . Neghbors Reaty Co. ( 1 . (2d), 173).
C r/ Natona Dank udng Co. v. everng (9 . (2d), 216, 217).
U. S., .
Dk/T/ v. Centra R. Co. of . . (26 T . ., 55 T. D. 3704, C. . I -1. 143 (1925) ):
ppea of Gaddng Dry Goods Co. (2 . T. ., 3. 6. 33 ) : Coffar . Commssoner (44 .
(2d), 554). See bowman Co. v. Commssoner (32 . (2d). 404. 405 Ct. D. 6 . C. .
III-1, 251 (1020)1) . ot Cty ank of eatte v. Unted mates (64 C. Cs., 236, cer-
torar dened, 276 U. S., 620) Commssoner v. . . neghbors Reaty Co., supra.
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210
gven and accepted as no more than securty for a oan on tbe property te
rent stpuated n the concurrenty e ecuted 99-year ease back wt
ntended as a promse to pay an agreed 5 per cent nterest on the oan and
the deprecaton f uud requred by the ease was ntended as an amort
zaton fund, desgned to pay off the oan n 4 | years. These fndngs are
supported by evdence whch permts, at most, confctng Inferences and are
therefore, concusve here. nd, uness the oard commtted error of
we must affrm.7
We thnk the oard ustfaby concuded from ts fndngs that the trans-
acton between the ta payer and the trustee bank, n wrtten form a transfer
of ownershp wth a ease back, was actuay a oan secured by the propem
nvoved. Genera recognton has been gven the estabshed doctrne fat I
court of equty w treat a deed, absoute n form, as a mortgage, when t s
e ecuted as securty for a oan of money. In the fed of ta aton, admb-
strators of the aws and the courts arc concerned wth substance and reatt
and forma wrtten documents are not rgdy bndng. Congress has spece
cay emphaszed the equtabe nature of proceedngs before the oard of T
ppeas by requrng the oard to act n accordance wth the rues of ev-
dence appcabe n courts of equty of the Dstrct of Coumba. (26 . S. 0,
611.)
The Government rees n part upon Senor v. raden (295 T . S., 422). What
ever the sgnfcance of that case, t can have no appcaton here. In th
raden case, the equtabe doctrne here controng of ookng to e tr sfc
evdence behnd a transfer absoute on ts face to determne whether ony s
securty transacton was contempated by the partes, was nether nvoked nor
passed upon.
udgment beow s affrmed.
Mr. ustce Reed took no part n the consderaton or decson of ths
S CTION 23 (m). D DUCTIONS ROM GROSS
INCOM : D PL TION.
rtce 23(m)-: Depeton of mnes, o and 1939 36-99M
pas wes, other natura deposts, and tmber Ct.D. 1416
deprecaton of mprovements.
Income Deducton O We Drng Contracts aue or
Contngent Rght to uture O Payments Depeton
Drng Costs.
partner n a frm whch contracted to dr o wes and to
receve pay for Its servces party n cash and party n a rght to
payment of a f ed sum out of o and gas produced Is not sub|ect
to ncome ta upon the so-caed o payments unt the contracts
are sod or money s receved under them from the o saes, snce
such contracts, athough saabe, are too uncertan and contngent
to have any ready ascertanabe market vaue. The money re-
cepts from the producton of o carred a 211 2 per cent depeton
aowance, as provded by secton 114(b)3 of the Revenue ct of
1932, snce the contracts, by assgnng and settng over to the drer
the o and gas n the ground n the proporton agreed upon, con-
veyed to the partnershp an economc nterest n the o n pace
whch was depeted by the producton of o but there s no rght
frst to deduct cost n deang wth such recepts, treatng as ta abe
gan ony those payments whch are receved after cost has been
fuy returned.
Pn h v. Davs f U. S., 332 3361 : uthrt . wart (9 Wheat.. 4Sf . 4 ):
v. Rautharr et nf. (12 ow., 39) Tea v. Waker (111 . S., 242). See cases co 1
7 . L. It.. UT.
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211
23(m), rt. 23(m)-.
Unted States Crcut Court or ppeas for the fth Crcut.
No. 3S0. Ws R. Dcarng Nanne Cnton Dearng e a., Independent ecu-
tors, Substtuted n the Pace and Stead of Ws R. Dcarng, Deceased),
pettoners, v. Commssoner of Interna Revenue, respondent.
102 ed. (2d), 91.
Petton for revew of decson of Unted States oard of Ta ppeas (dstrct of
Te as).
efore oster, Shey, and McCord. Crcut udges.
March 3, 1939.
OPINION.
Sbey, Crcut udge: The ta payer, Ws R. Dearng. durng the ta year
19v52 was a partner n the frm of It. . Deang Co., whch was dong a arge
busness n drng o wes and recevng pay for ts servces party n cash
and party n a rght to payment of a f ed sum out of the o and gas produced,
saved and marketed from the severa wes successfuy brought n. The pres-
ent contest reates to the proper treatment for ncome ta purposes of the
recepts n or from these so-caed o payments. The partnershp returned
ony the money receved, havng aways made ts returns on a cash recepts
bass, and camed that as to each successfu we t shoud appy the recepts
n money from the o payments frst to e tngush the cost of drng the par-
tcuar we and treat the e cess ony as a ta abe gan. The Commssoner as
to each partner hed that the rght to receve n the future the agreed o pay-
ments was, when the we turned out a producer, a property havng present
market vaue, and therefore was a ta abe gan n the year the we was com-
peted, and f ed that gan at 75 per cent of the tota to be pad out of the we
nnd he hed aso that when the payments from the o contract n after years
e ceeded the 75 per cent thus ta ed the e cess was an addtona ta abe gan.
e aowed no deducton for depeton. The oard of Ta ppeas hed that
athough such an o payment contract mght be saabe, there was too much
uncertanty and contngency about t to make t a property havng a ready
ascertanabe market vaue, foowng dwards Drng Co. (35 . T. ., 341,
affrmed, 95 ed. (2d). 719), and that n consequence t shoud not be ta ed as a
gan unt sod or unt money shoud be receved under t from the o saes.
Ths rung s acquesced n by the Commssoner. The oard further hed that
the e pendtures n drng, f not deducted n the returns as e penses of dong
busness as was hed mght be done n the case of nton Petroeum Co. v. Com-
mssoner (71 ed. (2d), 420 Ct D. 925, C. . I -1, 170 (1935) ), stood as
the nvestment of the partnershp n the o payments contracts obtaned by the
drng that these contracts conveyed to the partnershp an economc nterest
n the o n pace whch was depeted by the producton of the o, so that the
money recepts derved from the producton of the o carred a depeton aow-
ance of 21 per cent as provded by secton 114(b)3, Revenue ct of 1932 but
that there s no rght to recover the drng e penses otherwse. These rungs
the ta payer contests.
We thnk the oard s rght. There s no cam here to deduct anythng as
necessary e pense of busness n the year the e pendture was made. s to the
o payments contracts here nvoved, the drng e pendtures were pad out n
prevous years. Such as were not then deducted as necessary e pense of busness
or repad by cash payment on the contract were, accordng to the case of nton
Petroeum Co. v. Comm..oner (71 ed. (2d), 420), captazed as an nvestment
n the future o payments. These o payment contracts as above stated were
for so much money to be pad ony out of a fracton of the o or gas produced,
saved and marketed. The andowner who et the contract for the drng under-
took no persona abty for the payment of the money, but dd e pressy
assgn and set over to the drer the o and gas n the ground n the proporton
agreed on. Ths can be effectuay done n Te as, and vests not ony an eco-
nomc nterest n the o n pace, but a tte n the drer. The partnershp
thereby acqured a property whch was saabe, and we have no doubt that
shoud t se that property t coud deduct the cost of t n ascertanng gan,
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23(m), rt. 23(m)-4.
212
as the ta payer wshes to do. ut the producton of o under the contract h
not n sae of the partnershp s nterest n the o n pace, but s an en|oyment
of that nterest. Its nterest n the o reserve, ke the andowner s, s not
thereby sod, but ony depeted. Nether of them can deduct cost n deang
wth the ncome so receved, but each may reduce hs ncome 27 ,- per cent on
account of the depeton of hs capta nvestment. (See Pamer v. ender,
2 7 U. S., 651 Ct. D. 641, C. . II-1, 235 (1033) : Thomas v. Perkns, 301
U. S., 655: nton Petroeum Co. v. Commssoner, 71 ed. (2d), 420 Commt-
soner v. emng, 2 ed. (2d), 24.)
ffrmed.
Note. The court aso on March 3. 1039, on authorty of the decson n case
No. 0, Ws It. Dfcung v. Commssoner of Interna Revenue, decded and
a ned the oard of Ta ppeas n
Ws . earng, ecutor of R. . earng Trust state, No. S1
Ws R. earng, ecutor for the state of R. II. earng, Deceased, No.
S2
Mrs. R. II. earng, No. -S3:
rs. Ws R. earng, No. SS 4.
rtce 23(m)-4: Computaton of depeton 1939-47-10093
based on a percentage of ncome n the case Ct. D. 1423
of o and gas wes.
INCOM T R NU CT O 1032 D CISION O SUPR M COURT.
1. Deducton Depeton owance Net Income from
the Property.
n o company, n computng ts net ncome from the
property for the years 1932 and 1033 for the purpose of appyng
the 50 per cent mtaton on depeton aowance under secton
114(b)3 of the Revenue ct of 1932, may not refuse to take as
deductons certan deveopment e pendtures, where, under the eec-
ton permtted by the reguatons, t had deducted such e pend-
tures n computng ta abe net ncome for those years.
2. Reguatons Sustaned.
The provsons of artce 221(h) of Reguatons 77, promugated
under the Revenue ct of 1932. are vad and bndng upon the
ta payer. (See everng v. Wshre O Co., Inc., decded on No-
vember a 1030, ths uetn, page 213.)
. Decson ffrmed.
Decson of the Unted States Crcut Court of ppeas, fth
Crcut (1939) (102 . (2d), 596), reversng a memorandum opnon
of the Unted States oard of Ta ppeas, affrmed.
Supreme Court of the Unted States.
. . . O Co., pettoner, v. Guy T. everng, Commssoner of Interna
Revenue.
30 U. S., 104.
On wrt of certorar to Unted States Crcut Court of ppeas, fth Crcut.
November 6, 1939.
opnon.
Mr. ustce Dougas devered the opnon of the Court.
Ths case presents the same ssue as s Invoved n No. 1, everng v. WUshrt
O Co., Inc., ante, page 213, e cept that t arses under the Revenue ct of 1932
(47 Stat., 109). In computng ts ta abe net ncome under that ct, pettoner
deducted certan deveopment e pendtures as t had done snce ts organsaton
n 1925. ut t refused to take these same deductons n computng net n-
come for the purpose of appyng the 50 per cent mtaton on the depeton
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213
23(m), rt. 23(m)-4.
owance, as provded In secton 114(b)3 of the 1032 ct. That secton, so far
as matera here, was the same as secton 114(b)3 of the 102 ct (45 Stnt.,
791). nd Treasury Reguatons 77, artce 221(h) promugated under the 1932
ct1 defned net ncome from the pvo|erty as used n secton
114(b)3 so as to requre deveopment costs of the knd here nvoved to be
deducted from gross ncome from the property. The oard of Ta ppeas
hed that pettoner need not deduct these deveopment e pendtures n appy-
ng the 50 per cent mtaton on depeton aowance (36 . T. ., 1327) and the
crcut court of appeas reversed (102 . (2d), 590). Snce we have ths day
decded n Ievcrng v. Wshre O Co., Inc., supra Ct. D. 1424, beow , that
comparabe regfuatons under the 192 ct were awfu, a fortor those
here nvoved are vad and bndng on pettoner. The |udgment of the court
beow was therefore rght and s
ffrmed.
Mr. ustce utkb and Mr. ustce Reed took no part n the consderaton
or dsposton of ths case.
ktce 23(m)-4: Computaton of depeton 1939 7-10094
based on a percentage of ncome n the case Ct. D. 1424
of o and gas wes.
INCOM T R NU CT O 1 2 D CISION O SUPR M COURT.
1. Deducton Depeton owance Net Income
from the Property.
n o company, n computng ts net ncome from
the property for the years 1929 and 1930 for the purpose of
appyng the 50 per cent mtaton on depeton aowance under
secton 114(b)3 of the Revenue ct of 192 , may not refuse to
take as deductons certan deveopment e pendtures, where, under
the eecton permtted by the reguatons, t had deducted such
e pendtures n computng ta abe net ncome for those years.
2. adty of Reguatons ffect of Legsatve Reenactment
Wheue Prob Reguatons Dffered.
rtce 221(1) of Reguatons 74, approved ebruary 15, 1929, s
vad notwthstandng the fact that the statutory provsons whch
t nterprets are reenactmeuts of pror statutory provsons upon
whch pror reguatons paced a dfferent nterpretaton. dmn-
stratve nterpretaton of the ambguous phrase net ncome
from the property was wthn the rue-makng power
conferred upon the Commssoner by secton 23(1) of the 192
ct, and restrctons on that power may not be ghty mposed
where the ncdence of such rues as are promugated Is pros-
pectve ony. Icverng v. R. . Reynods Tobacco Co. (306 U. S.,
110 (Ct. D. 13 3, C. . 1939-1, Part 1, 225)), dstngushed.
1 That secton provded:
In the case of o and gas wp11b the aowance for depeton sha be 27 per centum
of the gross ncome from the property durng the ta abe year, e cudng from such grosa
Income an amount equa to any rents or royates pad or ncurred by the ta payers In
respect of the property. Such aowance sha not e ceed 50 per centum of the net
Income of the ta payer (computed wthout aowance for depeton) from the property,
e cept that In no case sha the depeton aowance be ess than It woud be f computed
wthout reference to ths paragraph.
Secton 23(1) of the Revenue ct of 1932 provded:
N In computng net ncome there sha be aowed as deductons:

(1) Depeton. In the ease of mnes, o and gas wes, other natura deposts, and
tmber, a reasonabe aowance for depeton and for deprecaton of Improvements, accord-
ng to the pecuar condtons n each case such reasonabe aowance In a cases to be
made under rues and reguatons to be prescrbed by the Commssoner, wth the
approva of the Secretary.
Treasury Reguatons 77, artce 221(h) provded:
Net ncome of the ta payer (computed wthout aowance for depeton) from the
property, as used In secton 114(b) (2), (3), and (4) and artces 221 to 24S, Incusve,
means the gross ncome from the property as defned In paragraph (g) ess the
aowabe deductons attrbutabe to the mnera property upon whch the depeton Is
camed and the aowabe deductons attrbutabe to the processes sted In paragraph
(g) In so far as they reate to the product of such property, ncudng overhead and
operatng e penses, deveopment costs propery charged to e pense, deprecaton, ta es,
osses sustaned, etc., but e cudng any aowance for depeton.
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23(m), rt. 23(m)-4.
214
3. Decson Reversed.
Decson of the Unted Stntes Crcut Court of ppeas. Nnth
Crcut (193S) (95 P. (2U), 971), affrmng decson of the Unted
States oard of Ta ppeas (1937) (35 . T. ., 450), reversed.
Guy T. evcrng, Commssoner of Interna Revenue, pettoner, v. Cshre O
Co., Inc.
30 U. S., 90.
On wrt of certorar to Unted States Crcut Court of ppeas, Nnth Crcut
November 6, 1939.
OPINION.
Mr. ustce Dougas devered the opnon of the Court
Ths case presents the queston whether respondent, Wshre O Co., Inc,
n computng ts net ncome for the years 1929 and 1930 for the purpose of
appyng the 50 per cent mtaton on depeton aowance under secton
114(b)3 of the Revenue ct of 192 (45 Stat, 791), may refuse to take m
deductons certan deveopment e pendtures,1 where t has deducted those
deveopment e pendtures n computng ts ta abe net ncome for those years.
The oard of Ta ppeas hed for the respondent (35 . T. ., 450) and that
decson was affrmed by the crcut court of appeas, one |udge dssentng (95
. (2d), 971). ecause of the mportance of the probem of the scope of the
Commssoner s rue-makng power and because of an asserted confct of the
decson beow wth the decson of the Crcut Court of ppeas for the fth
Crcut n Commssoner of Interna Revenue v. . . . O Co. (102 . (2 ),
590), we granted certorar.
Respondent s engaged n the busness of producng o and gas from ts
varous propertes. In computng ta abe net ncome n ts returns for 1929
and 1930 respondent, pursuant to the reguatons, deducted deveopment e-
pendtures n the respectve amounts of 606,051.66 and 279,927.04. ut t
refused to make those deductons n determnng ts net ncome
from the property for the same years, when computng aowabe depeton
under secton 114(b) 3 of the Revenue ct of 192 .
That secton provdes:
In the case of o and gas wes the aowance for depeton sha be 7 |
per centum of the gross ncome from the property durng the ta abe year.
Such aowance sha not e ceed 50 per centum of the net ncome of the ta
1 Those e pendtures conssted of such tems as abor, fue and power, materas and
suppes, too renta, truck and auto hre, repars to drng equpment and deprecaton
upon equpment used n drng.
or the year 192 ) the Commssoner s computatons were as foows:
Gross ncome from the propertes 1,001,375.1
Deductons:
Producton e pense 171,300.03
Deveopment e pense 600, 051. GO
Tota e penses 777,450.6
Net Income from property (computed wthout aowance for depe-
ton) 223,924.4
50 per cent of that ncome 111,962.1
The Commssoner mted the depeton aowance to the ast mentoned fgure snce
O per cent of the net ncome from the property as thus computed was ess than 27a
per cent of the .cross ncome.
t nder the ta payer s computaton, the net ncome for depcton purposes woud
1,001,373.17 ess 171,300.03 or S2 , 76.14 and 50 per cent thereof woud not be ea
than 27 /| per cent of the cross ncome.
or the year 1030 the Commssoner s computaton showed a oss of 191, 09.22.
therefore rued that snce the percentage depeton aowance was mted to 50 per cent
of the net ncome from the propertes and snce the ta payer had no such net nwntf-
no deducton on account of ercentaffe depeton coud be aowed. The ta payer refu) .
however, to deduct deveopment e penses In the appcaton of the 50 per cent mtaton
Dd camed a depeton deducton of 42,52 .91, arrved at as foows:
Gross ncome from the propertes 370. 44S, 72
Deductons: Producton e pense 2 5. 390. W
Net ncome S5-05
Depeton deducton (50 per cent of net Income) 42. 52s.
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215
23(m), rt. 23(m)-4.
payer (computed wthout aowance for depeton) from the property, e cept
that n no case sha the depeton aowance be ess than t woud be If com-
puted wthout reference to ths paragraph.
y vrtue of secton 23 of the Revenue ct of 192 companes ke respondent
were aowed as deductons n computng net ncome a reasonabe aowance
for depeton accordng to the pecuar condtons n each case such
reasonabe aowance n a cases to be made under rues and reguatons
to be prescrbed by the Commssoner, wth the approva of the Secretary.
Pursuant to that rue-makng power the phrase net ncome of the ta -
payer (computed wthout aowance for depeton) as used n secton 114(b)3
was defned by Treasury Reguatons 74, artce 221() promugated under
the 192 ct as meanng gross ncome from the sae of o and gas ess
certan deductons ncudng deveopment e penses (f the ta payer has
eected to deduct deveopment e penses) Dut e cudng any aowance
for depeton. or 1925 respondent, havng the opton to treat these e penses
as deductons for deveopment e penses or as charges to the capta account
returnabe through depeton, chose the former.
On these facts t woud seem that Treasury Reguatons 74, artce 221 ()
woud requre respondent to deduct deveopment e penses n computng net
ncome as used n secton 114(b)3, snce respondent fe ceary wthn the
cass descrbed theren.
ut respondent contends that these reguatons as apped to It for the ta -
abe years n queston are nvad. Its argument runs as foows: (1) The
phrase net ncome from the property present n secton 114(b)3
orgnated In secton 234(a)9 of the Revenue ct of 1921 (42 Stat, 227) and
was reenacted wthout chnnge n secton 204(c) of the 1924 ct (43 Stat., 253).
It was aso carred over nto secton 204(c)2 of the 1926 ct (44 Stat, 9),
when Congress adopted the present so-caed percentage depeton formua.
Shorty after the enactment of the Revenue ct of 1921, Treasury reguatons
were ssued defnng net ncome from the property as meanng
gross ncome from the property ess operatng e penses. smar defn-
ton was gven n the Treasury reguatons ssued under the Revenue ct of
1924. The admtted Treasury practce under those two cts was to permt net
ncome from the property to be computed wthout regard to deveopment e -
pendtures. ence, respondent argues, the meanng of the phrase net n-
come from the property had acqured a pan and defnte meanng,
known to the Congress thus when that phrase was reenacted n the 1924 ct,
the Congress ntended t to have the meanng whch admnstratve practce
had gven t nd, the argument contnues, that meanng havng been adopted
by the Congress n the 1924 ct, t cung to the same phrase n the 1926 ct
and n the 192 ct, especay snce the Commssoner pror to ebruary 15,
1929 never dd undertake by reguaton or decson to gve that phrase a mean-
ng dfferent from that whch had been consstenty apped under the earer
cts.
(2) Secondy, respondent contends that the fact that It deducted deveopment
e penses n computng ta abe net ncome does not mean that t s requred to
make the same deductons for the net ncome computaton under secton
114(b)3 for the reason that It had no free choce n the frst of these computa-
tons. In that connecton t ponts out that t was requred to make these
deductons from gross ncome by reason of ts eecton n ts 1925 return to
treat these e penses as deductons for deveopment e penses rather than as
charges to capta account returnabe through depeton, an eecton bndng
for a subsequent years. In that posture of the case It argues that the at-
tempted change n the reguatons here Invoved has a retroactve effect, as
Treasury Reguatons 69. artce 223, promugated under the Revenue ct of 1026
provdes that such ncdenta e penses as are pad for deveopment of the
property may at the opton of the ta payer be deducted as a deveopment e pense or
charged to capta account returnabe through depeton. n eecton once
made under the provsons of ths artce w contro the ta payer s returns for a
subsequent years.
Treasury Reguatons 62, artce 201(h).
Treasury teguarons 65, artce 201(h).
Respondent ponts to the report of Commttee on Ways and Menus on revenue b
of 1026 ( . Rent. No. 1, S ty-nnth Congress, frst sesson, page 6) : The dscovery
depeton deducton mtaton of an amount not n e cess of 60 per cent of the net ncome
of the ta payer from the property upon whch dscovery was made, provded n e stng
aw, Is retaned n ths provson.
The date when Treasury Reguatons 74, artce 221(1), here In queston, were
promugated.
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23(m), rt. 23(m)-4.
216
apped to t, and wthdraws one of the Important nducements offered by the
Commssoner n connecton wth the eecton whch respondent made n ts
1925 return.
We do not thnk that respondent s poston Is tenabe.
s to respondent s cam of retroactvty, It s true that the eecton made
n connecton wth Its 1925 return was known to be bndng for a subsequent
years. It s kewse true that t was made at a tme when Treasury prac-
tce dd not requre deducton of deveopment e penses n makng the com-
putaton under secton 114(b)3. ut that s no bass for a cam of retro-
actvty. Treasury Reguatons 74, artce 221(1) whch requred the dednc-
ton of deveopment e penses for the purpose of the computaton under sectks
114(b)3 were ssued ebruary 15. 1929, under the 192 ct These regua-
tons apped prospectvey ony and dd not purport to reach back to earer
years when the ta payer reed on a dfferent rue or practce. Ta statute
and ta reguatons never have been statc. perence, changng needs,
changng phosophes Inevtaby produce constant change n each. One mak-
ng an eecton n the 1925 return took the rsk that the method of treatrnt-o:
of depcton mght be changed by the Congress, or, where power e sted, by the
Commssoner. ny other concuson woud make the appcaton of chaws
pursuant to reguatons, though prospectve, dependent on fortutous crcum-
stances under whch each ta payer made such an eecton. Rgdty, as we as
confuson, n admnstraton of ta aws woud be the resut.
Rut n ths case there Is another answer to respondent s cam that an n-
equty resuts by changng the reguatons after t had made Its eecton n the
1925 return. On une 1 , 1927, the Commssoner, wth the approva of the
Secretary, ssued a Treasury decson statng that In vew of the change n
the bass for depeton provded by the Revenue ct of 1926, In the ease of o
and gas wes, ta payers may make a new eecton as to the treatment of de-
veopment e pendtures for ta abe perods endng on or after anuary 1.
1925, but not ater than s months after the date of ths decson. Ta -
payers desrng to make a new eecton were requred to fe amended returns
for the ta abe perods nvoved wthn s months from the date of that
decson. Thus respondent, after Congress adopted the new percentage depe-
ton provson, was afforded ampe opportunty to make a new eecton. Ths
t dd not do. To be sure that Treasury decson contaned no notce of any
pro|ected change n the meanng of net ncome from property as
used n secton 114(b)3. ut n September, 1927, there ssued a Genera
Counse s memorandum n whch t was stated that thereafter f a ta payer
eects to treat deveopment e pendtures as ordnary and necessary busness
e penses n computng ta abe net ncome, such e pendtures must
be deducted n determnng the net Income from the property, whch amount
s used as a mtaton n computaton of the depeton aowance based on n-
come. To be sure ths was merey an opnon of the Genera Counse of the
ureau and dd not have the force or effect of a Treasury decson. Yet n
vew of such rung, there s now no reasonabe bass for concudng that when
respondent made ts second eecton n 1927 t had no bass for assumng that
the pocy as respects net ncome from the property under the
1926 ct was or woud be no dfferent than It had been under the 1921 and
1924 cts. Therefore, n terms of equtabe consderatons respondent has no
|ust ground of compant. On these facts substanta |ustce requres that re-
spondent take such burdens as may fow from ts eecton aong wth the
benefts.
Irrespectve of these consderatons, we thnk the reguatons n queston were
vad. It s true, as stated by respondent, that the reguatons under the 1921
ct provded that the net ncome from the property shoud be
computed for purpose of the depeton aowance wthout regard to deveopment
e pendtures. nd t may be assumed that that admnstratve constructon
receved egsatve approva by the reenactment of the statutory provson n
the 1924 ct. wthout matera change. (Cf. Unted States v. Dnkota-fontane
O Co., 2 S T . S., 459, 466 TCt. D. 655, C. . II-1, 243 (1933)1.) ut that
does not mean that that meanng survved both the 1926 and the 192 ds.
In the frst pace, there wore no comparabe reguatons under the 1926 ct11
Treasury Perston 4025 (C. . I-1. 75 (1927)).
G. C. M. 2315 (C. . I-2. 21 (1927)).
s respects dscovery depeton n the case of mnes nnder the 1926 ct. provson
smar to those under the 1921 and 1924 cts were retaned. (Treasury Reguatons 69.
artce 201(h).) ut ths was not true as respects o and gas wes. Secton 204(e) of
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217
23(m), rt. 23(m)-4.
In fact, the Commssoner undertook under that ct to foow the practce ater
eet forth n the reguatons here n queston. (See mbassador Petroeum Co.
t. Commssoner, 1 . (2d), 474.) Those facts are of some sgnfcance here
for they refute the suggeston that the Congress n enactng the 102 ct was
gvng approva to an admnstratve constructon whch had been gven to com-
parabe provsons of earer cts but whch was abandoned before the passage
of the 102 ct. The more reasonabe nference seems to be that reenactment
of the provson n queston by the 102 ct at a tme when Treasury pocy as
respects ts constructon had changed dd nothng more than to restore to the
phrase net ncome from the property ts orgna ambguty. c-
cordngy that phrase became pecuary susceptbe to new admnstratve nter-
pretaton. ( evermg v. R. . Reynods Tobacco Co., 306 U. S., 110 Morrssey
v. Commssoner of Interna Revenue, 206 U. S., 344 Ct. D. 1064, C. . -1, 264
(1936) .)
ut n any event, the vadty of the reguatons n queston seoms cear.
The oft-repeated statement that admnstratve constructon receves egsatve
approva by reenactment of a statutory provson, wthout matera change
Unted Sta|cs v. Dakota-Montana O Co., supra) covers the stuaton where
the vadty of admnstratve acton standng by tsef may be dubous or where
ambgutes n a statute or rues are resoved by reference to admnstratve
practce pror to reenactment of a statute and where t does not appear that
the rue or practce has been changed by the admnstratve agency through
e ercse of ts contnung rue-makng power. It does not mean that a regua-
ton nterpretng a provson of one ct becomes frozen nto another ct merey
by reenactment of tbat provson, so that that admnstratve nterpretaton
can not be changed prospectvey through e ercse of approprate rue-makng
powers. (Cf. Morrssey v. Commssoner of Interna Revenue, supra, at page
35 5.) The contrary concuson woud not ony drastcay curta the scope
and materay mpar the fe bty of admnstratve acton t woud pro-
duce a most awkward stuaton. Outstandng reguatons whch had survved
one ct coud be changed ony after a pre-vew by the Congress. In prepara-
ton for a new Revenue ct the Commssoner woud have to prepare n advance
new reguatons coverng od provsons. Ther effectveness woud have to
awat Congressona approva of the new ct The effect of such procedure, so
far as tme s concerned, woud be precsey the same as f these new regua-
tons were submtted to the Congress for approva. Such duton of admn-
stratve powers woud deprve the admnstratve process of some of ts most
vauabe quates ease of ad|ustment to change, fe bty n ght of e per-
ence, swftness n meetng new or emergency stuatons. It woud make the
admnstratve process under these crcumstances cumbersome and sow.
nown nequtes n e stng reguatons woud have to awat the advent of a
new Revenue ct. Parayss n effort to keep abreast of changes n busness
practces and new condtons woud redound at tmes to the detrment of the
revenue at tmes to the dsadvantage of the ta payer. Lkewse the resut
woud be to read nto the grant of e press admnstratve powers an mped
condton that they were not to be e ercsed uness, n effect, the Congress had
consented. We do not beeve that such mparment of the admnstratve
process s consstent wth the statutory scheme whch the Congress has desgned.
The ony remanng queston s whether Treasury Reguatons 74, artce
221() were wthn the power of the Commssoner to promugate. That they
were seems cear beyond queston. We are not deang here, as was ths Court
n Ieverng v. R. . Reynods Tobacco Co., supra, wth reguatons apped
retroactvey. These are apped prospectvey ony. The rue-makng power
here n queston may be found n secton 23(1) of the Revenue ct of 102 .
That secton, after provdng that companes ke respondent were entted, as a
the Revenue et of 1020 apped the percentage depeton aowance e cusvey to o and
g s wes. Treasury Reguatons 69, artce 221, provded:
I nder secton 204 (c)2, In the case of o and gas wes, a ta payer may deduct for
depeton an amount equa to 27 | per cent of the gross ncome from the property durng
the ta abe year, but such deducton sha not e ceed 50 per cent of the net ncome of Ihe
ta payer (computed wthout aowance for depeton) from the property. In no case sha
the deducton computed under ths paragraph be ess than t woud be If computed upon
the bass of the cost of the property or ts vaue at the basc date, as the case may be. In
genera, the property. as the term s used n secton 204(c)2 and ths artce, refers to
the separate tracts or eases of the ta payer.
Thus, t s apparent that the demtaton mped n the permsson to deduct operatng
e penses present under the earer reguatons dsappeared from the 1020 reguatons n
case of o and gas wes.
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23(r).
21
deducton In computng net Income, to a reasonabe aowance for depe-
ton accordng to the pecuar condtons n each case ad espeoa
emphass on the power of the Commssoner to make rues for the computaton
of the depeton aowance, by provdng that such reasonabe aowance n
a cases s to be made under rues and reguatons to be prescrbed by the
Commssoner, wth the approva of the Secretary.
Respondent does not strongy urge that the reguatory power conferred by
secton 23(1) does not e tend to the percentage depeton aowance under
secton 114(b)3. Rather the contenton seems to be that to aow the Comms-
soner by reguaton to change the measure of net ncome from
the property from tme to tme, especay n the manner here attempted,
woud be to approve a resut equay as contrary to the Intenton of Congress
as f he had attempted by reguaton to change the percentage factors them-
seves. ut the scope or mportance of the change effected by the reguatons
s mmatera f the power to promugate such reguatons e sts. ere the
Congress has not prescrbed a precse formua free from a ambguty. The
ambguous phrase net ncome from the property was susceptbe
of varous meanngs and hence admnstratve nterpretaton of t was pecuary
approprate, as we have sad. nd there were speca reasons growng out of
the compe nature of the depeton probem as t s treated for purposes of
the ncome ta , for requrng the Commssoner to make precse the vague
eements of that formua. In ts genera aspects under Revenue cts depeton
s a probem on whch ta payers. Government and accountants have e pressed
a contrarety of opnons. Obfuscaton n attempted appcaton of ts prn-
cpes under ncome ta aws has frequenty been the resut. The Congress
tsef, as reveaed n the hstory of the Revenue cts, has e pressed varyng
phosophes. In practca admnstraton of any one statute there are ad-
mttedy borderne cases between deductbe busness e penses and nondeductbe
capta outays- On specfc fact stuatons the cear ne between depeton,
deprecaton, and obsoescence often becomes burred. What those nes are
or shoud be s for the Congress and the Commssoner. perence and new
nsght can be e pected to produce rather constant change. In sum, the
hghy technca and nvoved factors enterng nto a practca souton of
the probem of depeton n admnstraton of the ta aws ponts to the
necessty of nterpretng secton 23(1) so as to strengthen rather than to weaken
the admnstratve powers to dea wth t equtaby and reasonaby. These
consderatons are persuasve here not ony n reaffrmng the concuson that
the rue-makng power e sted, but aso n concudng that restrctons on
that power shoud not be ghty Imposed where the ncdence of such rues
as are promugated s prospectve ony.
Reversed.
Mr. ustce uter and Mr. ustce Reed took no part n the eonsderatoa
or decson of ths case.
S CTION 23(r). D DUCTIONS ROM GROSS INCOM :
LIMIT TION ON STOC LOSS S.
1939-51-10123
G. C. M. 21714
R NU CT O 1032.
oss of 4a doars from the sae of stock hed for not more than
two years was sustaned n the fsca year ended May 31, 1934, by
the M Company, not a deaer n securtes. In ts return for that
year the company propery reported 3a doars as proft ou the
sae n the prevous year of stock hed for not more than two years,
the proft from the sae n the prevous year beng propery re-
ported on the Instament bass. rd. the oss of 4ar doars sus-
taned n the year ended May 31, 1034, s deductbe n that year to
the e tent of 3a doars.
2 Pnn Mertens, The Law of edera Income Ta aton (1934), ch. 21: 47 Yae L.
ourn., 06 (1113 ).
Sea for e ampe the Issues posed n Unted States v. Dakota-Montana O Co., supra.
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219
If 23(r).
n opnon s requested whether the M Company, not a deaer n
securtes, s entted to deduct for the fsca year ended May 31, 1934,
any part of the oss of 4a: doars sustaned by t durng that year
from the sae of stock hed for not more than two years. The com-
pany seeks to deduct the oss to the e tent of the gan of 3.r doars
propery reported by t n that year as proft on the sae n the pre-
vous ta abe year of stock hed for not more than two years, the
tota proft from whch sae, 30a doars, s beng reported on the
nstament bass.
Snce the ta abe year s the fsca year ended May 31, 1934, the
Revenue ct of 1932 s appcabe. (Cf. secton 1, Revenue ct of
1934.) Secton 23(r) of the Revenue ct of 1932 provdes n part
as foows:
Lmtaton on stock osses.
(1) Losses from saes or e changes of stocks and bonds (as defned In sub-
secton (t) of ths secton) whch are not capta assets (as defned n secton
101) sha be aowed ony to the e tent of the gans from such saes or
e changes (ncudng gans whch may be derved by a ta payer from the
retrement of hs own obgatons).

(3) Ths subsecton sha not appy to a deaer n securtes (as to stocks and
bonds acqured for resae to customers) In respect of transactons In the
ordnary course of hs busness, .
In so far as here concerned, secton 101 ( ) of the Revenue ct of
1932 provdes that Capta assets means property hed by the
ta payer for more than two years .
The queston presented n ths case s whether the words gans
from such saes or e changes, as used n secton 23(r), supra, ncude
a gan from the sae of stock n a pror year whch as propery
reported on the nstament bass n the year n whch the oss n
queston s sustaned.
In the opnon of ths offce the answer s n the affrmatve. The
provsons of secton 23 (r), supra, to the effect that osses from saes
or e changes of stocks and bonds whch are not capta assets are
aowabe to the e tent of the gans from such saes or e changes,
do not e cude gans whch are beng reported on the nstament
bass even though the sae was made on such bass n a pror year.
Such ncome ceary quafes as gans from such saes or e changes
wthn the meanng of secton 23 (r), supra. In other words, the
fact that the gan from such a sae or e change reported for the
ta abe year n whch such a oss s sustaned represents gan from a
sae or e change n a pror year whch s propery reported on the
nstament bass does not deprve the ta payer from deductng
such oss to the e tent of the gan from the nstament sae reported
n that year. urthermore, there s no egsatve hstory ndcatng
any other ntent.
In C. Perry Sne v. Commhzancr (97 ed. (2d), 91), the ta -
payer was hed not entted to the 12y2 per cent capta gan ta rate
under the Revenue cts of 1924 and 1926 for the ta abe years 1924
to 1927, ncusve, n respect of proft or gan returnabe n those
years on the nstament bass from rea estate sod n 1923, on the
ground that the ta payer was actvey and contnuousy engaged
n the deveopment of rea estate, and that these ands were hed
for sae by am n the course of hs busness even though hed for
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220
more than two years when sod. The concudng paragraph of the
court s opnon s partcuary noteworthy n connecton wth the
queston presented n the nstant case:
s to the nstament saes made In 1923, the ta payer mght have eected
to take hs whoe proft then and have had It ta ed under the Revenue rt
of 1921. e chose to defer reazaton of the profts on the deferred nsta-
ments. These thereby were eft to fa under such provsons of the aw at
mght be of force at ther maturty. That the aw mght be changed, not
ony n the ta rate but In any other of Its provsons, was a rsk the ta payer
took n deferrng the reazaton of hs gans. The oard rghty apped to
them the aw as t stood when the gans became ta abe.
In vew of the foregong, t s the opnon of ths offce that the
aforementoned oss of 4 doars s aowabe as a deducton to the
e tent of the aforementoned gan of S doars.
. P. Wenche.
than nterest.
R NU CT OP 1934.
P RT I . CCOUNTING P RIODS ND M T ODS O
CCOUNTING.
S CTION 44. INST LLM NT SIS.
rtce 44-3: Sae of rea property on nsta- 1939-35-99 3
ment pan. Ct. D. 1415
INCOM T R NU CT O 192 D CISION O CODRT.
Instament ass Sae or Property aure to Report ssgn-
ment of Instament Contract stoppe.
corporaton sod property on the nstament bass n 1929, and
athough the nstament contract was assgned n that year to the
corporaton s soe stockhoder, returns fed by the corporaton a
subsequent years reported Income on the nstament bass, mak-
ng no dscosure of the assgnment, unt 1933, when t was too
ate to make the proper assessment aganst the corporaton for
1929. The corporaton n 1934 fed a cam for refund of the 1932
ta , on the ground that the corporate charter had e pred n 1930.
Under the facts dscosed, the faure of the Commssoner to assess
the approprate ta for 1929 s concusvey shown to be attrbu-
tabe to the corporaton s erroneous omssons n ts subsequent
returns, and the corporaton s now estopped from assertng, for
the purpose of obtanng a refund, that the contract was actuay
transferred In 1929. The crcumstances show that the Comms-
soner wthout faut reed upon the corporaton s msrepresenta-
tons, and was pre|udced thereby.
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44, rt. 44-3.
T nted States Crcut Court op ppeas for the Seventh Crcut.
|Lofqust Reaty Co., pettoner, v. Commssoner of Interna Revenue, respondent.
102 ed. (2d), 945.
Petton for revew of decson of the Unted States oard of Ta ppeas.
tfore Sparks, Ma|or, and Treanor, Crcut udges.
March 24, 1939.
OPINION.
Sparks, Crcut udge: The ta payer pettons for revew of a decson of
the oard of Ta ppeas dsaowng ts cam for refund of 433.22, the tota
amount of ta es pad by t for the year 1932. whch dsaowance was based on
prncpes of estoppe.
Pettoner sod property on the nstament bass n 1929, utzng the nsta-
ment statute, secton 44 (b) and (c) of the evenue ct of 192 (ch. 52. 45
Stat., 791). In the same year, t assgned the nstament contract to Oscar
Lofqust, ts presdent and soe stockhoder, but made no dscosure of such
transfer n ts 1929 return. In Its 1930, 1931, and 1932 returns e ecuted by
Lofqust, as presdent, the pettoner represented the nstament payments as
ts own ncome and pad the ta thereon. In ts 1933 return t represented for
the frst tme that the contract had been transferred. It was then too ate to
make the proper assessment aganst the pettoner for 1929, whch woud have
e ceeded the ta es actuay pad. We are confronted wth the queston, Is the
pettoner now estopped from assertng, for the purpose of obtanng a refund
of the 1 32 ta , that the contract was actuay transferred n 1929
Te facts found by the oard were substantay as foows: The pettoner
was an Iowa corporaton. It was ncorporated October 13, 1910, for a perod
of 20 years. Its purpose was to acqure a easehod on a budng n Des
Mones, Iowa. Ths property was eased by pettoner on October 14. 1910, for
a perod of 73 years. On pr 22, 1929, t entered nto a contract to se a of
ts rght, tte and nterest under the ease and Improvements made upon the
property by t, to the Deaan Company, effectve May 1, 1929.
The book vaue of the easehod nterest n ths property at the date of sae
was ,433.10, and the prce at whch t was sod to the Deaan Company was
25,000, of whch 5,000 was to be pad n cash at the tme of the sae, and
4,000 annuay to pettoner for the ve succeedng years wth nterest on the
unpad baance at the rate of 5 per cent per annum.
of the capta stock of pettoner was owned by Lofqust, wth the e cep-
ton of four quafyng shares, two of whch were hed by hs wfe and two by
hs sster. It kept ony memorandum records, and had a stock record book but
no mnute book or genera edger. It empoyed a part-tme bookkeeper who
worked at rreguar ntervas and made up the accounts once a year for ta
purposes. There were no stockhoders or drectors meetngs. The capta of
the corporaton, appro matey 12,000. was contrbuted by Oscar Lofqust.
On May 17, 1929, pettoner assgned ts nterest under the contract to Oscar
Lofqust, who, on the same day assgned hs nterest theren to the Des Mones
Natona ank as securty for hs persona debts. On that same day the
Do aan Company acknowedged notce of both assgnments and they were on
that date recorded n the offce of the recorder of Pok County, Iowa. There-
1 Sec. 44. Instament ass.
.
(h oes of reaty and casua tae of personay. In the case of a sae
or other dsposton of rea property, f n ether case the Inta payments do not e ceed
40 per centum of the seng prce, the ncome may. under reguatons prescrbed by the
Commssoner wth the approva of the Secretary, be returned on the bass and n the
manner above prescrbed n ths secton. s used n ths secton the term Inta pay-
ments means the payments receved n cash, or property, other than evdences of
Indebtedness of te purchaser durng the ta abe perod In whch the sae or other
dsposton s made.

(d) Oan or oss upon dsposton of Instament obgatons. If an Instament obga-
ton s dstrbuted, 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
the far market vaue of the obgaton at the tme of such dstrbuton, trans-
msson, or dsposton. 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 n fu.
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222
after, a payments under the contract were made by the De aan Company
to the Des Mones Natona ank, and by t apped to the persona obgatons
of Oscar Lofqust. Thereafter the ony assets of the pettoner conssted
104. 9 cash, and oans recevabe In the sum of 491.33. fter the assgnment
the pettoner transacted ony that busness necessary to wnd up ts affars.
Ths was permtted to be done under paragraph 392 of the Iowa Code (1927).
On pettoner s ncome ta return for 1929, sgned by Oscar Lofqust a#
presdent and duy fed on une 3, 1930, the sae of the easehod u 1929 w
reported as resutng n a proft to pettoner of 16,5G6.90, and nasmuch a
one-ffth of the tota sae prce was receved n that year, the corporaton, on
the Instament bass, ncuded one-ffth of 16,506.90 n ts ncome. The renn
showed a ta of 21. 7 whch was pad. It aso dscosed a payment of casS
dvdends of 5,400 durng that year. ke return was fed by the pettoner
for the year 1930 reportng the nstament proft of 2,050.70 attrbutabe to
the 4,000 payment made by the De aan Company n that year, and ,0
receved as nterest on the unpad sae prce. Ths 1930 return dscosed a ts
abty of 7 .0S. or the year 1931 a ke return was fed by pott|ow:
showng an nstament proft of 2,050.70 attrbutabe to the annua payment
of 4,000, and 750 as nterest on the unpad porton of the sae prce. The
amount of 30 was camed as a deducton for oca ta es. Cash dvdends of
10,000 were shown as havng been pad durng that year. Ths return refected
a ta abty of 14.4 . or the year 1932 a ke return was made shownf
an nstament proft of 2,650.70, and nterest ncome of 500. Ths return
reported dvdends pad durng that year of 1,630. 1, and dscosed a ta a-
bty of 133.22 whch was pad. of these returns were e ecuted by Oscar
Lofqust as presdent of pettoner.
or the year 1933 the pettoner fed an Income ta return, by Lofqust, ts
presdent, whch showed no ncome or deductons, but whch sted n ts baance
sheet the sae contract as an asset n the amount of ,000, and as ts abtes
deferred proft sae contract n the amount of 5,301.32 common stock n the
amount of 5,000 and surpus and undvded profts n the amount of 2,19 .5 .
Under the baance sheet appeared the statement assets transferred to nd-
vduas pror to 1933 but no record made.
On September 14, 1934, there was fed wth the coector of nterna revenne
for the dstrct of Iowa n the name of the pettoner, a cam for ta refunds n
the amount of 433.22, representng the tota amount of ncome ta es pad by
the pettoner for the year 1932. Ths cam, sgned by Oscar Lofqust as former
presdent of pettoner, was based on the ground that the corporate charter of
the company had e pred n October, 1930.
In hs ndvdua ncome ta return for 1929 Lofqust ncuded as ncome
the amount of 5,400 receved as dvdends from the pettoner. No dvdends
from the company were reported by hm for 1930, but for 1931 hs return ds-
cosed 10,000 as dvdends receved by hm from the pettoner, and n 1932 be
reported ke dvdends from the same source of 4,630. 1. s ndvdua re-
turns for these years refected no ta abty.
In hs ta return for 1933, Lofqust reported as other ncome the sum of
2,050.70 whch he e paned In an attached schedue as nstament proft cacu-
ated n the same way as t appeared n the ncome ta return of the pettoner
for the years 1930, 1931, and 1932. smar tem appeared on hs return for
1934. s return for 1933 refected no ta abty and hs 1934 return refected
a ta abty of 107.40.
The oard found that f the above rected facts had been dscosed to respond-
ent by the ncome ta returns of pettoner and Oscar Lofqust, the pettoner
woud have been abe for the payment of ta es n 1929, pursuant to secton
44(d) of the Revenue ct of 192 , n the sum of 1,614.2 nstead of 21. 7, as re-
ported n pettoner s ncome ta return for that year. The oard dened the
Commssoner s cam for addtona defcency but concuded that the prncpe
of estoppe coud be defensvey asserted and accordngy dened the refund.
Pettoner contends that under the sectons of the statute above referred to, a
refund of an overpayment of ta es s mandatory. If at the tme of overpay-
ment no ta es are due for another year, a equtabe prncpes must gve way
to the statutory command. It argues that when pettoner s ta return for the
year 1932 was fed, the statute of mtatons had run upon ts 1929 return and
that the respondent coud not be pre|udced wth respect to the 1929 return by
the representaton contaned n the 1932 return. In support of ths poston t
rees on Mc achern v. Rose (302 U. S., 56 Ct. D. 12 2, C. . 1937-2, 322 ). In
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44, rt. 44-3.
that case the Court states that the coector dd not press hs former contenton
that the pettoner was estopped to chaenge the correctness of hs returns for
the years of overpayment, and that the faure of the Government to assess the
approprate ta n 192 was not shown to be attrbutabe to the erroneous state-
ments made n returns for the ater years. In these respects the case s to be
dfferentated from the one at bar. ere the respondent s pressng the conten-
ton of estoppe by chaengng the correctness of pettoner s returns, and the
faure of respondent to assess the approprate ta for 1029 s concusvey shown
to be attrbutabe to pettoner s erroneous omssons n ts subsequent returns.
It s further found n ths case that respondent reed upon these fase returns
and was thereby precuded from coectng 1,614.2 nstead of 21. 7.
We thnk t s cear that the respondent, wthout faut, reed upon pettoner s
msrepresentatons and that the respondent was pre|udced thereby. In Stone
v. Whte (301 U. S., 532 Ct. D. 1232, C. . 1937-1, 2241), the Court sad:
The acton, brought to recover a ta erroneousy pad, athough an acton
at aw, s equtabe n ts functons. It Ir the nea successor of the common
count n ndebtatus assumpst for money had and receved. Its
use to recover upon rghts equtabe n nature to avod un|ust enrchment by
the defendant at the e pense of the pantff, and ts contro n every case
by equtabe prncpes, have ong been recognzed n ths Court
Snce, n ths type of acton, the pantff must recover by vrtue
of a rght measured by equtabe standards, t foows that t s open to the
defendant to show any state of facts whch, accordng to those standards, woud
deny the rght, even wthout resort to the modern statutory authorty
for peadng equtabe defenses n actons whch are more strcty
ega.
The opnon further states:
h The statute sectons 607, 609 does not overrde a defense based
on the estoppe of the ta payer. The statutory bar to the rght of
acton for the coecton of the ta does not prevent reance upon a defense
whch s not a set-off or a countercam, but s an equtabe reason, growng
out of the crcumstances of the erroneous payment, why pettoners ought not
to recover.
ere the defense s not a counter demand on pettoners, but a dena of
ther equtabe rght to undo a payment whch, though effected by an erroneous
procedure, has resuted n no un|ust enrchment to the Government, and n
no n|ury to pettoners or ther benefcary. The Government, by retanng
the ta pad by the trustees, s not revvng a stae cam. Its defense, whch
nheres n the cause of acton, s comparabe to an equtabe recoupment or
dmnuton of pettoners rght to recover.
The foregong case, from the factua standpont, s not n a respects ke
the one at bar, but the prncpes theren enuncated support the oard s rung.
The facts n amo Natona ank v. Commssoner (95 . (2d), C22) are hed
anaogous to those n the nstant case. The rung there supports our concu-
son and we thnk t s qute reconcabe wth the rung n the Mc achern
case.
Pettoner contends that respondent must prove that t dd not merey make
an nnocent mstake of aw nstead of a msrepresentaton of facts. We thnk
t cear that pettoner dd not make a mstake of aw but that t was purey
one of fact. It s not. necessary n order to support the oard s fndng to
prove by drect evdence that pettoner frauduenty ntended to make the
msrepresentatons n queston. It s presumed to ntend the natura conse-
quences of ts acts and the oard was warranted n concudng from those
acts that t was responsbe for the ega fraud practced upon respondent.
It s further contended by pettoner that the fact that the assgnments
were recorded n the county recorder s offce n Iowa, gave the respondent an
equa opportunty wth the pettoner to ascertan the facts. We thnk ths
Is not a sound concuson. The facts presented here were wthn the know-
edge of the pettoner s offcers and agents, at a tmes, and the respondent
had a rght to rey upon statements under oath submtted n ts behaf. To
hod otherwse woud be to pace a burden upon the ta ng department, whch
n a farness woud be unreasonabe. (See Robnson v. Commssoner, decded
by the Court of p|eas for the S h Crcut, anuary 16, 1939.)
The decson of the oard s affrmed.
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101, rt. 101(7)-1. 224
SU TITL O SUPPL M NT L PRO ISIONS.
ON CORPOR TIONS.
rtce 101 (6) 1: Regous, chartabe, scentfc, terary,
R NU CT O 1934.
21610, page 103.)
rtce 101 (7) 1: usness eagues, chambers 1939-41-10055
of commerce, rea estate boards, and boards Ct. D. 1419
of trade.
empton Corporatons State usness Corporaton Deaer
n State and Muncpa Securtes.
n assocaton organzed under a State busness corporaton act
for the decared purpose of deang In State and muncpa se-
curtes ether on Its own account or for others, of advsng and
assstng hoders of such securtes wth respect to ther fuancat
probems and the enforcement of ther obgatons, and of assst-
ng States and muncpates n preventng defauts and refundng
securtes, s not e empt from ta under the provsons of secton
101 (7) of the Revenue ct of 1934, where the evdence shows
that the assocaton was organzed to do a reguar busness
ordnary carred on for proft and that Its net earnngs nured
to the beneft of ts sharehoders and ndvduas.
Northwestern Muncpa ssocaton, Inc., appeant, v. Unted States, appeee.
99 ed. (2d), 460.
November 9, 193 .
opnon.
Thohas, Crcut udge, devered the opnon of the court.
Ths s an appea from a udgment for the Unted States In an acton
at aw brought to recover ncome ta es for the year 1934 and capta stock
ta es for 1934 and 1935. (.Northwestern Muncpa ssocaton, Inc., v. Unted
States, 22 . Supp., 1 .)
The appeant, pantff beow, was ncorporated n uy, 1933, under the
Mnnesota usness Corporaton ct (ch. 300, Laws of Mnnesota, 1933), wth
an authorzed cnpta of 50 shares of the par vaue of 50 each, of whch 25
shares purchased at par are hed by 14 banks and nvestment frms resdent
at or near St. Pau and Mnneapos, Mnn. The by-aws provde for non-
votng assocate members of whch there are 6. The assocate members are
engaged In the same knd of busness as that of the sharehoders. The capta
of the corporaton conssts of 1,250 pad n by the sharehoders and 1,709
contrbuted by the assocate members.
1 See G. C. M. 21610, page 103, ths uetn.
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225
101, rt. 101 (7)-.
The ta payer bases ts cam that It shoud be aowed a refund on the
ground that t Is e empt from ta under the provsons of secton 101(7) of
the Revenue ct of 1034 n that t s a busness eague, s not organzed for
proft, and no part of ts net earnngs nures to the beneft of any prvate
ndvdua or sharehoder. The statute provdes that the foowng organza-
tons sha be e empt from ta aton under ths tte:
(7) usness eagues, chambers of commerce, rea estate boards, or boards
of trade, not organzed for proft and no part of the net earnngs of whch
nures to the beneft of any prvate sharehoder or ndvdua.
To be e empt from ta aton under ths statute t s not suffcent that the
organzaton camng e empton be a busness eague. It must be a busness
eague havng two partcuar quates: (1) not organzed for proft, and
(2) no part of the net earnngs of whch nures to the beneft of any prvate
sharehoder or ndvdua. urther than these two restrctons the statute
furnshes no defnton of a busness eague. Treasury Reguatons 6, pro-
mugated under the Revenue ct of 1934, provdes:
rt. 101(7)-1. usness eagues, chambers of commerce, rea estate board ,
and boards of trade. busness eague s an assocaton of persons havng some
common busness nterest, the purpose of whch s to promote such common nter-
est and not to engage n a reguar busness of a knd ordnary carred on for
proft. It s an organzaton of the same genera cass as a chamber of commerce
or hoard of trade. Thus ts actvtes shoud be drected to the mprovement of
busness condtons of one or more nes of busness as dstngushed from the
performance of partcuar servce for ndvdua persons. n organzaton
whose purpose Is to engage n a reguar busness of a knd ordnary carred
on for proft, even though the busness s conducted on a co-operatve ba s
or produces ony suffcent ncome to be sef-sustanng, s not a busness eague.
n assocaton engaged n furnshng Informaton to prospectve nvestors, to
enabe them to make sound nvestments, s not a busness eague, snce ts
actvtes do not further any common busness nterest, even though a of ts
ncome s devoted to the purpose stated. stock e change s not a busness
eague, a chamber of commerce, or a board of trade wthn the meanng of the
aw and s not e empt from ta .
The frst restrcton of the statute, t w be observed, reates to the char-
acter of the organzaton and the second to ts method of operaton. Under the
frst the organzaton may be ncorporated or unncorporated, but whatever the
form t must not be organzed for proft. Under the second restrcton t s not
prohbted from operatng for proft, provded that none of ts net earnngs
nure to the beneft of any prvate sharehoder or ndvdua. Reguatons C
merey ampfes the statutory defnton. We do not thnk appeant meets
ether of these tests.
rst. ppeant was organzed for proft wthn the meanng of the statute
that s, t s n organzaton whose purpose s to engage n a reguar busness
of a knd ordnary carred on for proft.
The purpose of an organzaton must be determned from the purpose decared
n the nstrument creatng t. ( vvcrng v. Coeman-Obert ssocates, 200
U. S., 309, 50 S. Ct., 2 5, 0 L. d. 27 Ct, D. 1007, C. . -1, 261 (1936)1
Retaers Credt ss n v. Commssoner of Interna Revenue, 9 Cr., 90 . (2d),
47 agne, Coector of Interna Revenue, v. anover Water 1Yorks Co., 1 Cr.,
92 . (2d), 050 Sun- erad Corporaton v. Duggan, Coector of Interna Reve-
nue, 2 Cr., 73 . (2d), 29 Ct. D. 953, C. . I -1, 190 (1935) Lousve.
Credt Men s d|ustment ureau v. Unted States, 6 . Supp., 196 Ct. D. 31,
C. . III-1, 126 (1934) . Cf. Roche s each, Inc., v. Commssoner of Interna
Revenue, 2 Cr., 96 . (2d), 776 Ct. D. 1359, C. . 193 -2, 230 .) In everng
v. Coeman-Obert ssocates, supra, the court stated that The partes are not
at berty to say that ther purpose was other or narrower than that whch they
formay set forth n the nstrument under whch ther actvtes were con-
ducted.
The appeant was organzed under the Mnnesota usness Corporaton ct,
and n ts artces of ncorporaton t decared:
The purposes of the corporaton sha be:
To provde organzed representaton for hoders of securtes ssued by the
severa States of the Unted States, and by the countes, ctes, towns, vages,
schoo dstrcts, dranage dstrcts and other governmenta subdvsons of any
and a States, and to advse and assst such securty hoders wth respect to
ther fnanca probems and the enforcement of ther obgatons
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101, rt. 101(7)- .
226
To advse and assst the severa States and ther governmenta subd-
vsons n workng out ther fnanca probems wth a vew to preventng
defauts on ther outstandng securtes and to workng out pans for curng
defauts and refundng securtes
To act as trustee, agent, attorney-n-fact or otherwse as representatve of
hoders of muncpa securtes
To acqure, hod, mortgage, pedge or dspose of State and muncpa se-
curtes, ether ou ts own account or as trustee agent, attorney-n-fact or n
any other capacty as representatve of the owners of such securtes and
To do any and a thngs reasonaby necessary or ncdenta to accompsh
sad purposes.
These decared purposes are suffcenty ncusve to permt appeant to
engge n operatons coverng the whoe fed of deangs n muncpa securtes.
There are no restrctons aganst profts, or the amount thereof, that mght be
made n any of those authorzed actvtes, and no requrement that the corpora-
ton sha be merey sef-sustanng. Under the frst decared purpose t may
represent as agent the hoders of muncpa securtes wth respect to ther
fnanca probems and the enforcement of the obgatons due them. ur
such servces t may e act compensaton the same as attorneys, brokers or other
agents. Under another of ts decared purposes t may acqure, hod or dspose
of muncpa securtes on ts own account or for others and there s no
prohbton n ts artces aganst ts makng a proft ou each transacton n
whch t engages. Ths Is the reguar busness of brokers and nvestment
bankers ordnary carred on for proft.
The artces provded that no dvdend sha be pad sharehoders
pror to the dssouton of the corporaton. Upon dssouton sharehoders
may receve a return of ther Investment and any amounts thereafter reman-
ng sha be contrbuted to some chartabe organzaton n the cty of Mn-
neapos. Ths provson, however, s not matera n determnng the character
of the organzaton. (Lousve Credt Men s . ureau v. Unted States,
supra: ortheestern obbers Credt ureau v. Commssoner, Cr., 37 .
(2d), 0 fCt. D. 206, C. . I -2, 22 (1930) .)
Second. Dd appeant operate or carry on ts busness so that none of ts
not earnngs nured to the beneft of prvate sharehoders or ndvduas
The record shows that appeant carred on three casses of actvtes:
(1) premnary nvestgatons nnd advsory work (2) assstng muncpates
In refundng operatons and (3) promotng the enactmeut of remeda egsa-
ton.
In the frst and thrd of these actvtes the appeant made no charge for
Its servces. In the second type of actvty, refundng operatons, the servces
of appeant are performed under a wrtten contract wth the muncpaty.
Those servces nvove, among other thngs, workng out the detas of the
refundng ssue n the ght of the muncpaty s probabe abty to pay as
dscosed by the premnary Investgaton, securng an approvng opnon cf
counse, preparng a etter showng the debtor s fnanca condton and the
proposed pan of ad|ustment, and mang the etter to a known bondhoders
and securng the consent to the e change of obgatons. The appeant aways
makes a charge for such refundng operatons, and on rare occasons ths charge
was made aganst the bondhoders f the muncpaty coud not afford to hande
t The testmony s to the effect that the charges for refundng servces are
not f ed wth a vew to proft to the appeant but are determned wth the
vew of keepng t on a sef-sustanng bass. Ony on rare occasons are
appeant s charges as much as woud be charged by others.
The appeant s years of greatest actvty were n 1934 and 1935. Snce then
there has been a decne and some thought has been gven to dssouton bat, to
date, the corporaton has not been dssoved. Practcay a the appeant s
recepts have been derved from fees from ts refundng operatons. The fo-
owng s a schedue of recepts and dsbursements for the years 1934 to
1937, ncusve:
Year.
Recepts.
Dsbursement .
1934
,340.73
9, 144. 79
11,727. 4
1 .71
S4.035.-S
3,70 .-
1930.
1937
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227
101, rt. 101(7)-1.
The Important queston here Is, Dd the net earnngs for the servces so ren-
dered nure to the beneft of prvate sharehoders or ndvduas In consder-
ng ths queston t must be kept n mnd that the term net earnngs may
Incude more than the term net profts as shown by the books of the organza-
ton or than the dfference between the gross recepts and dsbursements n
doars. Proft may nure to the beneft of sharehoders n other ways than
n dvdends. orthcestern obber Credt ureau v. Commssoner, Cr.,
37 . (2d), 0, 3 Lousve Credt Men s d|ustment ureau v. Unted States,
D. C, 6 . Supp., 196 Unform Prntng Suppy Co. v. Commssoner, 7 Cr.,
33 . (2d), 445.)
Under the statute, n connecton wth the nqury whether the net earnngs
of the organzaton camng e empton as a busness eague nure to the bene-
ft of prvate stockhoders or Indvduas, especay where ts actvtes are
mutfarous and for some of whch t makes a charge and for others none,
the court often consders whch of ts actvtes represents the man purpose
of ts operatons and whch are ncdenta thereto. If ts man purpose s to
beneft ts sharehoders or ndvduas t s not e empt. On the other bund,
f beneft to the ndvduas s secondary and ncdenta, t Is e empt. (Crooks
v. ansas Cty ay Deaers ss n, Cr., 37 . (2d), 3 Northwestern obbers
Credt ureau v. Commssoner, Cr., supra Retaers Credt ssn. v. Com-
mssoner, 9 Cr., 90 . (2d), 47, 51.)
It Is the contenton of counse for appeant that the man purpose of ts
actvtes s to mantan sound muncpa credt, a purpose whch s not wthn
the category of a reguar busness ordnary carred on for proft. Ths con-
tenton s not supported by the record. The frst purpose decared n appe-
ant s artces of ncorporaton s to ad bondhoders n enforcng payment of the
obgatons due them from muncpates. The prncpa end to be acheved by
the ncorporators was to beneft bondhoders as ndvduas. Sound munc-
pa credt was ncdenta to ths prmary purpose as an ad n effectng ts
accompshment.
The tra court found that the appeant Is a mere ad|unct to the busness of
the severa nvestment bankng corporatons and bond houses represented by
ther agents as sharehoders or assocate members that the enterprse whch
was undertaken was a cooperatve endeavor to render servces whch the
separate members mght have been requred to furnsh and that the per-
formance of these servces at ess than t woud have cost the ndvdua
members to furnsh nured drecty to the beneft of the nvestment bankers.
The evdence supports these concusons. The presdent of appeant was the
ony wtness to testfy for the ta payer. e testfed that at about the tme
of and pror to the organzaton of appeant corporaton there had been many
defauts by muncpates n Mnnesota, n North and South Dakota am n
Montana n the payment of nterest on ther bonds. ach one of the nvest-
ment bankevs nterested who had some of the bonds, or who may have had
cents who hed some of the bonds, woud go out and make an nvestgaton
or check up on the stuaton when a defaut occurred but they coud not
before the organzaton of appeant make any concerted acton. e testfed
that they fet a mora obgaton to hep ther customers. y hepng them
they retaned ther good w. Ceary ther motve n organzng the corpora-
ton and n carryng on the work whch t dd was to beneft ther customers,
to mnmze the cost to themseves of a servce whch they eected to gve, and,
n so far as they bod the bonds of any of the defautng muncpates, to
coect Interest for themseves. These were the ends whch the operatons of
appeant sought prmary to serve. Sound muncpa credt was ncdenta to
these ob|ectves.
Snce t s cear that appeant was organzed to do a reguar busness or-
dnary carred on for proft, and snce n the operaton of ts busness ts net
earnngs nured to the beneft of ts sharehoders and ndvduas, t was not
e empt from ta under the Revenue ct of 1934. The |udgment of the ds-
trct court s, therefore, affrmed.
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SUPPL M NT COMPUT TION O N T INCOM .
S CTION 111. D T RMIN TION O MOUNT O ,
ND R COGNITION O , G IN OR LOSS.
rtce 111-1: Computaton of gan or oss.
R NU CT O 1934.
Settement of pecunary egaces by transfer of securtes beongng
to a trust. (See I. T. 3316, page 1 6.)
S CTION 112(f). R COGNITION O G IN OR LOSS:
rtce 112(f) 1: Renvestment of proceeds of nvountary
converson.
R NU CT O 1934.
page 110.)
S CTION 112(g). R COGNITION O G IN OR LOSS:
D INITION O R ORG NIZ TION.
rtce 112(g)-3: changes soey of stock 1939-27-9900
or securtes, or property, soey for stock Ct.D. 1406
or securtes, n pursuance of pan of
reorganzaton.
1. Gan ob Loss Recognton change of Stock foe Stock on
Reorganzaton I akty to a Reobganzaton.
Where the Corporaton, whch owned two-thrds of the out-
standng stock of Y Corporaton, acqured from the ta payer the
remanng one-thrd of the outstandng stock of Y n e change for
certan shares of ts own stock, and aso acqured substantay
a of the assets of Y, the corporatons were partes to a reorgan-
zaton wthn the meanng of secton 112() of the Revenue ct
of 192 , and any gan reazed by the ta payer n the e change of
stock s not to be recognzed as ta abe.
2. Decson ffrmed.
(36 . T. ., 97) affrmed.
Unted States Crcut Court of ppeas fob the Thrd Crcut.
Commssoner of Interna Revenue, pettoner, v. Chares . Dana, respondent.
103 ed. (2d), 359.
Petton for revew from the Unted States oard of Ta ppeas.
efore Davs, Mars, and uffnoton, Crcut udges.
March 2 . 1939.
Davs, Crcut udge: The Commssoner determned that there was a de-
fcency of 125,534.97 n the ncome ta es of Chares . Dana, ta payer, for
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229
112(g), rt. 112(g)-3.
the year 1929. The ta payer thereupon fed a petton for revew wth the
oard of Ta ppeas whch, on une 11, 1937, fed ts opnon (30 . T. ., 07)
In whch t found that the Commssoner had erred n determnng the above
defcency. rom the order of redetermnaton entered thereon, the Com-
mssoner appeaed to ths court.
The queston nvoved s whether or not the Spcer Manufacturng Co.,
herenafter caed Spcer, and the Sasbury e Co., herenafter caed Sas-
bury, were partes to a reorganzaton wthn the meanng of secton 112(1)
of the Revenue ct of 192 .1
If they were, any gan reazed by the ta payer when he e changed stock
n Sasbury for stock n Spcer, s not to be recognzed n computng hs
ta abe ncome and there was no defcency, for secton 112(b)3 of the ct
provdes that:
(3) Stock for stock on reorganzaton. No gan or oss sha be recognzed
If stock or securtes n a corporaton a party to a reorganzaton are, n
pursuance of a pan of reorganzaton, e changed soey for stock or securtes
In such corporaton or n another corporaton a party to the reorganzaton.
Whether or not they were partes, depends upon ether of two subsdary
questons. The frst s whether or not the acquston by Spcer, whch owned
appro matey two-thrds of a of the outstandng stock of Sasbury, of the
remanng one-thrd outstandng stock consttuted a merger or consodaton
wthn the meanng of secton 112()( ) of the ct. The second queston s
whether or not the acquston by Spcer of substantay a the propertes
of Sasbury consttuted a merger or consodaton wthn the meanng of that
secton.
If ether of the above questons are answered n the affrmatve, the order
of the oard must be affrmed.
Pror to 1927, Spcer was a corporaton whch was engaged n the manu-
facture of unversa |onts and propeor shafts for motor vehces n ts
pant at Panfed, N. . Its outstandng stock conssted of 313,750, out of
an authorzed 600,000 shares of no par common stock of whch the ta payer
owned 11 ,125 shares. Of the 100,000 shares of 100 par preferred stock
authorzed, none were outstandng. Sasbury was a corporaton engaged n
the manufacture of automobe a es at amestown, N. Y. Its outstandng
stock conssted of the entre authorzed 20,000 shares of no par common, and
27,500, out of an authorzed 30,000 shares of 100 par preferred. ppro matey
two-thrds of both types of stock ssued by Sasbury was owned by Spcer,
and the remanng one-thrd was owned by the ta payer who was presdent of
both corporatons.
In 1927, t was determned to move both Spcer and Sasbury to Toedo,
Oho, so that they woud be nearer to the automobe ndustry, and aso to
merge the operaton of both corporatons n one pant.
In furtherance of ths pan, property was purchased n Toedo and, n the
sprng of 192 , constructon of the pant was started. y the fa of 192
Spcer commenced the remova of ts machnery, equpment and a part of
ts personne to the new pant, competng such remova n the frst haf of
1929. The secton of the pant ntended for Sasbury was begun eary n 1929,
and n ugust of that year the remova of ts machnery and equpment to the
new pant was begun. y fa the budng was competed and by the end of
the year substantay a of the machnery and equpment of Sasbury, e cept
obsoete equpment, had been moved.
In the fa of 192 , whe the above actvtes were takng pace, the rown-
Upe Gear Co., herenafter caed Gear company, whch mnnufaetured gears
for motor vehces, was offered for sae for the sum of 3,900,000.
1 (1) The term reorganzaton means ( ) a merger or consodaton (Incudng the
acquston by one corporaton of at eant a ma|orty of the votng stock and at east a
ma|orty of te tota Dumber of shares of a other casses of stock of another corporaton,
or substantay a the propertes of another corporaton), or ( ) a transfer by a cor-
poraton of a or a part of ts assets to another cor oraton f mmedatey after the
transfer the transferor or ts stockhoders or both are n contro of the corporaton to
whch the assets are transferred, or (C) a recaptazaton, or (D) a mere change n
Identty, form, or pace of organzaton, however effected.
(2) The term a party to a reorganzaton ncudes a corporaton resutng from a
reorganzaton and ncudes both corporatons In the case of an acquston by one
corporaton of at east a ma|orty of the votng stock and at east a ma|orty of the tota
number of shares of a other casses of stock of another corporaton.
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112(g), rt. 112(g)-3.
230
fter dscusson wth certan bankers, a pan was evoved whch caed for
the acquston by Spcer of a of the outstandng stock of Sasbury and Gear
company, makng them whoy owned subsdares of Spcer. Iu order to accom-
psh ths purpose Spcer ssued 125,000 addtona shares of no par common
stock, brngng the tota number of such shares outstandng up to 43S.750 out of
000,000 shares authorzed. Of ths newy ssued stock 40,000 shares were gven
to the ta payer n e change for a of hs stock n Sasbury, and the remann
5,000 shares were sod to the bankers for the sum of 3, 46,250 whch was used
to purchase a of the outstandng stock of Gear company.
Snce the e ecuton of ths pan, and the remova of substantay a of the
assets of Sasbury to the new pant n Toedo, Sasbury has carred on no
busness e cept that of dsposng of ts obsoete equpment. The assets trans-
ferred to Toedo were taken over by Spcer and were carred on t books as
assets beongngs to t On December 31, 1029, Sasbury notfed a of ts
customers that t woud carry on no further busness and that a of ts manu-
facturng operatons woud be conducted by Spcer. s Spcer owned a of the
stock of Sasbury, no payment was ever made or even contempated for the
transfer of Sasbury s equpment to Spcer, though, n order to baance ts
books, debt and credt entres were made theren. In une, 1032, the out-
standng stock of Sasbury, orgnay carred at over 2,000,000, was reduced
to 2,500. Its ony remanng assets conssted of certan Lberty bonds amount-
ng to 9,170.3 whch were deposted wth the New York State ndustra com-
mssoner pendng termnaton of ts abty on account of compensaton nsur-
ance, and the and and budngs ocated at amestown, N. Y.
The ta payer s stock In Sasbury cost hm 1,000,000. ccordng to the
determnaton of the Commssoner, the vaue of the 40,000 shares of Spcer
stock acqured by the ta payer n 1929 n e change for hs Sasbury stock,
was 2,005,000. The ta payer, however, dd not report any ncome as a resut
of ths e change.
Secton 112() of the Revenue ct of 192 shoud be beray construed and
the defntons theren gven of the terms reorganzaton, merger, con-
sodaton and party to a reorganzaton, are not e cusve defntons but
are ntended, rather, to enarge the connotaton of such terras. (Pneat Ice d
Cod Stora|e Co. v. Commssoner, 2 7 U. S., 462 Ct. D. 630, C. . II-1, 161
(1933) Gronutn v. Commssoner, 302 T . S., 2, 6 Ct. D. 12 5, C. . 1937-2,
2 6 .) Ths concuson s strengthened by the consderaton that, ordnary, the
mere acquston by one corporaton of a ma|orty of the stock of another
corporaton woud not fuf the strct defnton of merger or consodaton.
(Metropotan dson Co. v. Commssoner, 9 ed. (2d), 07, 09, 10 (C. C.
3).) Under the somewhat broad defnton gven to the term merger n the
statute, t s obvous that the acquston by one corporaton of a of the out-
standng stock of another corporaton was ncuded, even f ths means the
acquston of ony a mnorty nterest theren. The oard apty e pressed th
concuson as foows:
If the acquston by one corporaton of a bare ma|orty of the stock of
another consttutes a reorganzaton, we are of the opnon that the acquston
by one corporaton of a the outstandng stock of another, thus enabng the
acqurng corporaton, at ts peasure, to consodate or merge the two corpora-
tons, fas wthn the same category.
owever, even f we are n error concernng the frst queston, t s neverthe-
ess cear that a merger as defned by the statute occurred between Spcer and
Sasbury.
Durng the year 1929, besdes acqurng a of the outstandng stock of Sas-
bury, Spcer acqured substantay n the propertes of Sasbury and though
debt and credt entres were made for bookkeepng purposes, t s obvous that
no payment was ever ntended to be made or was made for these propertes.
or ths second and addtona reason, we are convnced that the oard
reached the correct concuson that there was a reorganzaton to whch Spcer
and Sasbury were partes and ts order of redetermnaton s affrmedL
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231
113(a), rt. 113(a)(5)- .
S CTION 113(a). D UST D SIS OR D T RMINING
G IN OR LOSS: SIS (UN D UST D)
O PROP RTY.
Where a nonta abe stock dvdend was dstrbuted to a testa-
mentary trust, and, by order of court, that part thereof not
requred to mantan the party of the trust was dstrbuted to
benefcares entted ony to ncome, the shares thus dstrbuted
retaned the same bass In the hands of the benefcares whch they
had n the hands of the trust. Such bass s arrved at by aocat-
ng to the dvdend stock the pro rata part of the bass of the
orgna stock prescrbed by secton 113(a)5 or secton 113(a) 14
of the Revenue ct of 1934. Recommended that I. T. 1622 (C. .
II-, 135 (1923)) be modfed to the e tent Inconsstent herewth.
n opnon s requested as to the bass to be used under the Rev-
enue ct of 1934 n determnng gan or oss upon the sae of stock
dstrbuted to benefcares of a testamentary trust as a nonta abe
stock dvdend under the crcumstances heren set forth.
and are two of the four benefcares who shared n the ds-
trbuton of ncome of a testamentary trust estabshed by the w of
ther grandfather, , who ded pror to March 1, 1913. Orgnay
the trust hed 1,165 shares of the M Company, the March 1, 1913,
vaue of whch was 300 per share. Subsequent ad|ustments for
capta changes resuted n the trust havng 23,300 shares. On De-
cember , 1922, a 200 per cent stock dvdend was dstrbuted to
sharehoders, and the court havng |ursdcton over the testamentary
trust rued that such porton of ths stock dvdend as was needed
to mantan the party of the trust was to be retaned and the e cess
dstrbuted to the benefcares. Pursuant to ths rung, each of the
benefcares receved hs or her proportonate part of the dstrbu-
ton. In the year 1935 sod a part of her dvdend stock and
reported a oss on her ncome ta return, and n the same year sod
part of hs dvdend sock and reported a gan. The queston pre-
sented n the determnaton of whether the oss reported by and
the gan reported by were computed correcty s the proper bass
of the dvdend stock n ther hands. It s contended that under
I. T. 1622 (C. . II-, 135 (1923)) the bass of the dvdend stock
n the hands of the benefcares s the far market, vaue of such
stock on the date t was dstrbuted to them by the trustees.
That porton of I. T. 1622, supra, whch prescrbes the bass, under
the Revenue cts of 191 and 1921, for gan or oss on the dsposton
of stack by benefcares n the type of stuaton presented n the
nstant case reads as foows:
The bass for determnng gan or oss upon a sae by the benefcary of dv-
dend stock receved from a trust pror to anuary 1, 1921, s the far market
vaue of the dvdend stock at the tme of ts recept. Ths rue appes whether
the trust from whch the benefcary receved the dvdend stock was a testa-
mentary trust or a trust created by conveyance nter vvos. Ths rue aso
govern n the case of testamentary trusts, whether the stock dvdend was re-
ceved by the benefcary before or after anuary 1, 1921. Itacs supped.
rtce 113(a) (5)-: ass of property ac-
qured by bequest, devse, or nhertance.
1939-37-10012
G. C. M. 21532
R NU CT OP 1934.
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117, rt. 117-1.
232
It s the opnon of ths offce that the quoted porton of I. T. 1622,
supra, s ncorrect n provdng that n the case of testamentary
trusts, whether the stock dvdend was receved by the benefcary
before or after anuary 1,1921, the bass for determnng gan or os
upon the sae of such stock s the far market vaue of the stock at the
tme of ts recept. Secton 113 (a) 5 of the Revenue ct of 1934, a
nterpreted by artce 113(a)(5)- of Reguatons 6, reatng to
that ct, ceary manfests an ntent that n such a case the bass of
the property n the hands of the benefcares sha reman the same
as the bass n the hands of the trustees. It s beeved, therefore,
that the queston presented n ths stuaton s governed by the prov-
sons of secton 113 (a) 5 of the Revenue ct of 1934, as nterpreted
by artce 113(a) (5)- of Reguatons 6. The bass of the shares
of dvdend stock n the possesson of the trustees s arrved at by
aocatng to such dvdend stock the pro rata part of the bass of
the orgna stock prescrbed by secton 113(a)5 or secton 113(14)
of the Revenue ct of 1934.
In vew of the foregong, ths offce s of the opnon that under
the provsons of the Revenue ct of 1934, the shares of stock ds-
trbuted to the benefcares n the nstant case retan the same bass
whch they had n the hands of the trustees pror to ther dstrbuton.
It s recommended that I. T. 1622, supra, be modfed n so far as
t s nconsstent wth ths memorandum.
. P. We che,
rtce 113(a) (5)-: ass of property ac- 1939-37-10013
qured by bequest, devse, or nhertance. I. T. 331
R NU CTS O 191S ND 1921.
I. T. 1622 (C. . II-, 135 (1923)) s hereby modfed to the e tent
nconsstent wth G. C. M. 21532 (see page 231, ths uetn).
R NU CT O 1934.
Resae of property acqured by banks, mortgage fnance com-
panes, or budng assocatons through forecosure. (See G. C. M.
21497, page 1 7.)
R NU CT O 1934.
Settement of pecunary egaces by transfer of securtes beongn
to a trust (See. T. 3316, page 1 6.)
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233
117, rt 117-3.
R NU CT O 1934.
Dsposton of property acqured by nsurance companes other than
fe nsurance companes through forecosure. (See I. T. 3336,
page 1 9.)
R NG CT O 192 ND PRIOR R NU CTS.
In the case of wash saes the 2-year perod durng whch prop-
erty must be hed n order to consttute capta assets wthn the
meanng of secton 101 of the Revenue ct of 192 and the corre-
spondng provsons of pror Revenue cts runs from the date of
repurchase of the securtes and not from the date of acquston of
the orgna securtes. I. T. 2 32 (C. . III-2, 201 (1934))
revoked.
dvce s requested whether I. T. 2 32 (C. . III-2, 201 (1934))
shoud be revoked n vew of certan court decsons herenafter re-
ferred to.
I. T. 2 32, supra, hed (syabus):
In the case of wash saes the 2-year perod durng whch property must be
hed to consttute capta assets wthn the meanng of secton 101 of the
Revenue ct of 192 and the correspondng provsons of pror Revenue cts runs
from the date of the acquston of the orgna securtes and not from the date of
repurchase.
That rung covered the case of a ta payer who, n the year 1931,
sod securtes whch had been hed for more than two years, repur-
chased dentca securtes wthn a perod of 30 days, and sod such
securtes wthn the same ta abe year. The securtes nvoved n
the second sae havng been hed for ess than two years, the ta payer
camed the oss sustaned on the sae as an ordnary oss under the
Revenue ct of 192 . The ureau hed, however, that the oss was a
capta oss.
Ths queston has been consdered by the courts and t has unformy
been hed, under the Revenue ct of 192 , that for the purpose of de-
termnng whether a oss on a sae of stock purchased n connecton
wth a wash sae was a capta oss, the repurchase date, and not the
date of purchase of the orgna stock, shoud govern. (Guy Cary v.
Commssoner, 91 ed. (2d), 1009 oward Ienz v. Commssoner,
94 ed. (2d), 32 ohn rancs Neyan v. Commssoner, 97 ed. (2d),
410 Crated States v. ok et a., ecutors of the state of Cyrus . .
Curts, 102 ed. (2d), 35 and zabeth G. ugustus v. Moore, 103
ed. (2d), 1006.)
In vew of the decsons cted, I. T. 2 32, supra, s revoked.
rtce 117-3: Determnaton of perod for
whch capta assets are hed.
1939-37-1000
I. T. 3317
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131, rt. 131- . 234
ND POSS SSIONS O T UNIT D ST T S.
rtce 131-1: nayss of credt for ta es.
R NU CT O 1934.
The 4 per cent ta mposed by the razan Income Ta ct and
covered bv artce 174, razan Income Ta Reguatons. (See I. T.
3313, page 171.)
rtce 131- : Lmtatons on credt for 1939-36-99 7
foregn ta es. G. C. M. 21432
R NU CT O 1034.
Computaton of the mount of the credt whch shoud be aowed
to n ctzen of the Unted States under secton 131 of the Revenue
ct of I M wth respect to ncome ta pad to the Phppne
Isands on capta gans whch were taken nto account for edera
ncome ta purposes ony to the e tent of 30 per cent, as pro-
vded by secton 117(n) of the Revenue ct of 1934.
n opnon s requested as to the amount of credt whch a
ctzen of the Unted States shoud be aowed, under secton 131
of the Revenue ct of 1934, wth respect to ncome ta pad to the
Phppne Isands on capta gans whch were taken nto account
for edera ncome ta purposes ony to the e tent of 30 per cent,
as provded by secton 117(a) of the Revenue ct of 1934.
The foowng e ampe, settng forth the ncome receved by a
ctzen of the Unted States from the Phppne Isands and the
ta es pad thereon, s submtted:
Gross ncome from a sources.
rom Phppne Isands-
Interest 2. ono
Dvdends 5,000
Capta gan 10,000, but ta abe under secton 117(a) as 3,000
10,000
rom Unted States
Interest 1, 000
Dvdends 4,000 5,000
15,000
Less: Deductons None
Net ncome from a sources as reported on orm 1040 15,000
Tota ta pad to Phppnes on 17,000 (ncudng capta gan
of 10.000) 700
Tota Unted States ta on 15,000 (ncudng capta gan of ony
In ubbard v. Unted States (17 ed. Supp., 93) t was ponted out
that the prmary desgn of the provsons carred n the varous Reve-
nue cts permttng ta payers to credt ta es pad or accrued to
foregn countres durng the ta abe year aganst ther domestc
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235
131, rt. 131- .
ta es (see secton 131, Revenue ct of 1934) was to mtgate the evs
of doube ta aton, ctng urnet v. Chcago Portrat Co. (2 5 U. S.,
1). It was aso stated n that decson that Doube ta aton e sts
ony when the same ncome s ta ed both n the foregn country and
n the Unted States.
The genera prncpe that credt for ta es pad to a foregn coun-
try s aowabe ony f the same ncome s aso ta ed for edera
ncome ta purposes s of ong standng. In I. T. 2294 (C. . -2,
62 (1926)) t was hed that ncome ta pad to a foregn country by
an ndvdua ctzen of the Unted States upon ncome e cuded
from gross ncome under secton 213(b) 14 of the Revenue ct of
1926 may not be camed as a credt under secton 222 nor as a de-
ducton under secton 214 of that ct. In G. C. M. 4969 (C. .
II-2, 269 (192 )) t was hed that where the operaton of a foregn
branch by a ctzen of the Unted States or a domestc corporaton
resuts n a oss because of a dfference n current rates of e change,
there beng an actua gan derved from the operaton of such
branch n terms of the currency of the country n whch t s ocated,
the amount of foregn ncome ta es pad on such ncome s not aow-
abe as a credt under secton 23 (a) of the Revenue ct of 191 .
The oard of Ta ppeas hed n ark ros. v. Commssoner
(20 . T. ., 657) that a ta payer who bought raw materas n
Inda and transported them to ths country where they were manu-
factured and sod s not entted, under secton 23 (a) of the Revenue
ct of 1926, to credt for ncome ta es pad the Indan Government
on the profts derved from the transacton because the pettoner s
entre ncome was derved from sources wthn the Unted States.
The oard hed that the pettoner havng no net ncome, wthn
the meanng of our statute from sources wthout the Unted States
s not entted to use same as a credt aganst the ncome ta abty
to the Unted States. In ugh C. Waace v. Commssoner (17
. T. ., 406) t was hed that resdent ctzens of the Unted States,
owners of a resdence n rance, but recevng no ncome therefrom,
nor any ncome from any busness or professon stuated or carred
on n rance or any other foregn country (ther ncome beng re-
ceved e cusvey from sources wthn the Unted States), are not
entted to have aowed as credts aganst ncome ta es due the
Unted States the amount of ncome ta es computed upon an est-
mated ncome of seven tmes the renta vaue of such resdence and
pad to the Repubc of rance. The oard stated that the pet-
toners net ncome from sources wthout the Unted States becomes
the numerator and ther entre net ncome becomes the denom-
nator of the fracton used n determnng the aowance of the
credt. The oard further stated that n the absence of a numera-
tor, wthn the meanng of our aw, no credt coud be aowed.
It has been hed that an ncome ta pad to a foregn country on
ncome derved from sources theren was not aowabe as a credt
aganst the Unted Staes ta where, because of contnued depreca-
ton n the vaue of the francs durng the year, there was n fact a
oss when measured n terms of Unted States doars. (See red-
erck etor chcs v. Sat s Te te Mfg. Co., 26 (2d), 249.)
In other words, t was hed n that case that where the ncome was
not ncuded for edera ncome ta purposes, credt for ta es pad
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131, rt. 131- .
236
thereon was not aowabe. nother case n pont s anetm
C arstars, r., v. Unted States (Unted States Dstrct Court for
the astern Dstrct of Pennsyvana, anuary 15, 193G), n whch t
was hed that where ncome was e cuded from ta aton under sec-
ton 116(a) of the Revenue ct of 192 , the amount of ta pad to
foregn country was not aowabe as a credt aganst the Unted
States ta . The ogc of ths poston s easy understandabe. The
prmary desgn of the foregn ta credt provson was to emnate
the evs of doube ta aton. ( urnet v. Chcago Portrat Co.,
supra.) If, therefore, a specfc tem of ncome s not sub|ect to
doube ta aton, a bass of credt for foregn ta does not e st wt
respect to such tem of ncome.
rom the foregong precedents, t s evdent that under the Reve-
nue ct of 1934 f the ncome taken nto account under secton
117(a) s mted to 30 per cent of the actua ncome, the remanng
70 per cent of the proft from the transacton s e cuded entrey
from gross ncome and, therefore, forms no part of the net ncome
upon whch the Unted States ta s computed. Therefore, any ta
pad wth respect to the ncome e cuded from ta aton by the Unted
States s not aowabe as a credt for the reason that doube ta aton
does not resut n such cases wth respect to the amount e cuded
from gross ncome.
Usng the foregong e ampe, f a ta of 700 s pad to the
Phppne Government on ncome of 17,000, whereas the ncome
from sources n the Phppne Isands computed under the Unted
States ncome ta aw s ony 10,000 (whch does not ncude 7,000
of the capta gan e cuded by secton 117(a) of the Revenue ct
of 1934), t w be necessary frst to apporton the Phppne ta
between the Phppne ncome ta ed by the Unted States and the
Phppne ncome e empted by the Unted States, and e cude as a
credt, and from the computaton thereof, that part of the Php-
pne ta pad wth respect to the ncome e cuded from ta aton by
the Unted States. Ths may be ustrated as foows:
If 17,000 ncome from Phppne sources, computed under the
Phppne aw, bore a ta of 700, t foows that 1 of such ncome
bore a ta of I-t , and 10,000 of such ncome bore a ta of -
p7, 000 p t, 000
10,000, or 411.76. Ths s the. ta aganst whch the mtaton
contaned n secton 131(b) of the Revenue ct of 1934 must be
apped. That secton reads n part as foows:
(b) Lmt on credt. The amount of the credt taken under ths secton sha
be sub|oct to each of the foowng mtatons:
(1) The amount of the credt n respect of the ta pad or accrued to any
country sha not e ceed the same proporton of the ta aganst whch snen
credt Is taken, whch the ta payer s net ncome from sources wthn such
country bears to hs entre net ncome for the same ta abe year ,
Itacs supped.
The words net ncome contaned n the. above quoted provson
have reference to net ncome wthn the meanng of the Unted States
ncome ta aw. In appyng the fracton of apportonment under
secton 131(b), the denomnator conssts of two tems, namey, 10,000
net ncome from sources wthn the Phppne Isands, pus 5,000
net ncome from sources wthn the Unted States, or 15,000, whereas
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237
204(e).
te numerator s the Unted States ncome derved from the Php-
pne Isands, namey, 10,000. The mtaton aganst the Unted
States ta of 1,000 s, therefore, 000 1 000 or 666-67- s the
ta pad to the Phppne Government wth respect to 10,000 ncome
from sources wthn the Phppne Isands, wthn the meanng of
the Unted States ncome ta aw, s 411.76, that amount s aow-
abe as a credt because t s ess than the amount of ta arrved at
by appyng the mtaton contaned n secton 131 (b), namey,
666.07.
though the tota ncome ta pad to the Phppne Government
on 17,000 ncome was 700, and as ndcated above ony 411.76 s
aowabe as a credt, the baance of 2 .24 ta pad to the Php-
pne Government may not be aowed as a deducton from gross n-
come. The reason for ths s that secton 23(c) of the Revenue ct
of 1934, reatng to the deducton for ta es n genera, provdes n
part as foows:
In computng net Income there sha be aowed as deductons:

(c) Ta es generay. Ta es pad or accrued wthn the ta abe year, e cept

(2) ncome, war-profts, and e cess-profts ta es mposed by the authorty of
any foregn country or possesson of the Unted States hut ths deducton sha
e aowed n the case of a ta payer who does not sgnfy n hs return hs
desre to have to any e tent the benefts of secton IS I (reatng to credt for
ta es of foregn countres and possessons of the Unted States) .
Itacs supped.
The ta payer havng sgnfed n hs return hs desre to have the
benefts of secton 131 of the Revenue ct of 1934, reatng to credt
for ta es pad to foregn countres and possessons of the Unted
States, he s not entted to a deducton for any porton of such ta es
under secton 23(c) quoted above.
Secton 24(a) 5 of the Revenue ct of 1934, whch prohbts a de-
ducton wth respect to tems of ncome whoy e empt from
ncome ta , s not appcabe to the gan derved from the sae or
e change of a capta asset as defned n secton 117 of the ct.
Notwthstandng such gan may be partay ta abe and partay
nonta abe under secton 117(a), the foregn ncome ta pad on the
entre proft s aowabe as a deducton f the ta payer does not cam
the benefts of secton 131 of the ct.
. P. Wence,
R NU CT O 19.14.
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251, rt. 251-1.
23
SUPPL M NT . POSS SSION S O T UNIT D ST T S.
S CTION 251. INCOM ROM SOURC S WIT IN
POSS SSIONS O UNIT D ST T S.
rtce 251-1: Ctzens of the Unted States and 1939-3 -10021
domestc corporatons dervng ncome from I. T. 33|I
sources wthn a possesson of the Unted States.
R NU CT O 1934 ND PRIOR R NU CTS.
Income of mercan ctzens resdng n the Phppne Isands
from both rea and persona property s governed by the aws of the
State of ther domce n the Unted States.
dvce s requested whether the ncome of mercan ctzens read-
ng n the Phppne Isands s governed by the aws of the State of
ther domce n the Unted States or by the aws of the Phppne .
In the case presented ncome s derved from both rea and persona
property.
It seems cear, wth respect to mercan ctzens resdng n the
Phppnes, that mere resdence n the Phppnes, no matter how
ong contnued, does not affect ther status as ctzens of the State of
ther domce n the Unted States. See Matter of ohnson (39
Ph., 156). ohnson was a naturazed ctzen of the Unted States.
Pror to takng up resdence n the Phppnes he was a resdent of
the State of Inos. The court, n uphodng the vadty of ohn-
son s w made n accordance wth the aws of the State of Inos,
stated:
t. shoud not be forgotten that the ntrnsc vadty of the provsons
of ths w must be determned by the aw of Inos, and not, as the appeant
apparenty assumes, by the genera provsons here appcabe on such mat-
ters .
To the same effect are Tempeton . dbcoch (52 Ph., 130), M d-
em o v. rmc (50 Ph., 67), and ntongorg v. The Regstrar of
Property (6 P. R. R., 493).
It s we estabshed that rents and earnngs from rea property
consttute persona property. (See roadweU v. anks, 134 ed .,
470 Rchardson v. NebUtt et a, 4 So., 695 State v. Roya Mnera
ss n, 156 N. W., 12 .) It s equay we estabshed that ownershp
and dsposton of persona property are governed by the e domc.
( rancs G. ack et a. v. /. W. Zachare Co., 3 ow., 4 3.) Ths
atter prncpe s fuy recognzed n the Phppne Cv Code, whch
states specfcay n artce 10 that persona property s sub|ect to
the aws of the naton of the owner thereof. ccordngy, t s hed
that the ncome of mercan ctzens resdng n the Phppnes, from
both rea and persona property, s governed by the aws of the State
of ther domce n the Unted States.
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239
311, rt. 311-1.
SUPPL M NT N. CL IMS G INST TR NS R S ND IDUCI RI S.
S CTION 311. TR NS RR D SS TS.
rtce 311-1: Cams n cases of transferred
assets.
1939-32-9940
Ct. D. 1412
1. Income Sae op Corporate ssets Consderaton Pad to
Stockhoders Transferee Labty of Purchasers.
corporaton sod a of Its physca property and other asseta
In 1926 to certan ndvduas, who agreed to assume a e stng
abtes of the corporaton. The consderaton for such assets
was pad to the stockhoders of the dssovng corporaton. In
Its ncome ta return for 1926, fed on the accrua bass, the cor-
poraton dd not report as ncome any proft from the sae. ed:
That the term a e stng abtes ncuded ta es, athough
Inchoate at the tme of the agreement, and that the purchasers
were abe for payment of the ta whch the consummaton of
the agreement created such abty arsng not aone because
of the transferee provsons of secton 2 0 of the Revenue ct of
1926, but aso because of the appcaton of prncpes of equty.
2. Decson ffrmed.
(36 . T. ., 26 ) affrmed.
3. Certorar Dened.
Petton for certorar dened May 29, 1939.
Unted States Crcut Court of ppeas for the Seventh Crcut.
George C. Shepard, pettoner, v. Commssoner of Interna Revenue, respondent.
101 ed. (2d), 595.
Petton for revew of decson of the Unted States oard of Ta ppeas.
efore vans and Trkanob, Crcut udges, and Lndet, Dstrct udge.
Pettoner seeks to reverse the rung of the oard of Ta ppeas whch
affrmed a ta assessment aganst hm as one of two transferees of the assets of
the Cty Ice Suppy Co., a dssoved corporaton. The ta of 37,766.04 was
eved upon the dssoved corporaton s ncome for 1926.
vans, Crcut udge: We are here confronted wth the vadty of a ta
assessed aganst the aeged transferee of a corporaton whch dssoved wthout
payng ts ncome ta and wthout assets from whch the ta coud be coected.
The facts: The Cty Ice Suppy Co., an Inos corporaton, heren caed
the od company, had a stock ssue of 3,325 shares of common stock and 1,000
shares of preferred stock, each of the par vaue of 100. Pettoner and an
assocate, unt, entered nto negotatons wth two offcers and stockhoders
of the od company, whch resuted n the e ecuton of a 30-day opton to purchase
the common stock at 200 per share. The opton was never e ercsed, and ts
mportance es n Its possbe bearng on the subsequenty e ecuted escrow agree-
ment out of whch the ta n queston grew. The second agreement named a
bank as escrow agent to hod In escrow a certfcates of capta stock of the
od company t provded that the stockhoders e ecute pro es to pettoner who
anuary 11, 1939.
opnon.
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240
aso acqured the e cusve opton to purchase the stock deposted wth the escrow
agent on the payment of 200 per share for common stock, two-thrds of whch
was to be n cash and one-thrd n 7 per cent preferred stock of an Inos
corporaton to be known as the Cty Ice Coa Co., heren caed the new com
pany and aso provded for the redempton of the preferred stock at 103 per
share. The agreement contaned other provsons whch, however, do not bear m
our queston.
The new company was prompty organzed. Drectors of the od company
accepted the proposa of pettoner and hs assocate whch s evdenced by etters
from pettoner to the od company from whch the foowng e cerpts are takn:
Offer submtted May 6, 1926, and accepted May 7, 1926. e stng Ua
tes of Cty Ice S uppy Co. to be assumed and pad by the partes mat
ths proposton and payment thereof guaranteed by the corporaton to wbot
w be made the conveyance heren contempated.
May ( , 1926. Steps have been taken by the undersgned to acqure the phy -
ca propertes and certan other assets of the Cty Ice Suppy Co., n
Inos corporaton chefy engaged n the manufacture and sae of ce n Lbf
cty of Chcago. Such acquston beng on the bass of assumptons and pty-
ment by us of a abtes and obgatons of sad Cty Ice Suppy Co.
We propose to cause to be conveyed to you certan of such assets as set font
n the statement hereto attached marked Schedue , n consderaton of te
payment and devery to us or our nomnees of
May 10. 1926. It s the ob|ect of ths memorandum effectvey to desgnate
and consttute sad Cty Ice Coa Co. and ourseves, respectvey, as on
nomnees to whom sha be conveyed, assgned and devered the property pur-
chased by us n pursuance to our wrtten offer above mentoned.
Change n pans by pettoner was necesstated because of nabty to rate
the cash requrements. Under second agreement the purchaser used cash of od
company and proceeds of a 375,000 frst mortgage bond ssue of new company.
When payments had been fuy made, pettoner sgned a recept to the bank
for 40 optons and 4,365 shares of capta stock representng a of the common
and preferred stock of the od company. fter canceaton these certfcates
can be returned to L. R. to compete records of od company.
Pettoner dd not take possesson of the stock whch he receved. s attor-
ney refused to accept the certfcates, sayng, We don t want t t s not ours.
The stock was thereupon eft wth the escrow agent and ater by t returned to
the od company.
The new company ssued 200 shares of common stock, of whch pettoner
and hs assocate each took 96 shares and were scattered. ddtona shares
were subsequenty ssued to pettoner and hs assocate who were at a tmes
the offcers and drectors of the new company.
The od company kept ts books and fed ts Income ta return for the y r
1926 on the accrua bass. It dd not report as ncome any proft from the sa
of ts assets. No queston was ever rased by t as to the correctness of the
Commssoner s determnaton that the od company s net proft of 277.74 41
from ths transacton shoud have been ncuded n ts 1926 ncome. The
Commssoner subsequenty added ths proft to the Income reported by the od
company and determned the defcency ta at 37,766.04. The od company
had no assets and the ta was never pad by t. Subsequenty the Comms-
soner determned a defcency ta aganst the pettoner for the amount of
ths unpad ta , actng under secton 2 0 of the Revenue ct of 1926, whch
deas wth the abty of transferees.
The Commssoner frst assessed the ta aganst the stockhoders of the od
company as transferees, but ths poston was not sustaned by the oard of
Ta ppeas. The Commssoner then proceeded aganst pettoner and hs
assocate. Two grounds were advanced for the Commssoner s acton aganst
pettoner: (a) Pettoner s agreement to assume a e stng abtes of the
od company, and (6) the propostons of aw appcabe to one who s a trans
feree of another ta payer s assets. Ths abty s aso asserted on the theory
that one Is a trustee who has taken a of the ta payer s assets wthout payta
Its ncome ta es.
The pettoner s defenses are severa as many as the theores of the Com-
mssoner.
s to abty growng out of hs agreement to assume the od company s
debts, he asserts that ncome ta es accrung and assessed subsequent to the
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241
311, rt. 311-1.
e ecuton of hs agreement were not part of e stng abtes thereby as-
sumed. e denes that he s a transferee wthn the meanng of secton 2 0 of
the Revenue ct of 1926 and aso denes abty on the theory of a trustee:
frst, because the facts do not make of hm a trustee second, there s no show-
ng that the od company was nsovent when he cosed hs deangs wth t
and thrd, even as a trustee he woud not be abe for ncome ta es subse-
quenty assessed when the purchase prce was pad to the stockhoders of the
od company.
To a arge degree he rests hs contenton on a fact bass namey, that the
proft occurred after the pro erty was transferred and therefore he was not
abe on any theory for a debt or ta obgaton arsng after hs transactons
wth the debtor were cosed.
Respondent aso stresses a fact, vz, pettoner acqured a of the assets of
od company and pad the purchase prce therefor to a thrd party, thereby
makng t mpossbe for the od company to pay any part of ts ta .
Severa of pettoner s contentons are ready dsposed of.
Res |udcata. The earer hodng of the Commssoner to the effect that the
stockhoders of the od company were the transferees and abe for the ta may
be somewhat embarrassng as a matter of fact, but t In no way operates as a
ega bar to the same offca takng a dfferent poston ater on. In the pror
proceedngs before the oard, the partes were not the same as here. The ev-
dence was not the same. To a certan e tent the ssues were not the same.
Ceary then, there was no room for the appcaton of the doctrne of res
|udcata.
The e tent and degree of factua embarrassment depends argey upon one s
regard for the sacreduess, the sanctty, and the a-around vrtue of consstency.
Savsh devoton to consstency rather frequenty accompanes a tenacous prde
of opnon. t other tmes t ndcates merey a ack of magnaton. ssumng
that the Commssoner beeved the facts ponted to abty on the part of the
stockhoders as transferees, and hs mstake was demonstrated to hs satsfacton
by the opnon of the oard of Ta ppeas, and the Commssoner then decded
to pursue the pettoner heren, there s presented no cause for serous em-
barrassment.
Whether pettoner or the stockhoders shoud be abe for the ta as trans-
ferees s st the sub|ect of earnest and honest dspute. Our determnaton of
the queston can not n the sghtest degree be affected by the theory of the
oard of Ta ppeas n another case or the Commssoner s vew or theory of
the nstant case.
The amount of the ta aganst the od company for ts 1926 ncome was not
the sub|ect of chaenge ether by peadng or argument before the Commssoner
or the oard of Ta ppeas. We accept t as correct.
Lkewse, we are satsfed that the acton of the oard of Ta ppeas shoud
be sustaned f the facts show ts concuson was correct regardess of the sound-
ness of the theory t adopted n reachng Its concuson. (Commssoner v.
ey s state, 4 . (2d), 90 , 9(53 Starr v. Commssoner, 2 . (2d), 964, 966
Ct. D. 1147, C. . -2, 229 (1936) .)
The prevang party shoud have the rght to advance a of the reasons
whch support the decson of the oard on the merts, and e ceptons to any of
the oard s adverse rungs are unnecessary n order that a vctor may, on
appea, advance reasons by t made before and re|ected by the oard.
Ths brngs us to the merts of the controversy. We are convnced that the
decson of the oard of Ta ppeas must be affrmed on both grounds urged
by respondent. That s to say, pettoner, by hs agreement to assume a of the
od company s e stng abtes, became bound to pay the ncome ta whch
the consummaton of sad agreement created Lkewse, n a case where Cor-
poraton transfers a of ts assets to for a consderaton whch pays to C,
then , regardess of any agreement, s abe for any unpad ncome ta , whch
represents the profts made on such transfer on the theory that s a trustee, to
the e tent of the vaue of the property whch t acqured from .
We have hed and hod agan that a ta may be a debt. or stronger reasons
t may fa wthn the possbe meanng of the word abty. In the same
case under the facts there shown, we hed that the term e stng debts shoud
be construed n the ght of the understandng and ntenton of the partes at the
tme of the e ecuton of the agreement to ncude edera ncome ta es subse-
quenty assessed by the Commssoner. (Tevandcr v. Rtysdae, 299 ed, 746.).
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242
or more e tended dscusson, but wth the same concuson, see evemg t
Wheeng Mod d oundry Co. (71 . (2d), 749 Ct D. 92 , C. . I -1, S
(1935)1).
Revewng the crcumstances present n the nstant case whch coor the Intent
and meanng of the words a e stng abtes, we fnd the partes to te
agreement were provdng for the transfer of a the assets of the tarpa|f.
to pettoner and hs assocate who agreed to pay the stockhoders of sad to-
payer, a sum equa to the vaue of the assets thus transferred. Ths eft the
ta payer wth nothng. It owed debts. Its profts for the year, due argeyI
the agreement n queston, were arge. n ncome ta of some 37,000 woud be
awfuy due thereon when the Commssoner made the assessment after tk
ta payer made ts return. ths was known to the partes who made Ik
greement n queston. They contracted n the ght thereof, and t w
e pressy provded n ther agreement that pettoner and hs feow pron
unt shoud assume a e stng abtes.
Pettoner s argument s n effect ths:
We took a of the nssets of the ta payer away from It We pad the pr
whch represented the far vaue of the assets so taken, to thrd partes, th
Stockhoders. We agreed wth the stockhoders to pay a e stng abtes
of the ta payer. Ths, as we understood t, Incuded a the debts, but dd w
Incude ncome ta es not yet due but whch nevertheess were as certan t
become due as anythng n fe.
The Inescapabe answer to the query, ow was the ta payer s abty t
the Government arsng out of ths transacton to be satsfed Is, the Govert
ment oses.
To gve to the anguage of the contract such a verson or constructon wonU
necesstate our mpugnng both the ntegence and the ntegrty of the parts
To assume that the partes woud entertan the beef that by such a smpe devce
as dsposng of a of the assets of a ta payer ts ta es coud be avoded, .
queston the ntegence of the partes so actng. To assume that the part -
contempated and carred out pans whch eft the Government s cam for tn r
growng out of the transacton unpad, refects on the ntegrty of the sanv
partes.
It s farer to assume, as was done n the two cases cted above, that (be
partes dd not specfcay cover the sub|ect of nchoate ta es because the broa
term a e stng abtes covered the stuaton.
quay cear and defnte must be the hodng that one who dspossesses an
other company of a of ts assets, payng the consderaton therefor to a thW
party, and eavng the propertyess corporaton unabe to pay ts debts, new
ng ta es whch were nchoate at the tme, becomes a trustee and abe n sort
trusteeshp for ta es and other debts n an amount not e ceedng the vaue
of the property taken from the debtor ta payer. Ths s so, not aone beran
of any transferee abty secton of the Revenue ct, but because of the r
pcaton of prncpes of equty. ( etcher Cycopeda Corporatons, toIum
7. page S3 )S, secton 475(5 rum v. Merchants Mut. Inn. Co., If -d.. I 1
hcna Ins. Co. v. St. Lous t N. 0. Transportaton Co., 13 ed.. 510 Ontdr
Detrot Ons Co., 112 Mch., 70. 70 N. W., 413 ennngs, Neff Co. v. Cr W
Icr Co., 12 Tenn., 231, 150 S. W., 10 .)
The theory of these hodngs s that courts of equty w protect credtor
from frauduent acton on the part of the debtors by hodng the recpent of
the debtor s property as a trustee thereof for the beneft of the credtors of S
debtor.
We see no possbe appcaton for the asserted ta e empton based on tb
theory that the transacton between the od and the new companes was a m
ganzaton for whch the Revenue ct makes speca provson.
The order of the oard of Ta ppeas s affrmed.
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351, rt. 351- .
TITL I . DDITION L INCOM T S.
S CTION 351. SURT ON P RSON L
OLDING COMP NI S.
rtce 351-6: Iustraton of computaton of 1939-27-9901
undstrbuted ad|usted net ncome and surta . I. T. 3295
R NU CT O 1934.
Where, pursuant to secton 351(d) of the Revenue ct of 1934,
the sharehoders of the M Corporaton ncuded n ther returns for
the caendnr year 11)35 ther pro rata shares of ts ad|usted net
ncome for that year, the amount of such ad|usted net ncome, to
the e tent of the earnngs and profts for the year 1935, s e empt
from ta when dstrbuted to the sharehoders, provded the earn-
ngs and profts of subsequent years have frst been dstrbuted.
dvce s requested whether, n order for a dstrbuton of the
ad|usted net ncome of the M Corporaton for 1935, to the e tent of
earnngs and profts for that year, to be e empt from ta under sec-
ton 351(d) when dstrbuted to the sharehoders who prevousy
reported such ncome n ther ndvdua returns, t s necessary for
the more recenty accumuated earnngs of the corporaton, . e., the
net baance of earnngs for 1936,1937, and 193 , to be frst dstrbuted.
Secton 351(d) of the Revenue ct of 1934 provdes as foows:
Payment of surta on pro rata shares. The ta mposed by ths secton sha
not appy f a the sharehoders of the corporaton ncude (at the tme of
tng ther returns) n ther gross ncome ther entre pro rata shares, whether
dstrbuted or not, of the ad|usted net Income of the corporaton for such
year. ny amount so ncuded n the gross ncome of a sharehoder sha be
treated as a dvdend receved. ny subsequent dstrbuton made by the cor-
poraton out of earnngs or profts for such tn abe year sha, f dstrbuted
to any sharehoder who has so ncuded n hs gross ncome hs pro rata share,
be e empt from ta n the amount of the share so ncuded.
The M Corporaton fed a persona hodng company return for the
caendar year 1935 showng an ad|usted net ncome of 1.34a doars
whch was not dstrbuted to sharehoders n 1935 or n any subsequent
year. Pursuant to the provsons of secton 351(d) of the Revenue
ct of 1934, supra, a of the sharehoders ncuded n ther respectve
ncome ta returns for the caendar year 1935, as dvdends receved,
ther entre pro rata shares of the corporaton s ad|usted net ncome
for that year. There has been no change n stock ownershp snce
1935.
In regard to the term dvdend and the source of dstrbuton,
t s provded n secton 115 of the Revenue ct of 193 that:
(a) Defnton of dvdend. The term dvdend when used In ths tte
(e cept n secton 203(a)3 and secton 207(c), reatng to Insurance com-
panes) means any dstrbuton made by a corporaton to ts sharehoders,
whether n money or n other property, (1) out of ts earnngs or profts accumu-
ated after ebruary 2 , 1913, or (2) out of the earnngs or profts of the ta -
abe year (computed as of the cose of the ta abe year wthout dmnuton
by reason of any dstrbutons made durng the ta abe year), wthout regard
to the amount of the earnngs and profts at the tme the dstrbuton was made.
(b) Source of dstrbutons. or the purposes of ths ct every dstrbuton
s made out of earnngs or profts to the e tent thereof, and from the most
recenty accumuated earnngs or profts.
In vew of the provsons of secton 115, supra, t s evdent that
any dstrbuton made by the corporaton n any ta abe year begn-
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244
nng after December 31, 1937, must be treated as havng been mt
frst, from the earnngs or profts of the ta abe year m whch tfcf
dstrbuton s made, to the e tent of such earnngs and profts (com-
puted ns of the cose of the ta abe year wthout dmnuton byresn
of any dstrbutons made durng the ta abe year), and, second,ron
the ne t most recenty accumuated earnngs or profts snce ebruary
2 , 1913. The porton of such a dstrbuton determned to have bee
made out of earnngs or profts of the ta abe year n whch the ds-
trbuton s made, and the porton of such dstrbuton made oc
of any pror year s earnngs or profts (e cudng the earnng c
profts reported by dstrbutee sharehoders n ther gross ncomeun -
secton 351(d) of the Revenue ct of 1934) consttute a ta abe dv-
dend n the hands of the sharehoders.
s the sharehoders of tbe M Corporaton, pursuant to the re-
vsons of secton 351(d) of the Revenue ct of 1934, ncuded n w:
ndvdua ncome ta returns for 1935 the corporaton s ad|usted
ncome for that year, such ncome, to the e tent of the earnngs c
profts for the year 1935, may be dstrbuted by the corporaton ns
free to the sharehoders at any tme after the earnngs or proft
the years 1936,1937, and 193 have been dstrbuted. (Wth respc
to te corporaton surta credt n such a case, see I. T. 3035, C. .
2, 92 (1936).)
TITL I. G N R L PRO ISIONS.
S CTION 01. D INITIONS.
rtce 01-2: ssocaton. 1939-37-1W
CL f
INCOM T R NU CT O 1032 D CISION O COCUT.
1. ssocaton Pots Nor Ta abe as a Corporaton.
n assocaton of pots censed to pot vesses n and out of
harbor, whch docs no busness e cept as an agent of ts ndvdua
members and whch owns no property and has no ncome as an
entty, s not ta abe as a corporaton.
2. Decson Revfrseb.
. T. ., 12) reversed.
Unted States Crcut Court or ppeas for the fth Crcut.
Mobe ar Pots ssocaton, pettoner, v. Commssoner of Interna Rno-
respondent.
07 ed. (2d), 6S ..
Petton for revew of decsons of the Unted States oard of Ta ppeas (dstrtrt
abama).
efore oster, Sbey, and utceson, Crcut udges.
une 30, 193 .
OPINION.
oster, Crcut udge: Pettoner fed ncome ta returns for ts fsca
1930 and 1932 1 32 and 1933 and took certan deductons, whch were
owed by the Commssoner and defcences were determned. The
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01, rt. 01-2.
reversed the Commssoner In part and affrmed hm In part and reduced the
amount of the defcences. efore the oard pettoner contended that t s a
nonproft cooperatve organzaton of pots and s not ta abe as a corporaton.
The oard found as a fnct that pettoner s engaged n the busness of furnsh-
ng quafed censed pots for the purpose of potng boats across Mobe bar
nto and out of the harbor of Mobe, a. On ths fndng the oard hed pet-
toner to be an assocaton ta abe as a corporaton. rror s assgned to ths
fndng of fact and to the rung based thereon.
The undsputed facts In the record are these. Pettoner has been n e stence
for at east 50 years, has 20 members, a pots censed by the Unted States and
the State of abama, actvey engaged n potng vesses n and out of the
port of Mobe. Its members |onty own three boats, whch are used e cu-
svey In enabng them to render ther servce as pots. The argest boat, the
. abaman, Is statoned off Mobe bar and Is used as a quarter boat for pots
awatng ther turns to brng n Incomng vesses. She Is regstered n the name
of a the members of the assocaton. The other boats are too sma to requre
regstry. The assocaton has by-aws and rues reguatng the conduct of Its
members. The pots take reguar turns In potng vesses. It has a presdent
and a secretary eected from ts members and a pad bookkeeper, mantans an
offce n Mobe wth a teephone. In the usua course when a pot has com-
peted the takng of a shp n or out of Mobe he presents a tcket to the master,
who approves t, athough sometmes payment Is made n cash to the pot. The
assocaton renders bs to the agents of the vesses n ts own name but the
name of the pot for the partcuar shp appears on each b. The assocaton
has a bank account and after payng current bs and deductng an amount for
an emergency fund the baance Is dstrbuted pro rata to ts members monthy.
When a member resgns or des an amount equang hs pro rata ownershp n
the property of the assocaton s pad to hm or hs hers. When a new mem-
ber s admtted he pays Into the assocaton an amount necessary to equaze
hs ont ownershp of the common property wth the other members.
The Commssoner rees upon the foowng cases as havng facts anaogous
wth those n the case at bar and as sustanng the concuson that pettoner
Is an assocaton ta abe as a corporaton: Morrssey v. Commssoner (29
U. S., 344 Ct. D. 1064, C. . -1, 264 (1936) ) Swanson v. Commssoner
(296 U. S., 302 Ct. D. 1065, C. . -1, 270 (1936) ) everng, Commssoner,
v. Combs (296 U. S., 365 Ct. D. 1066, C. . -1, 272 (1936)1) everng v.
Coeman-Gbert (296 U. S., 369 Ct. D. 1067. O. . -1, 261 (1036) ). In each
of these cases property was transferred to trustees wth authorty to manage and
dspose of t wth the same authorty as If they were the owners. In each case
the trust was actvey engaged In busness for proft. We do not consder these
and smar cases n pont for the foowng reasons:
Potage Is the performance of persona servces requrng the pot to have
the hghest degree of sk as a seaman and s controed by aw. Under the
aw of abama ( cts 1 and 611 Reg. Ses. 1931), before a man can be censed
as a pot at the port of Mobe he must have a cense from the Unted States.
(See 46 U. S. C. ., secton 214.) e must have served at east three years at
sea and one year as an apprentce pot. e must pass an e amnaton before
the abama commsson to estabsh hs ftness and be an mercan ctzen of
good character. e must take an oath to fathfuy perform hs dutes, gve
bond In the sum of 2,000 to guarantee that he w do so, and pay an annua
prvege ta of 50. e may be deprved of hs cense by ether the edera
or State authortes for ncompetency, neggence, or habtua drunkenness.
Potage fees are f ed by the State board. pot can not demand more nor
accept ess than these fees under penaty f ed by aw. or one not censed to
act as a pot s a punshabe offense.
Pot assocatons have e sted at a ports n cvzed countres from tme
mmemora. It s not necessary for a man to be a member of an assocaton to
practce hs professon but n the nature of thngs t woud be mpossbe for hm
to operate aone. e must meet vesses beyond the bar n a knds of weather
and mantan boats of suffcent sze and seaworthness to permt hm to do so.
Ths woud be Impossbe wthout an organzaton as the cost woud be pro-
hbtve to a snge ndvdua.
or the convenence of shppng It Is necessary that headquarters of some knd
be mantaned at each port so that the pot can be caed when needed. It s
necessary for the pots to have some one to ook after ther busness affars
such as coectng ther fees as t woud be Impractcabe for the pot to do that
personay.
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246
IPotage Is persona servce by an Indvdua for whch he has a martw
en on the vesse. (The ueen, 206 ., 14 .) pot s the servant of tts
owner of the vesse who s responsbe to thrd persons for bs neggence a
want of sk. (Sherock v. ng, 93 U. S., 99.) ut an assocaton of wtet
the pot s a member, smar to pettoner, s not responsbe for hs acts. s
v. Donad, 203 U. S., 399.)
It woud be mpossbe for pettoner to engage n the busness of potn|s-
an ndependent contractor. Pettoner does no busness e cept as an agent of n
Indvdua members. It owns no property and has no ncome as an entty. C
sequenty s not requred to pay ncome ta es as an assocaton. If by mst
It has fed an ncome ta return estoppe does not resut therefrom and t t
mmatera what deductons t attempts to take from the ncome reported. 1
foows that t was error for the oard to hod that pettoner was engaged n
the busness of furnshng censed pots and s an assocaton ta abe at
corporaton.
The |udgment of the oard s reversed and the case s remanded for ftntta
proceedngs not nconsstent wth ths opnon.
rtce 01-4: Partnershps. 1939-30-993
Ct, D. 1
1. Syndcate ormed to uy and Se Stock ont enture
Not an ssocaton.
Under a wrtten agreement made between 65 ndvduas and
companes, and an ndvdua caed a manager, a syndcate was
formed n October, 1929. to buy and se the common stock of a cer-
tan corporaton for a mted perod of tme. The manager was
authorzed to purchase and se for the account of each subscrber,
who was to partcpate n the shares n proporton to hs nterest
n the syndcate and was bound by the acton of the manager n
proporton to, but not to e ceed hs abty for, the number of
shares subscrbed. The manager was gven soe drecton and con-
tro of the busness, wth certan mtatons, but took no tte to
the stock purchased. Stocks bought were not put n the name of
ether the manager or the syndcate, but were eft n the broker s
hands as securty for margna purposes, and some stocks were
pedged to banks to secure funds on better terms. There was no
provson for ssuance of certfcates of nterest or for transfer of
nterests. The syndcate was cosed n March, 1930. ed, that
the ega effect of the agreement as a whoe was that each sub-
scrber created a genera nonrevocabe agency n the manager that
each share was owned by the subscrbers n common and that the
syndcate was a |ont venture and not an assocaton whch coud
be ta ed as a corporaton.
2. Decson ffrmed.
. T. ., 1031) affrmed.
Unted States Crcut Court of ppeas for the fth Crcut.
Commssoner of Interna Revenue, pettoner, v. N. . Whtcotnb Coea-Ct
Syndcate, Trust Company of Georga, Syndcate Manager, respondent.
95 ed. (2d), 596.
Petton for revew of decson of the Unted States oard of Ta ppea
(Dstrct of Georga).
efore oster, Sbey, and utcheson, Crcut udges.
March 29, 193 .
opnon.
Sbey, Crcut udge: The Commssoner of Interna Revenue assessed cor-
poraton ncome ta es aganst N. . Whtcomb Coca-Coa Syndcate s w
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247
01, rt. 01-4.
assocaton upon Its proftabe operatons n the eary months of the year 1930.
The subscrbers to the syndcate dened that they were a ta abe assocaton,
and camed to have had a |ont adventure wth a manager, and that they are
to be cassed under the ta aws as a partnershp rather than a corporaton.
The oard of Ta ppeas hed that the syndcate was not an assocaton,
and we agree.
The facts were stpuated. S ty-fve ndvduas and companes on October
29, 1929, sgned an agreement wth each other and wth N. . Whtcomb, caed
manager, whch stated that they desred to and dd thereby form a syndcate
for the purpose of buyng and seng shares of the common stock of Coca-Coa
Co. It provded tacs ours : The manager s authorzed to purchase and
se for the account of each subscrber common capta stock of the Coca-Coa
Co. not to e ceed at any tme the number of shares set opposte hs
name. stock bought by the manager pursuant to the authorty gven to
hm by each of the subscrbers sha be carred by the manager n the syndcate
account, and the subscrbers hereto sha a partcpate n each purchase or sae
In proporton to ther nterest n the syndcate. ach subscrber bound hm-
sef to pay n 20 for each share subscrbed for by hm at the manager s ca.
When purchases of stock were made, each subscrber was to pay n addtonay
hs pro rata part of the prce. The manager was gven soe drecton and con
tro of the busness and transactons of the syndcate, wth broad dscretonary
powers, e cept that he coud not have n hand at any one tme more than
100,000 shares uness the subscrptons e ceeded that fgure, n whch case the
tota number of shares subscrbed was to be the mt. The syndcate was to
have a fe of 90 days, whch the manager coud e tend for another 90 days,
and whch a ma|orty of the subscrbers coud further e tend for a tota perod
not more than one year. The manager was not to be abe for error of |udg-
ment or mstake of aw or fact, but ony for gross neggence or wfu defaut
n the e ercse of the powers or authorty heren conferred on hm. ach
subscrber ratfes and assents to, and s bound by, any acton of the manager
under the agreement n proporton to hs subscrbed shares, but not for an
amount e ceedng the abty arsng aganst hm on the number of shares
subscrbed for by hm. aure of any subscrber to perform s not to affect
or reease any other subscrber. Nothng heren contaned or otherwse ars-
ng sha consttute the subscrbers partners wth or agents for one another or
for the manager or render any of them abe to contrbute n any event more
than the nterest n the syndcate subscrbed for by hm. On the termnaton
of the syndcate the manager was to pay off ts obgatons and dstrbute the
stocks on hand and other assets to the subscrbers In proporton to ther sub-
scrptons. There was no provson for any certfcates of nterest to be ssued,
or for a transfer of nterests. Stocks bought were not put n the name of
ether the manager or the syndcate, but were eft n the broker s hands ns
securty for margna purposes. Some stocks were pedged to banks to secure
funds on better terms. The syndcate dd a arge busness wthout proft n
1929, but proftabe n 1930, and was cosed n ess than fve months on March 17,
1930.
The subscrbers caed ther enterprse a syndcate. Such aggregatons of
capta are usuay for a mted and temporary operaton, (dates v. Megarge,
206 ed., 11.) ut we are nformed by Webster, Internatona Dctonary,
that the term s a oose one, that the members may be partners, |ont con-
tractors, or n any other reaton agreed upon. The reatonshps must be
ascertaned by e amnng the agreement. We thnk the reatonshp created
between each subscrber and the manager was that of prncpa and agent.
Words of agency occur frequenty n the contract. The name manager
appropratey descrbes an agent wth broad powers. There was no trust n a
technca sense, for the manager was not to hod tte to any property for the
use of others. ach share bought was to be partcpated n by each subscrber
n proporton to hs nterest n the syndcate. ach share was thus owned by
the subscrbers n common. The manager was not the agent of an aggrega-
ton of subscrbers, that s to say, of an entty, but the authorty was e pressy
to buy and se the stock for the account of each subscrber. In a syndcate
agreement before the Supreme Court n Sm v. denborn (242 U. S., 131, 135),
t was sad of the manager that the subscrbers created hm ther agent to
acqure and dea n certan propertes, a poston of especa trust and con-
fdence. The manager s authorty here was not revocabe and not aterabe by
hs severa prncpas, but ony because they had thus agreed among themseves.
The agreement dd not create a partnershp for there was no mutua agency
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Regs. 95, rt. 13.)
24S
among the subscrbers and no ntenton to become abe each for the wt
debts of Ihe busness partnershp was e pressy dscamed. The ega eUer
the agreement as a whoe was that each subscrber created a genera s
revocabe agency n the manager for the perod f ed to do what was speak,
the property acqured to beong n common to the subscr)ers. There 1
|ont adventure undertaken. There was an effort to mt persona ak
but probaby as to thrd persons the effort woud be effectua ony as t .
operate to mt the authorty of the manager. The abty on any ems:
ment made by the manager wthn hs authorty was the severa persona
bty of the subscrbers. n assocaton whch can be ta ed as a corpon.
s organzed wth more permanency. It owns ts property. Its managers
ts agents. Its profts and osses are conceved of as ts own, the assor-
as havng ownershp ony n what may fnay be dstrbuted to them. f-
adventure s not such. In the Revenue ct of 1932, secton 1111 (a)3, syndr.
and poos are e pressy mentoned, and cassed not as assocatons tu.-
as corporatons, but wth partnershps n whch each Indvdua pays h
ta . The enactment we thnk merey decared the prevous aw. The
of Ta ppeas rghty hed there was here no such entty as shoud be u
as a corporaton.
ffrmed.
TITL III. T ON UN UST NRIC M NT. (1936)
Reouatons 95, rtce 13: Computaton of
e tent to whch burden of a edera e - T.D. n-
cse ta was shfted to others.
TITL 26 INT RN L R NU . C PT R I, P RTS 2 ND 4G5. T
UN UST NRIC M NT UND R T R NU CT O 1936
rtce 13, Reguatons G5, and that artce as made appcabe
to the Interna Revenue Code by Treasury Decson 4 S5 C. .
1039-1 (Part 1), 396 , amended.
Washngton, D. C.
Paragraph (G) under the headng of Method II n artce 1
of Reguatons 95 (secton 2.13, Method II, paragraph (6), of Tt
2C, Code of edera Reguatons), and that, artce as made app
cabe to the Interna Revenue Code by Treasury Decson 4 5 (Ptf
465, Subpart , of such Tte 26), s amended to read as foows:
The dfference between each aggregate seng prce computed as provde
n paragraph (1), above, and the deductons specfed In paragraph (2). at
sha be dvded by the tota number of unts determned as provded n I073
graph (4). The resutng amount per unt sha be the margn per unt e 1
that In the case of a ta abe year durng a of whch the edera e cse W
n queston was n effect, the foowng ad|ustment, made n the return,
ordnary be aowed pursuant to secton 501() : deducton from the am 1
per unt, computed as provded n the frst sentence of ths paragraph, of -
amount equa to the amount obtaned by dvdng by the tota number of -
determned as provded n paragraph (4), the rembursement to purca
made as specfed n secton 501(f)(3) wth respect to the artces e p f
In terms of unts determned In each case under ( ). ( ), or (C), rcspectr
of paragraph (5), and the remander, f any, n such case sha be te m 1
per unt.
(Ths Treasury decson s prescrbed pursuant to the foow 1
sectons of aw: Sectons 700(e)(2), 702(a), and 62 of the Intern1
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249 Regs. 95, rt. 7.
Revenue Code (53 Stat., Part 1) sectons 501(e)(2), 503(a), and
G2 of the Revenue ct of 1936 (49 Stat., 1734, 173 , 1673 20 U. S. C,
Sup. I , 345(e) (2), 345b(a), 62).)
arod N. Graves,
pproved uy 1, 1939.
erbert . Gaston,
ed wth the Dvson of the edera Regster uy 6, 1039, 11.53 a. m.)
S CTION 501. T ON N T INCOM ROM C RT IN SOURC S.
Reguatons 95, rtce 7: Computaton of net 1939-32-9947
ncome from saes of artces wth respect to G. C. M. 2141
whch a edera e cse ta was mposed but
not pad.
R NU CT O 1030.
Deductons for saares of ndvdua partners are not aowabe
In determnng the net ncome of a partnershp for the purpose of
computng the ta on un|ust enrchment.
n opnon s requested whether, n determnng the net ncome of
a partnershp for the purpose of computng the ta on un|ust enrch-
ment, an aowance may propery be made for saares pad to the
ndvdua partners.
In support of such an aowance, attenton has been nvted to
the decson of the oard of Ta ppeas n ppea of Gotteb ros.
(1 . T. ., 6 4, acquescence, C. . -2, 27 (1931)). In that case
the oard hed that n computng the net ncome of a partnershp for
the purpose of the e cess profts ta under the Revenue ct of 1917
a reasonabe aowance for compensaton for servces rendered by ts
members coud be deducted. That decson reated to the Revenue
ct of 1917, secton 206 of whch provdes n part as foows:
The net ncome of a partnershp or ndvdua sha be ascertaned and re-
turned upon the same bass and n the same manner as provded
n Tte I of such ct of September eghth, nneteen hundred and s teen, .
Secton 5 (Tte I) of the ct of 1916 provdes, nter aa:
(a) or the purpose of the ta there sha be aowed as deductons
rst. The necessary e penses actuay pad n carryng on any busness or
trade, not ncudng persona, vng, or famy e penses .
In the ght of the resuts that woud foow an absoutey strct
constructon of the statute, the then Commssoner, wth the approva
of the Secretary, promugated Reguatons 41, artce 32 of whch
bt. 32. In computng net ncome for purposes of the e cess-profts
ta a partnershp w be aowed to deduct as an e pense reasonabe saares or
compensaton pad to ndvdua partners for persona servces actuay rendered
durng the ta abe year .
20011)0 40
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Regs. 95, rt. 7.
250
In regard to that reguaton, the oard stated n the Gotteb esse,
supra, that
The reguaton quoted seems to us reasonabe and proper n the ght of ft
whoe ntent and purpose of Tte II of the evenue ct of 1917. It certar
does |ustce where a strct appcaton of the etter of the statute woud
grave n|ustce.
The deductons aowabe n the present case are ony those whct
are permtted under the Revenue ct of 1934, and snce nether tha
ct nor the reguatons appcabe thereto contans any provson ft:
the aowance as a deducton of saares pad to members n compute
partnershp net ncome, t seems cear that the Gotteb case. supr.
affords no authorty for a determnaton of the present queston. (
the contrary, so-caed saary payments by a partnershp to ts met
hers have ong been hed to consttute a dstrbuton of profts, ante
pated or reazed, rather than the payment of compensaton, h
ppea of the ecutors of the state, of S. U. Tton et a
. T. ., 914, acquescence, C. . TI-1, 31 (192 )), the oar:
consderng a stuaton smar to that here present, stated n put
as foows:
partner devotng hs tme and energes to the busness of the frs
s n fact workng for hmsef and can not be consdered as an empoyee of t
frm n the sense that he s n the servce of another. It foows, therefore. tW
he can not be pad a saary by the frm out of earnngs n the sense of eomrfrr
saton for servces rendered to an empoyer. In effect any aowances dra
by a partner from partnershp assets are payments whch he makes to hm
and no man can be hs own empoyer or empoyee. partner reeernf
saary s merey transferrng money from one to another of hs own pockra
(Leo Schwartz v. Commssoner, 7 . T. ., 223.)
In ugustne M. Loyd v. Commssoner (15 . T. ., 2) the
oard used the foowng anguage:
urther, t beng concuded that payments of compensaton to part-
ners are but a means for dvdng the partnershp profts, t must necessary
foow that such payments are not proper deductons from ncome n computa
the partnershp net ncome.
(See aso ar Pau v. Commssoner, 11 . T. ., 7 4, G C. M.
65 2, C. . III-2, 200 (1929), and G. C. M. 13771, C. . I-2,
229 (1934).)
rom the above t foows that no deductons may be aowed for
saares of ndvdua partners n determnng the net ncome of the
partnershp for the purpose of computng the ta on un|ust
enrchment.
. P. Wench ,
Chef Counse, ureau of Interna Revemt
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MPLOYM NT T S.
INT RN L R NU COD
C PT R 9, SU C PT R . MPLOYM NT Y OT RS T N
C RRI RS.
Reuuatons 91. 1939-41-10056
( so Subchapter C Reguatons 90 and Soca Mm. 4952
Securty ct, Ttes III and I .)
Soca Securty ct mendments of 1 )39.
Washngton, D. C, ugust 21, 1939.
The purpose of ths mmeograph s to outne for the nformaton
of coectors of nterna revenue and other nterested persons the
changes effected n Subchapters and C of Chapter 9 of the Interna
Revenue Code and Ttes III and I of the Soca Securty ct by
the Soca Securty ct mendments of 1939, approved ugust 10.
1939 (Pubc, No. 379, Seventy-s th Congress). The ma|orty or
these changes do not become effectve unt anuary 1, 1940. Certan
of the changes, however, became effectve on the date of enactment of
the amendments and have appcaton to the year 1939 or pror years.
In the preparaton of ths mmeograph, an attempt has been made
to ndcate ceary the effectve dates of the varous provsons of
the amendments and the years to whch they appy.
The mmeograph s dvded nto three man parts. Part I
e pans the changes made n Subchapter of Chapter 9 of the In-
terna Revenue Code whch eves the od-age nsurance ta es (app-
cabe to empoyers of one or more and to ther empoyees), and
whch, effectve pr 1, 1939, superseded Tte III of the Soca
Securty ct. (Ths subchapter s now referred to as the edera
Insurance Contrbutons ct. ) Part II e pans the changes made
n Subchapter C of Chapter 9 of the Interna Revenue Code whch
eves the edera unempoyment compensaton ta (appcabe ony
to empoyers of eght or more), and whch, effectve wth the ta for
the year 193 ), superseded Tte I of the Soca Securty ct. (Ths
subchapter s now referred to as the edera Unempoyment Ta
ct. ) Part III e pans certan msceaneous provsons, among
whch are the provsons reatng to the credt aganst the ta mposed
under Tte I of the Soca Securty ct for the years 1936, 1937,
and 193 , and the provsons n regard to the retroactve appcaton
of the od-age nsurance ta es on the wages of empoyees over
age 65.
It s emphaszed that ths e panaton of the changes made by the
amendments s for nformatona purposes ony and does not commt
(251)
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252
the ureau of Interna Revenue to any nterpretaton of the aw n
advance of the promugaton of forma reguatons approved by the
Secretary of the Treasury. Such reguatons are n the course of
preparaton and w be made avaabe at the earest practcabe
date.
P RT I.
eueba Insurance Contrbutons ct.
(Subchapter of Chapter 0 of the Interna Revenue Code whch, effectve pr 1, 1939,
superseded Tte III of the Soca Securty ct.)
T S O T .
Sectons 601 and 604 of the amendments amend sectons 1400 and
1410, respectvey, of the Interna Revenue Code to f the od-age
nsurance ta rates at 1 per cent on the empoyee and 1 per cent on
the empoyer for the caendar years 1940, 1941, and 1942 as aganst
the y2 per cent rate provded under the od aw.
further change has been made n these sectons n that the rates
of ta appcabe are the rates n effect at the tme the wages are pad
and receved, wthout regard to the rates n effect at the tme the
servces were performed.
D USTM NT O T S.
ffectve upon the enactment of the amendments, sectons 602(a)
and 605 amend sectons 1401(c) and 1411, respectvey, of the Code,
to aow more attude n the manner n whch the vared stuatons
requrng ad|ustments may be treated. Ths has been accompshed
by deetng the term wage payment, whch has a restrcted mean-
ng, and substtutng n ts stead the term payment of remunera-
ton, and by aowng ad|ustments to be made n such manner and
at such tmes as may be prescrbed by reguatons.
SP CI L R UND.
ffectve wth the year 1940, secton 602(b) further amends sec-
ton 1401 of the Code by nsertng at the end thereof a new sub-
secton (d) aowng an empoyee who performs servce for more than
one empoyer durng any caendar year to obtan a refund., wthout
nterest, of the empoyees ta mposed by secton 1400 pad on the
wages n e cess of 3,000 receved by hm wth respect to empoyment
durng such year. Under the present aw, both the empoyers and
empoyees ta es are coectbe on the remuneraton of an empoyee
wth respect to empoyment durng any caendar year up to and
ncudng 3,000 receved from each of hs empoyers. or admns-
tratve reasons, the amendment does not dsturb ths provson, nor
does t n any way reeve each empoyer from the duty of deductng
the empoyees ta from wages whch he pays to the empoyee wthn
the 3,000 ma mum, wthout regard to the fact that deductons are
aso beng made by other empoyers for whom the empoyee aso per-
forms servces. t any tme wthn the two years after the cose of
the caendar year, however, the empoyee s entted to fe a cam
estabshng hs rght to ths speca refund of empoyees ta on
wages n e cess of 3,000 for such year whch has actuay been de-
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253
ducted and pad to the coector. It shoud be noted that ths speca
refund appes ony to the empoyees ta mposed under secton
1400. No such smar refund s provded for empoyers for the
empoyers ta mposed under secton 1410.
R C IPTS O MPLOY S.
ffectve anuary 1, 1940, secton 603 adds at the end of Part I of
Subchapter a new secton (1403) reatng to the furnshng of
recepts to empoyees. Subsecton (a) of the new secton requres
every empoyer to furnsh each of hs empoyees wth a statement n
a form sutabe for retenton by the empoyee showng the ta abe
wages pad to the empoyee after December 31,1939. ach statement
must cover one or more, but not more than four, caendar quarters
and must show the names of the empoyer and the empoyee, the
perod covered by the statement, the tota amount of wages pad
wthn the perod covered, and the amount of empoyees ta wth
respect to such wages. ach statement must be furnshed to the
empoyee not ater than the ast day of the second caendar month
foowng the perod covered by the statement e cept that n any case
where an empoyee eaves the empoy of hs empoyer, the fna
statement must be furnshed at the tme the fna payment of wages
s made. If the empoyer so chooses, he has the opton under ths
secton of furnshng such a statement at the tme of each payment
of wages to the empoyee durng any caendar quarter and, n such
case, the statement may show the date of payment of the wages, n
eu of the perod covered by the statement.
Subsecton (b) of the new secton provdes for a cv penaty of
not more than 5 for each wfu faure to furnsh the statement
n the manner, at the tme, and showng the nformaton requred.
D INITION O W G S.
ffectve anuary 1,1940, secton 606 amends subsecton (a) of sec-
ton 1426 of the Code, defnng the term wages. The subsecton,
as amended, contnues the present defnton of wages (ncudng, n
paragraph (1), the 3,000 mtaton), carfes t n some respects,
and e cudes certan types of payments heretofore ta abe.
Paragraph (2) of the subsecton e cudes payments made to or on
behaf of an empoyee under a pan or system estabshed by an em-
poyer whch makes provson for hs empoyees generay or for a
cass or casses of hs empoyees (ncudng any amount pad by an
empoyer for nsurance or annutes or nto a fund to provde for any
such payment) on account of ( ) retrement, or ( ) sckness, or
accdent dsabty, or (C) medca and hosptazaton e penses n
connecton wth sckness or accdent dsabty, or (D) death (ncud-
ng fe nsurance), provded the empoyee, whe vng, does not
have certan specfed rghts or optons.
Paragraph (3) e pressy e cudes the payment by an empoyer
(wthout deducton from the remuneraton of, or rembursement by,
the empoyee of the empoyees ta mposed by secton 1400 or em-
poyee contrbutons under State unempoyment compensaton aws.
Paragraph (4) e cudes dsmssa payments whch the empoyer s
not egay requred to make.
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254
D INITION O MPLOYM NT.
ffectve anuary 1, 1940, secton 606 aso amends the provsons
of subsecton (b) of secton 1426 of the Code, defnng the term
empoyment. Under the amended subsecton, the term means any
servce performed pror to anuary 1, 1940, whch was empoyment
under the od aw and any servce of whatever nature performed
after December 31, 1939, by an empoyee for the person empoyng
hm, rrespectve of the ctzenshp or resdence of ether ( ) wthn
the Unted States, or ( ) on or n connecton wth an mercan
vesse under a contract of servce entered nto wthn the Unted
States or durng the performance of whch the vesse touches a
port theren, f the empoyee s empoyed on and n connecton wth
such vesse when outsde the Unted States, wth certan e ceptons
herenafter dscussed.
Under ths amendment, the defnton of empoyment contaned n
the aw pror to anuary 1, 1940, s retaned wth respect to servces
rendered through December 31, 1939. The defnton appcabe to
servces rendered on and after anuary 1, 1940, however, s e tended
to ncude, wth certan quafcatons, a servces whch are attached
to or connected wth mercan vesses. It s made cear that the
e stng aw, under whch the ctzenshp or resdence of the empoyer
or empoyee s mmatera n determnng whether servces are n-
cuded, s equay appcabe to martme servces covered by the
amendment. The term mercan vesse s defned n a new sub-
secton (g) to mean any vesse documented or numbered under the
aws of the Unted States, and aso to ncude any vesse nether so
documented nor numbered nor documented under the aws of any
foregn country whe the crew s n the empoy ony of ctzens or
resdents of the Unted States or corporatons organzed under the
aws of the Unted States or of any State.
C PTIONS ROM MPLOYM NT.
The defnton of empoyment appcabe to servces rendered on
and after anuary 1, 1940, contnues unchanged some of the e cep-
tons contaned n the aw pror to that date, revses others, and
makes certan addtons. Uness otherwse ndcated n the dscus-
son of each e cepton, as set forth n the foowng tted paragraphs,
a of the revsons and addtons become effectve anuary /, 1940.
grc dtura abor. Paragraph (1) of secton 1426(b), as amended,
contnues the e cepton of agrcutura abor, but a new subsec-
ton (h) has been nserted defnng the term for purposes of the
e cuson. The term, as defned, has consderaby broadened the
scope of the e empton by e cudng numerous types of servces con-
sdered to be an ntegra part of farmng actvtes, but whch have
heretofore consttuted ta abe empoyment.
Paragraph (1) of subsecton (h) e cepts servce performed on a
farm n the empoy of any person m connecton wth cutvatng the
so, or n connecton wth rasng or harvestng any agrcutura or
hortcutura commodty, ncudng the rasng, shearng, feedng,
carng for, tranng, and management of ve stock, bees, poutry,
fur-bearng anmas, and wdfe.
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255
Paragraph (2) e cepts servce performed n the empoy of the
owner, tenant, or other operator of a farm n connecton wth the
operaton, management, conservaton, mprovement, or mantenance
of such farm and ts toos and equpment, or n savagng tmber or
cearng and of brush and other debrs eft by a hurrcane, provded
the ma|or part of such servce s performed on a farm. ( or a pro-
vson grantng retroactve e empton to servces smar to the ast
type mentoned n ths paragraph, see page 266.)
Paragraph (3) e cepts servce performed n connecton wth the
producton or harvestng of mape srup or mape sugar or any
commodty defned as an agrcutura commodty n secton 15(g) of
the grcutura Marketng ct, as amended (e. g., certan nava
stores products), or n connecton wth the rasng or harvestng of
mushrooms, the hatchng of poutry, the gnnng of cotton, or the
operaton or mantenance of dtches, canas, reservors, or waterways
used e cusvey for suppyng and storng water for farmng pur-
poses. In order for the servces descrbed n ths paragraph to be
e cepted, t s not necessary that they be performed on a farm, nor
that they be rendered n the empoy of the owner or tenant of a farm.
Paragraph (4) e cepts servce performed n handng, pantng,
dryng, packng, packagng, processng, freezng, gradng, storng,
or deverng to storage or to market or to a carrer for transpor-
taton to market any agrcutura or hortcutura commodty but
ony f such servce s performed as an ncdent to ordnary farmng
operatons or, n the case of fruts or vegetabes, as an ncdent to
the preparaton of such fruts or vegetabes for market. The pro-
vsons of the paragraph, however, have no appcabty to servce
performed n connecton wth commerca cannng or freezng, or n
connecton wth any hortcutura or agrcutura commodty after
ts devery to a termna market for dstrbuton for consumpton.
The ast sentence of ths paragraph makes t cear that the term
farm as used n subsecton (h) has a broad and comprehensve
meanng, and that t ncudes stock, dary, poutry, frut, fur-bearng
anmas, and truck farms, pantatons, ranches, nurseres, ranges,
greenhouses or other smar structures used prmary for the ras-
ng of agrcutura or hortcutura commodtes, and orchards.
Domestc servce. Paragraph (2) of secton 1426(b) contnues the
present e cepton of domestc servce n a prvate home and adds to
the e cepton such servce when performed n a oca coege cub, or
oca chapter of a coege fraternty or sororty.
Casua abor. Paragraph (3) contnues unchanged the e cepton
of casua abor not n the course of the empoyer s trade or busness.
mpoyees who have attaned age 65. ffectve anuary 1, 1939,
the e cepton accorded servce performed by ndvduas over age 65
has been repeaed. (See dscusson of secton 905 of amendments
under Msceaneous Provsons. )
amy empoyment. Paragraph (4) contans a new e cepton
whch e empts servce performed by an ndvdua n the empoy of
hs son, daughter, or spouse and servce performed by a chd under
the age of 21 n the empoy of hs father or mother. The anguage
of ths new e cepton s dentca wth the anguage of the e cepton
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accorded famy empoyment n Subchapter C of Chapter 9 of the
Code, whch superseded Tte I of the Soca Securty ct.
Martme workers on non- mercan vesses. Paragraph (5) e -
cudes servce performed on or n connecton wth a vesse, not an
mercan vesse, f the empoyee s empoyed on and n connecton
wth such vesse when outsde the Unted States. Ths provson
e cudes a servce, athough performed wthn the Unted States
rendered by an empoyee who was renderng servce on and n con-
necton wth such a vesse upon ts entry nto, or departure from,
the Unted States. Ths e cepton w take the pace of the one
n the aw as t e sted pror to the amendments e cudng servce
performed as an offcer or member of the crew of a documented
vesse.
mpoyees of the Unted States and nstrumentates thereof.
Paragraph (6) contnues the e cepton of servce performed n the
empoy of the Unted States, or an nstrumentaty thereof, but
mts the e cepton to those nstrumentates whch are whoy owned
by the Unted States or e empt from the ta mposed by secton
1410 of the Code by vrtue of any other provson of aw. Ths
change brngs wthn the scope of the aw numerous edera nstru-
mentates prevousy e cuded, such as natona banks and State
banks whch are members of the edera Reserve System.
mpoyees of States, ther nstrumentates, and potca sub-
dvson . Paragraph (7) contnues the e cepton of servce per-
formed n the empoy of a State, ts nstrumentates, and potca
subdvsons, but mts the e cepton wth respect to nstrumenta-
tes n that ony those nstrumentates whch are whoy owned
by one or more States or potca subdvsons or whch woud be
mmune from the ta mposed by secton 1410 of the Code by the
Consttuton, are e cuded.
Regous, chartabe, etc., organzatons. Paragraph ( ) con-
tnues the e cepton of servce performed n the empoy of regous,
chartabe, scentfc, terary, or educatona organzatons, but brngs
the anguage nto conformty wth secton 101(6) of the Code by
addng a cause whch dsquafes any organzaton when a sub-
stanta part of ts actvtes s carryng on propaganda, or other-
wse attemptng, to nfuence egsaton.
Carrer empoyees and empoyee representatves. Paragraph (9)
contnues wthout change the provsons of aw e ceptng servce
performed by an ndvdua as an empoyee or an empoyee repre-
sentatve as defned n Subchapter of Chapter 9 of the Code
(whch superseded the Carrers Ta ng ct of 1937).
mpoyees of nonp roft organzatons e empt from edera ncome
ta , etc. Paragraph (10) sets forth severa entrey new e ceptons
from empoyment. Cause e empts servce performed n any co-
endar quarter n the empoy of an organzaton e empt from ncome
ta under secton 101 of the Interna Revenue Code, f () the re-
muneraton for such servce does not e ceed 45, or () f such
servce s n connecton wth the coecton of dues or premums for
a fraterna benefcary socety, order, or assocaton and s performed
away from the home offce, or s rtuastc servce n connecton wth
any such socety, order, or assocaton, or ( ) f such servce s per-
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257
formed by a student who s enroed and s reguary attendng
casses of a schoo, coege, or unversty.
grcutura ard hortcutura organzatons. Cause of such
paragraph (10) e cepts a servce performed n the empoy of an
agrcutura or hortcutura organzaton e empt from ncome ta
under secton 101(1) of the Interna Revenue Code, wthout regard
to the type of servce rendered or the amount of remuneraton
receved.
ountary empoyees benefcary assocatons. Cause C e cepts
a servce performed n the empoy of a vountary empoyees bene-
fcary assocaton, provdng for payment of fe, sck, accdent,
or other benefts to the members of such assocaton or ther de-
pendents, f () no part of ts net earnngs nures (other than through
such payments) to the beneft of any prvate sharehoder or nd-
vdua, and () 5 per cent or more of the ncome conssts of amounts
coected from members for the soe purpose of makng such pay-
ments and meetng e penses. Ths e empton s dentca wth that
of those organzatons e empt from ncome ta under secton 101 (1C)
Cause D e cepts a servce n the empoy of a vountary em-
poyees benefcary assocaton provdng for the payment of fe,
sck, accdent, or other benefts to the members of such assocaton
or tber dependents or ther desgnated benefcares f ( ) admsson
to membershp n such assocaton s mted to ndvduas who are
offcers or empoyees of the Unted States Government, and () no
part of the net earnngs of such assocaton nures (other than
through such payments) to the beneft of any prvate sharehoder
or ndvdua.
Students. Cause e cepts servce performed n any caendar
quarter n the empoy of a schoo, coege, or unversty, not e empt
from ncome ta under secton 101 of the Code, f such servce s
performed by a student enroed and reguary attendng casses at
such schoo, coege, or unversty, and the remuneraton for such
servce does not e ceed 45 (e cusve of room, board, and tuton).
mpoyees of foregn governments and certan of ther nstru-
mentates. Paragraph (11) e cepts servce performed n the em-
poy of a foregn government (ncudng servce as a consuar or
other offcer or empoyee or a nondpomatc representatve), and
paragraph (12) e cepts, on a recprocty bass, servce performed
n the empoy of an nstrumentaty whoy owned by a foregn
government. These e emptons are made retroactve to the date of
enactment of the Soca Securty ct by secton 902(f) of the
amendments.
Student nur es and nternes. Paragraph (13) s a new e cepton
e cudng servce performed as a student nurse n the empoy of a
hospta or a nurses tranng schoo by an ndvdua who s enroed
and s reguary attendng casses n such a schoo, chartered or
approved pursuant to a State aw and servce performed as an
nterne n the empoy of a hospta by an ndvdua who has com-
peted a 4-year course n a medca schoo chartered or approved
pursuant to a State aw.
shermen and offcers and members of crews of certan sma ves-
ses. Paragraph (14) s a new e cepton whch e cudes servce
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performed by an ndvdua n (or as an offcer or member of the
crew of a vesse whe t s engaged n) the catchng, takng, harvest-
ng, cutvatng, or farmng of any knd of fsh, shefsh, Crustacea,
sponges, seaweeds, or other aquatc forms of anma and vegetabe
fe (ncudng servce performed by any such ndvdua as an
ordnary ncdent to any such actvty), e cept ( ) servce performed
n connecton wth the catchng or takng of samon or habut, for
commerca purposes, and ( ) servce performed on or n connecton
wth a vesse of more than 10 net tons (determned n the manner
provded for determnng the regster tonnage of merchant vesses
under the aws of the Unted States).
Newsboys. Paragraph (15) contans a new e cepton whch e -
cudes servce performed by ndvduas under the age of 1 n the
devery or dstrbuton of newspapers or advertsng matera. It
does not e cude the handng of newspapers and advertsng matera
pror to the tme they are turned over to the ndvdua who makes
the fna dstrbuton.
INCLUD D ND CLUD D S R IC S.
ffectve anuary 1, 1940, a new subsecton (c) has been nserted
n secton 1426, reatng to an empoyee who renders both ncuded
and e cuded servce for the same empoyer durng a partcuar pay
perod (of not more than 31 consecutve days) for whch a payment
of remuneraton s ordnary made. It provdes that f one-haf or
more of the servce consttutes empoyment, a of such servce w
be ncuded but that f ess than one-haf of the servce consttutes
empoyment, a w be e cuded. The provson, however, does not
appy to the servce of an empoyee n a pay perod f any of such
servce s covered under Subchapter of Chapter 9 of the Interna
Revenue Code (whch superseded the Carrers Ta ng ct of 1937).
N W S O T TITL .
Secton 607 adds a new secton provdng that Subchapter of
Chapter 9 of the Interna Revenue Code (whch superseded Tte
III of the Soca Securty ct) may be cted as the edera
Insurance Contrbutons ct.
part n.
edera Unempoyment Ta ct.
(Subchapter C of Chapter 9 of the Interna Revenue Code whch, effectve wth the ta
for the year 1939, superseded Tte I of the Soca Securty ct.)
T SIS.
ffectve wth the ta for the year 1930, secton 60 amends secton
1600 of the Code to change the bass for determnng ta abty
from wages payabe to wages pad. Ths amendment has the
effect of brngng the provsons of ths subchapter more neary nto
conformty wth the provsons of the edera Insurance Contrbu-
tons ct.
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259
CR DIT G INST T .
ffectve wth the ta for the year 1939, secton 609 of the amend-
ments berazes the provsons of secton 1601(a) of the Code n
severa mportant partcuars. Under the aw as t e sted pror
to the amendments, ta payers coud credt aganst the edera ta
ony contrbutons pad under a State aw wth respect to empoy-
ment as defned n secton 1607 of the Code. Snce the defnton
of empoyment n secton 1607 restrcts the meanng of the term
to certan types of servces, the ta payer was not gven credt for
contrbutons made under a State aw wth respect to servces not
covered by the edera aw. Subdvson (1) of the amended secton
emnates a reference to the term empoyment, thus aowng
the ta payer to credt (sub|ect to the 90 per cent mtaton) the
contrbutons requred and pad under a State aw wthout regard
to whether such contrbutons are wth respect to empoyment as
defned n the edera aw.
Subdvson (2) provdes that credt sha be aowed aganst the
ta for the ta abe year ony for the amount of contrbutons pad
wth respect to such year. Ths effects no substantve change n the
od aw.
Subdvson (3) aows ta payers more tme n whch to pay ther
contrbutons to the State and secure credt aganst the edera ta .
The amendment permts fu credt for contrbutons pad on (as
we as before) the due date for the edera return. The amend-
ment further permts a credt for contrbutons pad after such due
date but on or before une 30 ne t foowng the due date, but ths
credt may not e ceed 90 per cent of the amount whch woud have
been aowabe as credt on account of such contrbutons had they
been pad on or before the due date. Ths subdvson further pro-
vdes for the remova of the tme mtaton for credt of contrbu-
tons pad to a State n those cases where the assets of the ta payer
are n the custody of a recever, trustee, or other fducary apponted
by, or under the contro of, a court of competent |ursdcton at any
tme begnnng wth the due date and endng wth the ne t foowng
une 30, both dates ncusve.
Subdvson (4) grants reef to those ta payers who have errone-
ousy pad contrbutons to the wrong State. In any case where a
ta payer has made such an erroneous payment, the payment to the
proper State w be deemed, for purposes of the credt aganst the
edera ta , to have been made on the date of the erroneous pay-
ment. If the ta payer s e perence under the aw of the wrong
State had entted hm to cease payng contrbutons wth respect to
servces sub|ect to the aw of that State, and by reason thereof no
contrbutons had actuay been pad wth respect to the remuneraton
n queston, payment to the proper State w be treated, for credt
purposes, as havng been made on the date on whch the edera
return s actuay fed.
Subdvson (5) provdes for refund, wthout nterest, of any ta
(ncudng penates and nterest) based on any credt aowabe
under ths secton n accordance wth the provsons of aw (ncud-
ng statutes of mtatons) appcabe n the case of erroneous or
ega coecton of the ta .
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DDITION L CR DIT.
ffectve wth the ta for the year 1939, secton 609 aso amends
secton 1601 (b) of the Code by e pressy condtonng the aowance
of addtona credt upon certfcaton by the Soca Securty oard
of the State aw under secton 1603(c) and the amended secton
1602(b), and by e tendng the addtona credt to reduced rates of
contrbutons requred under a State aw wth respect to servces not
covered by the edera aw. The subsecton, n ths atter respect,
s thus brought nto conformty wth the amendment to subsecton
(a) of secton 1601 (reatng to credt for contrbutons pad to State
unempoyment funds). The addtona credt aowance w be
based on the dfference between the amount of contrbutons the ta -
payer was requred to pay under the State aw and the amount he
woud have been requred to pay f, throughout the ta abe year, he
had been sub|ect to the hghest rate apped under the State aw,
or to a rate of 2.7 per cent, whchever s ower. Ths amendment,
n addton to measurng the credt by the appcabe per cent of the
pay ro wth respect to whch contrbutons are requred under the
State aw, aso emnates the possbe necessty for measurng add-
tona credts n terms of perods ess than one year.
n amendment to secton 1601(c) of the Code restates the pro-
vsons of the od aw and mts the tota credts aowed to a ta -
payer under Subchapter C to an amount not n e cess of 90 per cent
of the ta aganst whch such credts are aowabe.
Secton 610 amends secton 1602(a) of the Code reatng to the
condtons of addtona credt aowance and adds a new subsecton
(b) requrng the Soca Securty oard to certfy to the Secretary
of the Treasury, State aws whch compy wth amended secton
1602(a). Secton 611 of the amendments amends secton 1603(a) of
the Code reatng to the requrements of State aws for approva by
the Soca Securty oard. The changes effected by the amendments
to sectons 1602 and 1603 are not dscussed n deta snce the
authorty for the ssuance of reguatons under such sectons s
vested n the Soca Securty oard.
T NSION O TIM .
ffectve wth the returns for the ta abe year 1939, secton 612
amends secton 1604(b) of the Code to authorze an e tenson of
tme for the fng of returns of the ta mposed by secton 1600
for not more than 90 days under such rues and reguatons as the
Commssoner, wth the approva of the Secretary, may prescrbe.
Ta payers may thus be gven 30 days, n addton to the 60 days
aowabe under the od aw, wthn whch to fe ther returns.
INT RST T COMM RC ND D R L INSTRUM NT LITI S.
Secton 613 amends secton 1606 of the Code, reatng to the app-
caton of State unempoyment compensaton aws to empoyers en-
gaged n nterstate or foregn commerce, to empoyers ocated on
edera ands, and to certan edera nstrumentates. The ad-
mnstraton of (he secton s not wthn the provnce of the ureau
of Interna Revenue.
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2G1
D INITION O MPLOY R.
ffectve anuary 1, 1940. secton 614 amends subsecton (a) of
secton 1607 of the Code, defnng the term empoyer, to make t
cear that n determnng whether a person empoys eght or more
empoyees, ony those empoyees who are empoyed n an empoy-
ment, as defned n secton 1607(c), are to be counted. Ths s ony a
carfyng amendment and effects no change n the nterpretaton
whch the ureau has heretofore paced on secton 1607(a). In a
other respects the anguage of the defnton remans the same.
D INITION O W G S.
of subsecton (b) of secton 1607 of the Code, defnng the term
wages, so that ts provsons are dentca to those contaned n
amended secton 1426(a). Under the amendment, the 3,000 mta-
ton on remuneraton pad to an empoyee by hs empoyer wth re-
spect to empoyment durng any caendar year has been nserted n
Subchapter C of the Code as have the other e cusons prevousy
mentoned n the secton of ths mmeograph deang wth the defn-
ton of wages under the edera Insurance Contrbutons ct.
D INITION O MPr.OYM .NT.
of subsecton (c) of secton 1607 of the Code, defnng the term
empoyment. Under the amended subsecton, the term s defned
to mean any servce performed pror to anuary 1, 1940, whch was
empoyment under the od aw, and any servce performed after
December 31, 1939, wthn the Unted States by an empoyee for
the person empoyng hm, rrespectve of the ctzenshp or res-
dence of ether, wth certan e ceptons herenafter dscussed. Ths
defnton s not e tended to ncude servce attached to or connected
wth mercan vesses, and n certan other respects as we dffers
from the defnton of empoyment n the amended secton 1426(b)
of the edera Insurance Contrbutons ct.
C PTIONS ROM MPLOYM NT.
The e ceptons from empoyment under amended secton 1607(c)
conform, for the most part, wth those contaned n amended sec-
ton 1426(b) (athough, t s to be noted, there are some dfferences)
and represent consderabe change from the provsons of the aw
n effect pror to the enactment of the amendments. Uness other-
wse ndcated n the dscusson of each e cepton, as set forth n
the foowng tted paragraphs, a of the changes become effectve
anuary 7, 1940.
grcutura abor. Paragraph (1) e cepts agrcutura abor,
the term beng defned, for purposes of the e empton n subsecton
(1). Ths defnton s dentca to the one contaned n secton
1426(h) of the Code heretofore mentoned and s, therefore, not
dscussed n deta. (See pages 21 and 32.)
Domestc servce. Paragraph (2) e cepts domestc servce and
s dentca to the amended secton 1426(b)2.
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202
Casua abor. Paragraph (3) adds a new e cepton of casua abor
not n the course of the empoyer s trade or busness and s dentca
to amended secton 1426(b)3.
Martme workers. Paragraph (4) contnues the e cepton of
servce performed as an offcer or member of the crew of a vesse
on the navgabe waters of the Unted States. (Ths provson rep-
resents a dfference from the defnton of empoyment n secton
1426(b) of the Code.)
amy empoyment. Paragraph (5) contnues the e cepton of
servce performed by an ndvdua n the empoy of hs son, daugh
ter, or spouse, and servce performed by a chd under the ag
of 21 n the empoy of hs father or mother. Ths e cepton s den-
tca to amended secton 1426(b)4.
mpoyees of the Unted States and nstrumentates thereof.-
Paragraph (6) contnues the e cepton of servce performed n th
empoy of the Unted States, or an nstrumentaty thereof, but mt:
the e cepton n the same manner as amended secton 1426(b)6.
mpoyees of States, ther nstrumentates, and -potca mb-
dvsons. Paragraph (7) contnues the e cepton of servce per
formed n the empoy of a State, ts nstrumentates, and potca
subdvsons, but mts the e empton n the same manner as amended
secton 1426(b)7.
Regous, chartabe, etc., organzatons. Paragraph ( ) contnues
the e cepton of servce performed n the empoy or regous, char-
tabe, scentfc, terary, or educatona organzatons wth the same
dsquafyng cause contaned n amended secton 1426(b) .
Carrer empoyees and empoyee representatves. Paragraph (9/
e cepts servce performed by an ndvdua as an empoyee or an
empoyee representatve as defned n secton 1 of the Raroad Un-
empoyment Insurance ct.
mpoyees of nonproft organzatons e empt from edera nco|ut
ta , etc. Paragraph (10) adds a new e cepton of certan servces
performed n the empoy of organzatons e empt from ncome ta
under secton 101 of the Interna Revenue Code, and e cepts certan
other types of servce, n the same anguage empoyed n amended
secton 1426(b) 10.
mpoyees of foregn governments and certan of ther nstru-
mentates. Paragraph (11) contans a new e cepton e emptng
servce performed n the empoy of a foregn government and par
agraph (12) e cepts, on a recprocty bass, servce performed n the
empoy of certan nstrumentates of foregn governments. These
e ceptons are dentca to amended sectons 1426(b) (11) and (12),
respectvey, and kewse are made retroactve to the date of the
enactment of the Soca Securty ct by secton 902(f) of th(
amendments.
Student nurses and nternes. Paragraph (13) sets forth a new e -
cepton dentca to amended secton 1426(b) 13, e cudng servce
performed as a student nurse attendng a nurses tranng schoo am
servce performed as an nterne n the empoy of a hospta.
Insurance agents on commsson bass. Paragraph (14) e cude
servce performed as nsurance agents and soctors f the remunera-
ton receved for such servce s soey on a commsson bass.
any part of such remuneraton s a f ed saary the servces are not
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263
e cepted, and the ta s computed on the aggregate remuneraton.
There s no smar e cuson under secton 1426(b).
Newsboy . Paragraph (15) e cudes servce performed by nd-
vduas under the age of 1 n the devery or dstrbuton of news-
papers or advertsng matera and s dentca to amended secton
1426(b)15.
INCLUD D ND CLUD D S R IC S.
ffectve anuary 1, 1940, a new subsecton (d) has been nserted
n secton 1007, reatng to an empoyee who performs both ncuded
and e cuded servces for the same empoyer durng a partcuar pay
perod. The provsons of ths subsecton do not appy to the servce
of an empoyee n a pay perod f any of such servce s covered under
the Raroad Unempoyment Insurance ct. cept for ths neces-
sary change, the provson s dentca to amended secton 1426(c).
N W S ORT TITL .
Secton 615 adds a new secton (1611) provdng that Subchapter
C of Chapter 9 of the Interna Revenue Code (whch superseded Tte
I of the Soca Securty ct) may be cted as the edera Unem-
poyment Ta ct.
P RT III.
MSC T.L N OUS PRO ISIONS.
CR DITS G INST T T IMPOS D UND R TITL I OP T SOCI L S CURITY CT
O T T RS 19 , 1037, ND 1 3 .
Secton 902 of the amendments provdes for the substanta bera-
zaton of the condtons of credt aganst the edera ta mposed
by Tte I of the Soca Securty ct for the caendar years 1936,
1937, and 193 and gants reef to ta payers who faed to pay tmey
contrbutons to the States wth respect to empoyment durng these
caendar years.
Subsecton (a) provdes for the aowance of credt aganst the ta
mposed by secton 901 of the Soca Securty ct for the years 1936,
1937, and 193 , for contrbutons wth respect to empoyment pad
nto State funds before the s teth day after the date of enactment
of the amendments, that s, before October 9 1939.
The subsecton further provdes for credt for contrbutons pad
on or after October 9, 1939, but ony to the e tent that such contrbu-
tons are wth respect to wages pad by the empoyer after September
19, 1939, for servces performed durng 1936, 1937, or 193 . (Ths
provson s desgned to permt credt n cases n whch, because the
wages payabe bass of the ta for the years 1936, 1937, and 193
s st retaned, credt woud otherwse be ost snce some wages are
st beng pad wth respect to those years, and t may not be possbe
to estmate the amount thereof or the amount may have been under-
estmated.)
Provson s aso made n the subsecton for credt for contrbutons
pad for the year 1936, 1937, or 193 wthout regard to the date of
payment, f the assets of the ta payer are n the custody or contro
of a recever, trustee, or other fducary apponted by, or under the
contro of, a court of competent |ursdcton at any tme durng the
59-day perod foowng the date of enactment of the amendments.
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264
Subsecton (b) provdes for reef for ta payers who have pad
contrbutons wth respect to empoyment durng the caendar years
1036, 1937, and 193 , nto the unempoyment fund of the wrong
State. In any case where such an erroneous payment has been
made, the payment of the contrbutons nto the proper State fund
w be deemed to have been made at the tme of the erroneous pay-
ment. If the ta payer was entted to cease payng contrbutons
wth respect to servces sub|ect to the aw of the wrong State, the
payment nto the proper fund sha be deemed to have been made od
the date the return for the ta abe year was fed under Tte I
of the Soca Securty ct. Ths subsecton makes the same pro-
vson wth respect to the ta abe years 1936, 1937, and 193 as s
made n amended sectons 1601 (a)4 of the Code for the ta abe vear
1939 and thereafter.
Subsecton (c) preserves the defntons of secton 907 of the Soca
Securty ct, the ma mum credt mtaton of 90 per cent, and
other provsons of Tte I of the Soca Securty ct essenta to
the operaton of the reef provsons contaned n subsectons (a),
(b), and (h) of ths secton for the ta abe years 1936, 1937, and 193 .
Subsecton (d) provdes for refund, wthout nterest, of any ta
(ncudng penates and nterest) whch has been coected but wth
respect to whch credt s aowabe under subsectons (a), (b), and
(h) of ths secton. These refunds are to be made n accordance wth
the provsons of aw (ncudng statutes of mtatons) appcabe n
the case of erroneous or ega coecton of ta .
Subsecton (e) provdes for the aowance of credt aganst the
ta for the ta abe years 1940, 1941, and 1942, n whch remuneraton
s pad for servces rendered n a ta abe year after December 31,
193 , but durng a year pror to that n whch payment occurs, for
the amounts of contrbutons wth respect to such remuneraton
whch have not been credted aganst the ta for any pror ta abe
year. Ths provson s desgned to reeve cases of hardshp whch
mght arse by reason of the change n the bass of the edera ta
from wages payabe to wages pad.
Subsecton (h) grants reef to ta payers as we as States n
cases n whch the hghest court of the State has hed contrbutons
pad under the State aw wth respect to the ta abe year 1936 or
1937 not to have been requred payments. Under ths subsecton,
credt s aowed aganst the ta mposed by secton 901 of the Soca
Securty ct for the caendar years 1936 and 1937 for so much of an|
such payments as s not refunded to the ta payer. Ths subsecton
aso postpones the perods of mtatons prescrbed by secton
3312(a) of the Code. Such perods sha not begn to run n the
case of any ta payer to whom the payments are returned unt the
ast of such payments s returned to hm.
R TRO CTI MPTION O S R IC S P O M D IN T MPLOY O O IGN
GO RNM NTS ND C RT IN O T IR INSTRUM NT LITI S.
Subsecton (f) of secton 902 provdes that no ta sha be coected
under Ttes III and I of the Soca Securty ct or under the
edera Insurance Contrbutons ct or the edera Unempoyment
Ta ct wth respect to servces rendered pror to anuary 1, 1910,
whch are descrbed n paragraphs (11) and (12) of amended sec-
tons 1426(b) and 1607(c) of the Code (servces performed n the
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265
empoy of foregn governments and certan of ther nstrumenta-
tes). If any ta (ncudng penates and nterest) has been co-
ected wth respect to such servces, t s to be refunded, wthout n-
terest, n accordance wth the provsons of aw (ncudng statutes
of mtatons) appcabe to cases of ega or erroneous coecton
of ta .
COLL CTION O T IMPOS D UND R TITL IT O SOCI L S CURITY CT ND SU -
C PT R C, C PT R , O INT RN L R NU t OD . IN N RUPTCY PROC DINGS.
Subsecton () of secton 902 provdes that no part of the ta
mposed by Tte I of the Soca Securty ct or by the edera
Unempoyment Ta ct sha be deemed to be a penaty or forfeture
wthn the meanng of secton 57| of the ankruptcy ct, as amended.
Ths subsecton effects no substantve change n the aw nor does t
affect the erazaton n subsecton (a) of ths secton or n
amended secton 1601 (a)3 of the Code, of the condtons for credt
n the case of an empoyer whose assets are n the custody of a
court.
R TRO CTI PPLIC TION O T S UND R D R L INSUR NC CONTRI UTIONS CT
IN C S O MPLOY S O R G 05.
ffectve anuary 7, 1.939, secton 905(a) of the amendments re-
peas the e empton contaned n paragraph (4) of secton 1420(b)
of the Code, n the case of servce performed by an ndvdua who
has attaned age 65. s a resut of ths provson, empoyers are
now requred to deduct from the wages pad to empoyees over age
65 for servces performed by them on and after ugust 10, 1939,
whch are not otherwse e cepted, not ony the 1 per cent empoyees
ta on those wages but aso back empoyees ta at the same rate
on a ta abe wages pad to such empoyees for servces performed
by them from anuary 1. 1939, through ugust 9, 1939, both dates
ncusve. The empoyer s abe for a of such empoyees ta co-
ected by hm. The empoyer s aso personay abe for a of
such empoyees ta even though he does not coect t from the
empoyee, wth one e cepton provded n the amendment. That e -
cepton appes ony n the case of empoyees ta on wages pad
for servces performed pror to ugust 10, 1939, bv empoyees over
age 65 whch s not coected from the empoyee, and ony then f the
empoyer does not have under hs contro on or after November ,
1939, remuneraton earned at any tme by the empoyee. It shoud
be especay noted that ths e cepton appes ony to the empoyer s
abty for the empoyees ta mposed under secton 1400 of the
Code and does not e tend to hs abty for the empoyers ta
mposed under secton 1410 thereof. The empoyer s thus abe
n any event for the empoyers ta not ony on the wages pad to
each empoyee over age 65 for servces performed n hs empoy on
and after ugust 10, 1939, but aso on the wages pad to any such
empoyee for servces performed n hs empoy for any ength of
tme durng the perod anuary 1,1939, through ugust 9, 1939. both
dates ncusve, rrespectve of the fact that the empoyee may have
9nce resgned or been dscharged. Detaed nstructons as to the
tme when, and the manner n whch, these back empoyers and
empoyees ta es are to be reported and pad to the coector w
be ssued at an eary date.
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Regs. 91.
2GG
R TRO CTI MPTION O S R IC S P R ORM D IN S L GING UM R ND CL TS-3
L ND O RUS ND OT R D RIS L T Y URRIC N .
provson grantng retroactve e empton from the ta es m-
posed under Ttes III and I of the Soca Securty ct. the
edera Insurance Contrbutons ct, and the edera Unempoy-
ment Ta ct, to servces performed n savagng tmber or cearng
and of brush and other debrs eft by a hurrcane, has been Incor-
porated n Pubc, No. 400, Seventy-s th Congress, approved
ugust 11, 1939, entted n ct to provde for the refund or
credt of nterna-revenue ta pad on sprts ost or rendered un-
marketabe by reason of the foods of 1936 and 1937 where such
sprts were n the possesson of the orgna ta payer or rectfer
for bottng or use n rectfcaton under Government supervson as
provded by aw and reguatons.
Ths ct conssts of two sectons, the frst of whch does not re-
ate to the soca securty ta es. Secton 2 of the ct, however, pro-
vdes, n part, that no ta sha be coected under Tte III or
I of the Soca Securty ct, or under the edera Insurance Con-
trbutons ct, or the edera Unempoyment Ta ct, wth respect
to servces rendered pror to anuary 1, 1940, n the empoy of the
owner or tenant of and, n savagng tmber on such and or cear-
ng such and of brush and other debrs eft by a hurrcane. The
secton further provdes that any such ta heretofore coected (n-
cudng penaty and nterest wth respect thereto, f any), sha be
refunded n accordance wth the provsons of aw appcabe n the
case of erroneous or ega coecton of the ta , but that no nterest
sha be aowed or pad on the amount of any such refund.
It shoud be noted that ths retroactve e empton provson s
somewhat broader n ts terms than s the e cepton accorded smar
servces performed on and after anuary 1, 1940, by paragraph 2 of
sectons 1426(h) and 1607(1) of the Soca Securty ct mendments
of 1939.
Inqures n regard to the contents of ths mmeograph shoud
refer to ts number and to the symbos C: RR.
Guy T. ever g,
Commss on er.
Reguatons 91. 1939-33-9961
( so Subchapter C Reguatons 90 and Soca S. S. T. 371
Securty ct, Ttes III and I .)
Rungs and mmeographs pubshed under Ttes III and I of
the Soca Securty ct appcabe under Subchapters and C, Chap-
ter 9 of the Interna Revenue Code.
Treasury Decson 4 5 (C. . 1939-1 (Part 1), 396) reads n part
as foows:
reguatons (ncudng a Treasury decsons), prescrbed by the Comms-
soner of Interna Revenue and approved by the Secretary of the Treasury,
appcabe under any provson of aw on the date of the enactment of the
Interna Revenue Code, to the e tent such provson of aw Is superseded by
the Code, are hereby prescrbed under, and made appcabe to, the provsons
of the Code correspondng to the provson of aw so superseded, n so far as any
such reguaton s not ncousstent wth the Code.
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267
Regs. 91.
These reguatons are Issued under authorty of the provsons of secton 3791
of the Interna Revenue Code and under such other pruvsons of the Code as
correspond wth the severa provsons of aw under whch any reguaton or
Treasury decson hereby prescrbed and made appcabe was ssued.
rung and mmeographs heretofore pubshed reatng to the
provsons of Ttes III and I of the Soca Securty ct are ap-
pcabe under Subchapters and C, respectvey, of Chapter 9 of the
Interna Revenue Code n so far as such rungs and mmeographs are
not nconsstent wth the Code.
Reguatons 91. 1939-37-10016
T. D.4935
TITL 2 INT RN L R NU . C PT R I. SU d rT R D, T RT 401
SU C PT R , P RT 405, SU P RT .
Reguatons 91, as amended, as made appcabe to the Interna
Revenue Code by Treasury Decson 4SS5 C. . 1039-1 (Part 1),
3961, amended.
Ta es under the edera Insurance Contrbutons ct (Sub-
chapter of Chapter 9 of the Interna Revenue Code, whch
supersedes Tte III of the Soca Securty ct) wth respect to
servce performed after December 31, 193 , by an ndvdua
after he attans age 65.
Washngton, D. C.
In order to conform Reguatons 91, approved November 9, 1936
Part 401, Tte 26, Code of edera Reguatons , as amended, as
4 5, approved ebruary 11, 1939 C. . 1939-1 (Part 1), 396
fPart 465, Subpart , of such Tte 26 , to secton 905 of the Soca
Securty ct mendments of 1939 (Pubc, No. 379, Seventy-s th
Congress, frst sesson), such reguatons ony as made appcabe to
the Interna Revenue Code are amended as foows:
(1) Immedatey precedng artce 1 secton 401.1, Tte 26, Code
of edera Reguatons the foowng s nserted:
Secton 905(a) of the Soca Securty ct mendments of ft. tO.
No servce performed at any tme durng the caendar year 1939 by
any ndvdua sha, by reason of the ndvdua havng attaned the
age of 65, be e cepted from empoyment as defned n secton 1426(b)
of Subchapter of Chapter 9 of the Interna Revenue Code. Para-
graph (4) of such secton (whch e cepts such servce from empoy-
ment) s repeaed as of the effectve date thereof, and paragraph (4)
of secton 11(b) of the Soca Securty ct s repeaed as of anuary
1, 1939.
(2) Immedatey precedng artce 9 secton 401.9, Tte 26, Code
of edera Reguatons the foowng s nserted:
Secton 905 of the Soca Securty ct mendments of 1939.
(a) No servce performed at any tme durng the caendar year
1939 by any ndvdua sha, by reason of the ndvdua havng at-
taned the age of 65, be e cepted from empoyment as defned n secton
1426(b) of Subchapter of Chapter 9 of the Interna Revenue Code.
Paragraph (4) of such secton (whch e cepts such servce from em-
poyment) Is repeaed as of the effectve date thereof, and paragraph
(4) of secton 11(b) of the Soca Securty ct s repeaed as of anu-
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Regs. 91.
26
ary 1, 1939. The ta on empoyees Imposed by secton 1400 of such
subchapter and the ta on empoyers mposed by secton 1410 of such
subchapter, and the provsons of aw appcabe to such ta es, sha
appy wth respect to remuneraton pad after December 31, 193 , for
servce whch, by reason of the enactment of ths secton, consttutes
empoyment as so defned.
(b) Notwthstandng any other provson of aw, no empoyer sha
be abe for the ta on any empoyee, mposed by secton 1400 of such
subchapter (uness the empoyer coects such ta from the empoyee),
wth respect to servce performed before the date of enactment of ths
ct whch consttutes empoyment by reason of the enactment of ths
secton, e cept to the e tent that the empoyer has under hs contro
at any tme on or after the nneteth day after such date amounts of
remuneraton earned at any tme by the empoyee.
(3) rtce 9 secton 401.9, Tte 26, Code of edera Regua-
tons s amended to read as foows:
rt. 9. mpoyees who have attaned ane 65. Servces performed pror to
anuary 1, 1939, by an ndvdua after he has attaned the age of 05 years arc
e cepted. The empoyer has the burden of estabshng to the satsfacton of
the Commssoner the age of any empoyee whose servces are camed to be
e cepted by reason of hs havng attaned the age of 65. servces perfornW
pror to anuary 1, 1939, by an ndvdua on and after the day precedng tc
s ty-ffth annversary of hs brth are wthn ths e cepton. Servces per-
formed on and after anuary 1, 1939, by an ndvdua after he has attaned th
age of 65 are not e cepted by reason of hs attanment of such age. Suc
servces of an empoyee, uness otherwse e cepted from empoyment (e. g-
agrcutura abor), consttute empoyment, and the empoyees ta and the
empoyers ta appy wth respect to wages therefor pad after December
1, 193 .
(4) Immedatey after artce 204 secton 401.204, Tte 26, Code
of edera Reguatons the foowng new artce s nserted:
bt. 204 Sec. 401.204 , Tte 26, Code of edera Reguatons . Coecton
of, and abty for, empoyees taw wth respect to servce performed by an
empoyee after he attans age 65. Under the provsons of secton 905 of the
Soca Securty ct mendments of 1939, enacted ugust 10. 1939, servce per-
formed on and after anuary 1, 1939, by an empoyee after hs attanment of
the age of 65 s not e cepted from empoyment by reason of the age of the
empoyee. The empoyer sha coect the empoyees ta wth respect to such
servce as foows:
(o) Wth respect to wages pad to the empoyee for servce performed
on and after ugust 10, 1939, by deductng the amount of such ta from
hs wages as and when pad.
(6) Wth respect to wages pad to the empoyee for servce performed
pror to ugust 10,1939, by deductng the amount of the ta from such of hs
remuneraton (whether or not such remuneraton consttutes wages) as s
nnder the contro of the empoyer on or after such date, n addton to
the empoyees ta , f any, wth respect to such remuneraton.
Unt coected from hm the empoyee s abe for the empoyees ta wth
respect to wages receved by hm for such servce. The empoyer s abe for
a empoyees ta coected by hm wth respect to such servce. The empoyer
s abe for the empoyees ta wth respect to such servce performed on and
after ugust 10, 1939, whether or not coected from the empoyee. Notwth-
standng any other provson of these reguatons, the empoyer s abe for the
empoyees ta not coected from the empoyee wth respect to such servce
performed pror to ugust 10, 1939, ony to the e tent that the empoyer has
nnder hs contro at any tme on or after November , 1939, amounts of remn-
neraton earned at any tme by the empoyee. cept as provded n the precedng
sentence, ths artce sha not be deemed to mt the appcaton of artce 204
secton 401.204, Tte 26, Code of edera Reguatons (reatng, generay, to
coecton of, and abty for, empoyees ta ) to the empoyees ta wth respect
to such servce. (See artce 9, as amended secton 401.9, Tte 26, Code of
edera Reguatons. 1939 Sup. , reatng to the e cepton of servce performed
pror to anuary 1, 1939, by an ndvdua after he attans the age of 65.)
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269
Regs. 91.
of edera eguatons the foowng new artce s nserted:
rt. 304 Sec. 401.304 , Tte 2G, Code of edera Reguatons . Labty
far empoyers ta wth respect to servce performed by an empoyee after he
attans age C . Under the provsons of secton 90. of the Soca Securty ct
mendments of 1939, enacted ugust 10, 1939, servce performed on and after
anuary 1, 1939, by an empoyee after hs attanment of the age of 05 s not
e cepted from empoyment by reason of the age of the empoyee. The empoyer
s abe for the empoyers ta wth respect to wages pad for such servce,
ncudng wages pad pror to ugust 10, 1939. (See artce 9, as amended
secton 401.9, Tte 20, Code of edera Reguatons, 19:59 Sup. , reatng to the
e cepton of servce performed pror to anuary 1, 1939, by an ndvdua after
he attans the age of 65.)
(6) Immedatey after artce 402y2 secton 401.402/2, Tte 2G,
Code of edera Reguatons , added by Treasury Decson 47 6,
approved December 29, 1937 C. . 193 -1, 3 , the foowng new
artce s nserted:
rt. 402 Sec. 401.402 , Tte 26, Code of edera Reguatons . Manner
of reportng ta abe wages for servce performed by an empoyee after he attans
age 65. Under the provsons of secton 905 of the Soca Securty ct mend-
ments of 1939, servce performed on and after anuary 1, 1939, by an empoyee
after hs attanment of the age of 65 s not e cepted from empoyment by reason
of the age of the empoyee. Ta abe wages wth respect to such servce sha be
reported n returns as provded n artce 402 secton 401.402 , Tte 26, Code
of edera Reguatons (reatng, generay, to the manner of reportng ta abe
wages) e cept that ta abe wages wth respect to such servce, actuay or
constructvey pad on or before une 30, 1939, sha be reported n the return
for the quarter endng on September 30, 1939, together wth ta abe wages
actuay or constructvey pad n such quarter.
tons s amended to read as foows:
rt. 410. Payment of ta . The empoyees ta and the empoyers ta re-
qured to be reported on each return on orm SS-1 or SS-a are due and
payabe to the coector, wthout assessment by the Commssoner or notce by
the coector, at the tme f ed for fng such return. Wth respect to wages
pad on or before une 30, 1939 (as we as wages pad durng the quarter end-
ng September 30, 1939), for servces rendered on or after anuary 1, 1939,
by an ndvdua after hs attanment of the age of 65, the empoyees ta and
the empoyers ta nre cue and payabe to the coector, wthout assessment
or notce, at the tme f ed for fng the return on orm SS-a for the quarter
endng September 30, 1939. or provsons reatng to nterest and penates
see artces 602, 603, and 604 sectons 401.602, 401.603, and 401.604, Tte 26,
Code of edera Reguatons .
sectons 1420 and 1429 of the Interna Revenue Code (53 Stat,, Part
1), and nterprets secton 905 of the Soca Securty ct mendments
of 1939 (Pubc, No. 379, Seventy-s th Congress, frst sesson), sec-
tons 1400, 1401 (a) and (b), 1410, and 2702 of the Interna Revenue
Code (53 Stat., Part 1), and sectons 1400, 1410, and 1426(b) of the
Interna Revenue Code, as amended by such Soca Securty ct
mendments of 1939.)
Guy T. everno,
ohn W. akes,
( ed wth the Dvson of the edera Regster September 7, 1939, 12.46 p. m.)
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Regs. 91, rts. 13 and 504 . 270
Reguatons 91, rtces Wy2 and 504 . 1939-37-10014
( so Soca Securty ct, Tte III.) T. D. 4934
TITL 20 INT N I, R NU . C PT R I, SU C PT R D, P RT 401
Reguatons 01, as amended, reatng to the empoyees ta and
the empoyers ta under Tte III of the Soca Securty ct, and
such reguatons as made appcabe to the Interna Revenue Code
by Treasury Decson 4 S5 C. . 1939-1 (Part), 396 , further
umended.
empton from ta aton under Tte III of the Soca Securty
ct and Chapter 9, Subchapter , of the Interna Revenue Code of
servces rendered pror to anuary 1, 1940, n the empoy of foregn
governments and certan of ther nstrumentates.
Washngton, D. C.
Part 401, Tte 26, Code of edera Reguatons , as amended, reat-
ng to the empoyees ta and the empoyers ta under Tte III of
the Soca Securty ct, and such reguatons as made appcabe to
the Interna Revenue Code by Treasury Decson 4 5, approved
ebruary 11, 1939 C. . 1939-1 (Part 1), 396 Part 465, Subpart
, of such Tte 26 , to secton 902(f) of the Soca Securty ct
mendments of 1939, approved ugust 10, 1939 (Pubc, No. 319.
Seventy-s th Congress, frst sesson), each of such reguatons are
further amended as foows:
(1) Immedatey after artce 13, as amended by Treasury Dec-
son 4 01, approved pr 2 ,193 C. . 193 -1, 37 secton 401.13.
Tte 26, Code of edera Reguatons , the foowng s nserted:
Secton 902(f) of the Soca Securty ct mendments of 1939.
No ta sha be coected under Tte III of the Soca
Securty ct or under the edera Insurance Contrbutons ct ,
wth respect to servces rendered pror to anuary 1, 1940, whch are de-
scrbed n subparagraphs (11) and (12) of sectons 1426(b)
of the Interna Revenue Code, as amended, and any such ta heretofore
coected (ncudng penaty and nterest wth respect thereto, f any),
sha be refunded n accordance wth the provsons of aw appcabe
n the cnse of erroneous or ega coecton of the ta . No nterest
Subchapter of Chapter 9 of the Interna Revenue Code s amended
by addng at the end thereof the foowng new secton:
Sec. 1432. Ths subchapter may be cted as the edera Insurance
Contrbutons ct.
ffectve anuary 1, 1940, secton 1426 of the Interna Revenue Code
Is amended to read as foows:
M When used n ths subchapter

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271 Regs. 91, rts. 13 and 504 .
(b) mpoyment. The term empoyment menns any servce per-
formed pror to anuary 1, t O, whch was empoyment as denned n
ths secton pror to such date, and any servce, of whatever nature,
performed after December 31, 1939, by an empoyee for the person em-
poyng hm, Irrespectve of the ctzenshp or resdence of ether, ( )
wthn the Unted States, or ( ) on or In connecton wth an mercan
vesse under a contract of servce whch s entered nto wthn the
Unted States or durng the performance of whch the vesse touches
at a port n the Unted States, If the empoyee s empoyed on and n
connecton wth such vesse when outsde the Unted States, e cept

(11) Servce performed n the empoy of a foregn government
(ncudng servce as a consuar or other offcer or empoyee or
a nondpomatc representatve)
(12) Servce performed n the empoy of an nstrumentaty
whoy owned by a foregn government
( ) If the servce s of a character smar to that per-
formed n foregn countres by empoyees of the Unted States
Government or of an nstrumentaty thereof and
( ) If the Secretary of State sha certfy to the S cretary
of the Treasury that the foregn government, wth respect to
whose Instrumentaty and empoyees thereof e empton s
camed, grants an equvaent e empton wth respect to
smar servce performed n the foregn country by empoyees
of the Unted States Government and of nstrumentates
thereof
rt. 13 Sec. 401.13 , Tte 26, Code of edera Reguatons . |remptton
from ta aton of servces performed n the empoy of foregn governments and
certan of ther nstrumentates. (a) Servce performed n, the empoy of a
foregn government. Servce performed n the empoy of a foregn government
s not sub|ect to the ta es. The e empton embraces not ony servces per-
formed by ambassadors, mnsters, and other dpomatc representatves but
aso ncudes servces performed as a consuar or other offcer or empoyee of a
foregn government or as a nondpomatc representatve thereof. or purposes
of the e empton, the ctzenshp of the empoyee s mmatera. It s aso
mmatera whether the foregn government grants an equvaent e empton
wth respect to smar servces performed n the foregn country by ctzens
of the Unted States.
(6) Servce performed n the empoy of certan nstrumentates of foregn
governments. Servce performed n the empoy of certan nstrumentates of
a foregn government s kewse not sub|ect to the ta es. The e empton
e tends to a servces performed n the empoy of an Instrumentaty of the
government of a foregn country, wthout dstncton between those e ercsng
functons of a governmenta nature and those e ercsng functons of a pro-
pretary nature, provded:
(1) The nstrumentaty s whoy owned by the foregn government
(2) The servces are of a character smar to those performed n foregn
countres by empoyees of the Unted States or of an nstrumentaty thereof
and
(3) The Secretary of State certfes to the Secretary of the Treasury that
the foregn government wth respect to whose nstrumentaty and empoyees
thereof e empton s camed, grants an equvaent e empton wth respect to
servces performed n the foregn country by empoyees of the Unted States
Government and of nstrumentates thereof.
or purposes of ths e empton the ctzenshp of the empoyee s kewse
mmatera.
of edera Reguatons , the foowng s nserted:
Securty ct or under the edera Insurance Contrbutons ct ,
wth respect to servces rendered pror to anuary 1, 1940, whch are
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Regs. 91, rts. and 504 .
272
descrbed In subparagraphs (11) and (12) of sectons 1426(b)
sha be refunded n accordance wth the provsons of aw appcabe
n the case of erroneous or ega coecton of the ta . No Interest
rt. 504 Sec. 401.504 ,, Tte 26, Code of edera Reguatons . Refnn
under secton 902(f) of the Soca Securty ct mendments of 1939. ny ta
(ncudng nterest or penaty, f any) pad wth respect to servces rendered
pror to anuary 1, 1940, whch are descrbed n paragraph (11) or (12) of
secton 1426(b) of the edera Insurance Contrbutons ct, as amended by sec-
ton 606 of the Soca Securty ct mendments of 1939 (see artce 13 sect
401.13 / , Tte 20, Code of edera Reguatons, 1930 Sup. ), may be refunded to
the person who pad the amount of such ta to the coector. No nterest sha be
aowed or pad by the Government on the amount of any such refund. rer|
cam for such refund sha be made on orm -13 n accordance wth the pmr-
sons of ths artce and artce 504 secton 401.504, Tte 26, Code of edera:
Reguatons , reatng to credt or refund of overpayments whch are not ad|ust-
abe. cam whch does not compy wth these requrements w not be
consdered for any purpose as a cam for refund.
secton 0 of the Soca Securty ct (49 Sat., 63 42 U. S. C, Sup.
I , 100 ), and sectons 1429 and 3791 of the Interna Revenue Code
(53 Stat., Part 1) and nterprets secton 902(f) of the Soca Securty
ct mendments of 1939 (Pubc, No. 379, Seventy-s th Congress,
frst sesson) and secton 1426(b) (11) and (12), of the edera In-
surance Contrbutons ct, as amended by secton 606 of such Soca
Securty ct mendments of 1939.)
Gut T. everng,
ohn W. anes,
( ed wth the Dvson of the edera Regster September 7, 1939, 11.06 a. a.)
Reguatons 91, rtces 13 and 504 . 1939-39-10031
( so Soca Securty ct, Tte III.) T. D. 4941
TITL 26 INT RN L R NU . Cn PT R I, SU C PT R D. P RT 401 SU -
C PT R , P RT 465, SU P RT .
Reguatons 91, as amended, reatng to the empoyees ta and
the empoyers ta under Tte III of the Soca Securty ct,
and such reguatons as made appcabe to the Interna Revenue
Code by Treasury Decson 4 5 C. . 1939-1 (Part 1), 396 , further
amended.
empton from ta aton under Tte III of the Soca Securty
ct and the edera Insurance Contrbutons ct (Chapter 9,
Subchapter , of the Interna Revenue Code) of certan servces
rendered pror to anuary 1, 1940, n savagng tmber and cearng
debrs eft by a hurrcane.
Washngton, D. C.
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273 Regs. 91, rts. 133 and 504 .
Tg to the empoyees ta and the empoyers ta under Tte III
the Soca Securty ct, and such reguatons as made appcabe
bo the Interna Revenue Code by Treasury Decson 4 5, approved
ebruary 11, 1939 C. . 1939-1 (Part 1), 396 Part 465, Sub-
part , of such Tte 26 , to secton 2 of the ct approved ugust 11,
1939 (Pubc, No. 400, Seventy-s th Congress, frst sesson), entted
n ct to provde for the refund or credt of the nterna-revenue
ta pad on sprts ost or rendered unmarketabe by reason of the
foods of 1936 and 1937 where such sprts were n the possesson of the
orgna ta payer or rectfer for bottng or use n rectfcaton under
Government supervson as provded by aw and reguatons, each of
such reguatons are further amended as foows:
(1) Immedatey precedng sectons 11(a) and 1101(c) of the
Soca Securty ct quoted mmedatey precedng artce 14 sec-
ton 401.14, Tte 26, Code of edera Reguatons , the foowng a
nserted:
Secton 2 of the ct npproved ugust 11. 10 . ) (Pubc, No. 400, Seventy-ssrh
Securty ct or under the edera Insurance Contrbutons ct
wth respect to servces rendered pror to anuary 1. 1940, n the em-
poy of the owner or tenant of and, n savagng tmber on such and
or cearng such and of brush and other debrs eft by a hurrcane
and any such ta heretofore coected (ncudng penaty and nterest
wth respect thereto, f any), sha be refunded n accordance wth the
provsons of aw appcabe n the case of erroneous or ega coecton
of the ta . No nterest sha be aowed or pad on the amount of any
such refund.
rt. 13 Sec. 401.13 , Tte 26. Code of edera Reguatons . empton
from ta aton of servces performed n savagng tmber and cearng debrs
eft bp a hurrcane. Certan servces performed n savagng tmber and cear-
ng and of brush and other debrs eft by a hurrcane are not sub|ect to .the
ta es. In order to be e empted from the ta es the servces must be performed:
(1) Pror to anuary 1, 19-10 and
(2) s an empoyee of the owner or tenant of and on whch a hurrcane
has eft brush or other debrs, or tmber n need of savagng by reason of
such hurrcane and
(3) In cearng such and of such brush or other debrs, or n savagng
such tmber.
(2) Immedatey precedng secton 06 of the Soca Securty ct
quoted mmedatey precedng artce 505 secton 401.505, Tte 26,
Code of edera Reguatons , the foowng s nserted:
Secton 2 of the ct approved ugust 11. 1030 (Pubc, No. 400, Seventy-s th
Securty ct or under the edera Insurance Contrbutons ct
wth respect to servces rendered pror to anuary 1, 1940, n the empoy
of the owner or tenant of and, n savagng tmber on such and or
cearng such and of brush and other debrs eft by a hurrcane and
any such ta heretofore coected (ncudng penaty and nterest wth
respect thereto, f any), sha be refunded n accordance wth the prov-
sons of aw appcabe n the case of erroneous or ega coecton of
the ta . No nterest sha be aowed or pad on the amount of any
such refund.
rt. 504 TSec. 401.504 , Tte 26, Code of edera Reguatons . Refund
under secton 2 of the ct approved ugust It, 1930. ny ta (ncudng
nterest or penaty, f any) pad wth respect to servces rendered pror to
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Regs. 91, rt. 3.
274
anuary 1, 1940, whch are descrbed In secton 2 of the ct approved ugust
11, 1939 (Pubc, No. 400, Seventy-s th Congress, frst sesson), may be re
funded to the person who pad the amount of such ta to the coector. ( e
artce 13 secton 401.13 , Tte 26, Code of edera Reguatons, 10
Sup. .) No nterest sha be aowed or pad by the Government on the anwam
of any such refund. very cam for such refund sha be made on orm S
In accordance wth the provsons of ths artce and artce 504 secton
401.504, Tte 20, Code of edera Reguatons , reatng to credt or refmd
of overpayments whch are not ad|ustabe. cam whch does not eom|ur
wth these requrements w not be consdered for any purpose as a ehm
for refund.
(Ths Treasury decson s ssued under the authorty contaned
n secton 0 of the Soca Securty ct (49 Stat, 63 42 U. S. C.
Sup. I , 100 ), and sectons 1429 and 3791 of the Interna Reran
Code (53 Stat, Part 1).)
Guy T. evebno,
ohn W. anes,
( ed wth the Dvson of the edera Regster September 22, 1939, 12.52 p. u.)
Secton 1426: Defntons. 1939-31-993
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 370
( so Subchapter C, Secton 1607 Reguatons 90, rtce 205.)
, a research assocate conductng scentfc research at the
Natona ureau of Standards for the M Insttute, s an empoyee
of that nsttute for the purpose of Subchapters and C, Chapter
9, of the Interna Revenue Code (formery Ttes III and I of
the Soca Securty ct).
dvce s requested whether , a research assocate conductng
scentfc research at the Natona ureau of Standards for the M
Insttute, an ndustra assocaton whch empoys severa hundred
persons, s an empoyee of that nsttute for purposes of the ta es
mposed under Subchapters and C, Chapter 9, of the Interna
Revenue Code (formery Ttes III and I of the Soca Securt|
ct).
It s stated that under authorty of an ct of Congress research
factes of the Natona ureau of Standards are made avaabe
to scentsts representng technca and ndustra groups, sub|ect to
such rues and restrctons as the Drector of the ureau may pre-
scrbe. The M Insttute, beng desrous of obtanng for ts member-
shp the benefts of technca research n a certan fed of budnfr
constructon, submtted to the Drector of the ureau of Standard
a pan of proposed research actvtes n the partcuar fed. Such
pan havng been approved by the Drector, the M Insttute engaged
, a scentst wth the requste tranng and background for te
partcuar type of work, at an annua saary of doars, to conduct
research pursuant to the pan. Upon hs appontment as a researc
assocate, became sub|ect to the rues and reguatons of the
ureau and aso became entted to many of the rghts and prreges
whch accrue to members of ts staff. owever, he dd not take an
oath of offce, s not n any way sub|ect to cv servce requrements
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275
Regs. 91, rt. 3.
as a Government empoyee, and s requred to be covered by the M
Insttute by workmen s compensaton nsurance. though s re-
search actvtes are sub|ect to genera supervson by the ureau
of Standards, he s not consdered by that ureau to be ts empoyee,
That ureau does not determne or pay the amount of hs saary.
ach month a progress report s made to the M Insttute for ts
nformaton and the resuts of s research are submtted to the
nsttute for comment pror to ther pubcaton.
Under Subchapters and C, Chapter 9, of the Interna Revenue
Code, the reatonshp of empoyer and empoyee 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
accompshed by the work but aso as to the detas and means by whch
that resut s accompshed. ( rtce 3, Reguatons 91 artce 205,
Reguatons 90 T. D. 4 5, C. . 1939-1 (Part 1), 396.)
rom the facts presented t s apparent that s sub|ect to such
contro over the manner n whch hs servces are performed as to
consttute hm an empoyee. owever, even though the Natona
ureau of Standards e ercses genera supervson over s actvtes
under ts reguar admnstratve practces, t can not be sad that he
s an empoyee of that ureau. e was engaged by the M Insttute
and one of the condtons of hs empoyment was that, by reason of the
fact that hs research actvtes woud be carred on at the Natona
ureau of Standards under an estabshed pan of procedure, he must
conform to ts rues and reguatons. It s cear that the M Insttute
has retaned the rght, through the ureau, to e ercse contro over
s actvtes. ccordngy, t s hed that , the research assocate
of the M Insttute at the Natona ureau of Standards, s an empoyee
of that nsttute for the purpose of Subchapters and C, Chapter 9,
of the Interna Revenue Code (formery Ttes III and I of the
Soca Securty ct).
( so Subchapter C, Secton 1607 Reguatons
90, rtce 205.)
, a busness anayst and consutant, performng servces for the
O Corporaton pursuant to the terms of a wrtten agreement, s an
empoyee of that corporaton wthn the meanng of Subchapters
and C, Chapter 9, of the Interna Revenue Code (formery Ttes
III and I of the Soca Securty ct).
dvce s requested whether , a busness anayst and consutant,
performng servces for the O Corporaton, s an empoyee of that cor-
poraton wthn the meanng of Subchapters and C, Chapter 9, of
the Interna Revenue Code (formery Ttes III and I of the
Soca Securty ct).
Under a wrtten agreement dated May , 1939, the O Corporaton
engaged , a busness anayst and consutant, to anayze the fnanca
condton of the corporaton as requested and to advse t wth respect
to the possbtes of payng dvdends, the estabshment of speca
funds for annutes, deprecaton, nsurance, and contngences. e
aso acts as ason offcer between the corporaton and the auaton
Dvson of the Interstate Commerce Commsson. consderabe
porton of hs tme s devoted to the deveopment of pans and proced-
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Regs. 91, rt. 3.
276
ures whch w coordnate the standard accountng procedure estab-
shed by the Interstate Commerce Commsson wth reports requred
annuay by that Commsson for vauaton purposes. owever, any
pans, procedures, or fnanca poces advanced by are sub|ect to
the revew and approva of the offcers of the corporaton.
Under the terms of the agreement, whch may be termnated by
ether party gvng 30 days notce, s engaged on an annua
retaner bass, the amount of such retaner beng pad n monthy
payments. e agrees to hod hmsef avaabe for servces on certan
specfc days durng each caendar month, and he devotes appro -
matey three-fourths of hs tme to the company s affars. Durng that
tme he s furnshed a desk and stenographer at the genera offce of
the corporaton and keeps reguar offce hours. The stpuated fee f
not ncreased to cover reasonabe overtme servces, and on occasons
when he must render e pedtous servces to other concerns whch he
represents, he retans the rght to devote not more than three days n
any monthy perod to such dutes wthout a reducton n hs fee.
The corporaton pays a traveng and other e penses ncurred by
n connecton wth servces performed outsde the cty where the gen-
era offce of the corporaton s ocated. hods hmsef out to the
pubc as a busness anayst as we as a consutant n reorganzaton
and fnance, capta constructons, and edera ta matters, and
operates from hs home wth respect to servces performed for
concerns other than the O Corporaton.
Code (formery Ttes III and I of the Soca Securty ct), the
reatonshp o empoyer and empoyee e sts when the person for
whom servces are performed has the rght to drect and contro the
person who performs the servces not ony as to the resut to be
accompshed by the work but aso as to the detas and means by
whch that resut s accompshed. ( rtce 3, Reguatons 91 artce
205, Reguatons 90: T. D. 4 5, C. . 1939-1 (Part 1), 396.)
In vew of the above provsons of the reguatons and under the
facts presented n ths case, t s hed that the O Corporaton
e ercses, or has the rght to e ercse, over the drecton and contro
contempated by the reguatons as beng necessary to estabsh the
ega reatonshp of empoyer and empoyee. ccordngy, s an
empoyee of that corporaton wthn the meanng of Subchapters
III and I of the Soca Securty ct).
Secton 1426: Defntons. 1939-36-999S
Reguatons 91, rtce 3: Who are empoyees. Mm. 4767 (Rev.)
( so Subchapter C, Secton 1607 Reguatons 90,
rtce 205.)
Informaton requred for rungs as to whether saes agents are
empoyees for empoyment ta purposes.
Washngton, D. C, ugust 1, 1939.
s orgnay wrtten, Mmeograph 4767, dated May 17, 193 C. .
193 -1, 420 , was ntended, among other thngs, to be attached to
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277
Regs. 91. rt. 3.
orm SS- , for the nformaton of persons to -whom the form was
gven to prepare and forward to the ureau for the purpose of ob-
tanng a rung as to whether a saes agent s an empoyee for the
purposes of the empoyment ta es mposed under Chapter 9, Sub-
chapters and C, of the Interna Revenue Code (formery Ttes
III and I , respectvey, of the Soca Securty ct). That part of
the te t of the orgna mmeograph, consstng of a quotaton of part
of artce 3 of Reguatons 91 and e panatons regardng the nfor-
maton requred, has been ncorporated n a statement whch w be
attached to orm SS- , as revsed. suppy of the revsed form
wth statement attached w be furnshed coectors at an eary date.
In response to nqures as to whether a certan saes agent s an
empoyee wthn the meanng of artce 3 of Reguatons 91, or artce
205 of Reguatons 90, coectors shoud, when the nformaton gven
n the frst nstance s nsuffcent for a determnaton, request the n-
qurer to f out orm SS- . (Two copes shoud be furnshed, one
to be retaned by the nqurer.) If, after consderng a the nforma-
ton submtted n the ght of the reguatons and ureau rungs,
the status of the saes agent s cear, the coector may gve the n-
qurer an opnon n the matter. owever, f the coector s doubt-
fu as to the status of the saes agent, he shoud transmt orm
SS- and a reated documents and correspondence to the ureau
wth a request that a rung be made and forwarded to hm. Upon
recept of the rung, the coector w forward a carbon copy to the
nqurer and retan the orgna copy for hs fes.
Correspondence n regard to the contents of ths mmeograph
shoud refer to ts number and to the symbos C.
arod N. Graves,
ctng Commssoner.
orm SS- . Treasury Department, Interna Revenue Servce. (Revsed uy, 1939.)
uestonnare fob Use n Securno Rung rom ureau of Interna Rev-
enue on Status of Saes gents Under Chaptkb 9, Subchapters and C, ov
the Interna Revenue Codr ( ormery Ttes III and I of the edera
Soca Securty ct).
nstructons.
. efore fng out ths questonnare read carefuy the nformatory state-
ment attached hereto.
. nswers to a questons shoud be fu and compete. Whe Yes
or No answers may be used where approprate, f a compete answer requres
some further e panaton and the space furnshed s Insuffcent, a suppementa
statement makng reference to the number of the queston nvoved shoud be
prepared and submtted wth the form. It s ony through the submsson of
compete, cear, and specfc evdence that the ureau can assst ta payers n
meetng any requrements that may be mposed upon them by the aw. Carefu
compance wth tht nstructon c obvate much unnecessary correspondence
and greaty factate the ssuance of a rung.
C. Partcuar attenton s nvted to questons 3, 4, and 11. These questons
are of the utmost mportance. They shoud be read very carefuy and an-
swered n a fu and comprehensve manner.
D. s used n ths questonnare
(1) The term frm ncudes an ndvdua, a corporaton, a partnershp,
an assocaton, or any other form or type of busness organzaton
(2) The term agent or saes agent ncudes ndvduas desgnated as
saesmen, fed representatves, dstrbutors, deaers, etc.
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Regs. 91, rt. 3.)
27
. copes of contracts and other data submtted as a part of ths ques-
tonnare become a part of the records of the ureau and may not be returned.
1. (a) Name of frm for whom agent performs servces
(6) ddress
(c) Nature of frm s busness
2. (a) Name of saes agent on whose status ths rung s requested
(6) ddress
3. (a) If the. agent performs hs servces under a forma wrtten contract.
attach a certfed or photostatc copy of the actua e ecuted contrad,
together wth any suppementa agreements, rders, etc., that may be
n effect.
(5) If no forma wrtten contract e sts but the servces of the agent were
arranged for through an nterchange of etters or teegrams, cert|U
or photostatc copes of such etters or teegrams shoud be furnshed,
(c) In the event the agreement was arrved at oray, the compete under-
standng of the partes, Incudng a fu statement of the date, terms,
and condtons of the agreement, shoud be reduced to wrtng sdc
submtted.
4. ttach copes of a saes or nstructon manuas, statements of rues, drec-
tons or poces, record or report forms, wth whch the agent s furnshed
and whch he s requred to foow or use. If none are furnshed, pease
ndcate that fact.
5. Is the agent requred to devote any partcuar amount of tme to the frm s
busness If so, state how much and whether he must conform
to f ed hours of servce
6. (a) Does the frm requre the agent to canvass an assgned terrtory wthn
any partcuar tme or wth specfed frequency
(6) Is the agent requred to foow saes routes or schedues prescrbed by
the frm
(c) Is the agent ever requred to ca on partcuar customers or prospects
whose names are furnshed by the frm If so, under what
crcumstances
7. Does the frm ever requre the agent to submt wrtten reports
If so, e pan fuy ther nature and purpose, ndcatng the frequency wth
whch they are furnshed, and whether they may be had by the rm on
demand
. Is the agent ever requred to report personay to the frm or to any of ts
branch offces at any tme If so, for what purpose
9. To what e tent, f any, does the frm requre the agent to perform other
servces for t, such as the coecton of accounts, the nvestgaton of
compants or credt ratngs, the makng of ad|ustments, etc.
10. Is the agent ever requred to attend saes meetngs, conferences, consuta-
tons, etc. If so, for what purpose
11. pan fuy the specfc nature of any other nstructons or restrctons to
whch the agent s sub|ect n the conduct of hs seng actvtes. If
there are none, pease ndcate that fact
12. Is the agent requred to be censed n order to engage n hs seng actv-
tes If so, furnsh a reference to the State or edera aw mposng
ths requrement
13. To what e tent, f any, does the frm furnsh the saes agent wth any
factes such as an offce, desk space, teephone, transportaton, adver-
tsng matera, etc.
14. To what e tent, f any, does the frm bear any part of the e penses ncurred
by the agent n hs seng actvtes
15. Is the agent requred to refran from engagng n other empoyment whe
performng servces for the frm If not, ndcate to what e tent
he s engaged n other actvtes. (Gve detas, and, f known, the names
and addresses of any other frms for whch he performs servces.)
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279 Regs. 91, rt. 3.
16. (a) In what manner Is the agent compensated
(6) If by commsson, s the agent aowed a drawng account or advance
of any knd aganst unearned commssons If so, e pan.
17. (a) Under what crcumstances and for what reasons s the agent sub|ect to
dscharge by the frm
(6) May the agent termnate hs servces at any tme
1 . (a) Does the agent engage hepers to assst hm In the performance of hs
dutes, such as other agents, cerks, stenographers, etc.
(6) If so, are they hred wth the knowedge and consent of the frm
(c) May they be dscharged by the frm
( f) re they pad drecty by the frm
19. To the frm s knowedge, has any agent, or the estate of any such agent,
ever fed a cam for od age nsurance or ump-sum payment wth the
edera Soca Securty oard If so, specfy name, address,
and account number of agent, and, f known, dsposton of cam.
20. as the status of the agent, or that of any other agent performng smar
servces for the frm, ever been the sub|ect of a court acton or been rued
upon by any State unempoyment compensaton agency (If so, dentfy
the proceedng or State agency and attach copes of any decsons or
rungs that were ssued.)
21. Obtan from the agent, ether on the reverse of ths sheet or on a suppe-
menta sheet, a statement to the effect that he has been afforded an
opportunty to read and e amne the answers to ths questonnare (ncud-
ng any contracts, rues and reguatons, and other data submtted as a
part hereof) and that he has found a representatons made by the frm
wth respect to the crcumstances under whch he performs hs servces
true and correct to the best of hs knowedge and beef.
Informaton Requred to be Submtted to the ureau op Interna Revenue
rN Order to Obtan a Rung as to Whether Saes gents re mpoyees
for edera mpoyment Ta Purposes.
The reguatons of the ureau of Interna Revenue appcabe n determnng
whether a saes agent s an empoyee for the purposes of the empoyment ta es
mposed under Chapter 9, Subchapters and C, of the Interna Revenue Code
(formery Ttes III and I , respectvey, of the edera Soca Securty ct)
are the reguatons defnng the empoyer-empoyee reatonshp generay.
rtce 3 of Reguatons 91, reatng to the empoyees ta and the empoyers
ta under Tte III of the Soca Securty ct, and such artce as made
appcabe to the Interna Revenue Code by Treasury Decson 4 3, approved
ebruary 11, 1939 C. . 1939-1 (Part 1), page 3 6 , provdes n part as foows:
very ndvdua s an empoyee wthn the meanng of Tte III of the ct
If he performs servces In an empoyment as defned n secton 11(b) .
owever, the reatonshp between the person for whom such servces are
performed and the ndvdua who performs such servces must as to those
servces be the ega reatonshp of empoyer and empoyee. Generay such
reatonshp e sts when the person for whom servces are performed has the
rght to contro and drect the ndvdua who performs the servces, not ony
as to the resut to be accompshed by the work but aso as to the detas and
means by whch that resut Is 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 m-
portant 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. In genera, f an ndvdua s sub|ect to
the contro or drecton of another merey as to the resut to be accompshed
by the work and not as to the means and methods for accompshng the resut,
he s an ndependent contractor. n ndvdua performng servces as an
ndependent contractor s not as to such servces an empoyee.
Generay, physcans, awyers, dentsts, veternarans, contractors, subcon-
tractors, pubc stenographers, auctoneers, and others who foow an Independent
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Regs. 91, rt. 3.
2S0
track , busness, or professon, In whch they offer ther servces to the pubc,
are Independent contractors and not empoyees.
Whether the reatonshp of empoyer and empoyee e sts w n doubtfu
cases be determned upon an e amnaton of the partcuar facts of each case.
If the reatonshp of empoyer and empoyee e sts, the desgnaton or
descrpton of the reatonshp by the partes as anythng other than that of
empoyer and empoyee s mmatera. Thus, If such reatonshp e sts, t s
of no consequence that the empoyee s desgnated as a partner, eoadventurer,
agent, or ndependent contractor.
The measurement, method, or desgnaton of compensaton s aso mma-
tera, f the reatonshp of empoyer and empoyee n fact e sts.
rtce 205 of Reguatons 90, reatng to the e cse ta on empoyers of eg
or more under Tte I of the Soca Securty ct, and such artce as made
appcabe to the Interna Revenue C de by Treasury Decson 4SS5, contans
substantay the same provsons.
The status of saes agents for purposes of the ta es mposed under Chapter 9,
Subchapters and C, of the Interna Revenue Code s governed generay b|
the provsons of the reguatons set forth above. s w be noted, the qnesrca
whether the reatonshp of empoyer and empoyee e sts n doubtfu cases
nvovng servces performed by such agents must be determned upon an
e amnaton of the partcuar facts of each case.
ccordngy, n any case where a frm (Incudng, for purposes of ths In-
formatory statement, an Indvdua, a corporaton, a partnershp, an assocatrm,
or any other form or type of busness organzaton) desres a rung as to
whether ts saes agents are empoyees wthn the purvew of artces 3 am
205 of Reguatons 91 and 90, respectvey, the nformaton ndcated n the at-
tached questonnare ( orm SS- ) shoud be submtted by the frm or by ts
attorney or other representatve who s enroed to practce before the Treasnry
Department and who has fed wth the ureau a proper power of attorney.1
The competed questonnare shoud be returned to the coector of Interna
revenue for the dstrct n whch the frm s edera empoyment ta returns
are fed f t was obtaned from that offce wth a request that t be com-
peted and returned. Otherwse, t shoud be forwarded to the Commssoner
of Interna Revenue, Washngton, D. C, ttenton: C :RR. The nformaton
submtted shoud not reate to the frm s agents generay but rather to a
partcuar saes agent whose status s typca of the frm s agents as a cass.
If the frm has more than one cass of agents, separate questonnares shoud
be submtted wth respect to partcuar ndvduas, whose status s typca of
each such cass. rung made n the case of any such ndvdua w have
appcaton n the case of other saes agents of the same cass, provded, the
facts n the case of such other agents do not dffer n any matera respect
from the facts n the case of the agent upon whose status the rung s ssued.
If an agent desres a rung as to whether he s an empoyee, he shoud
f out the questonnare to the best of hs knowedge and beef, and submt
any suppementa nformaton whch he may beeve to be matera. If the
agent performs servces for more than one frm, a separate questonnare
shoud be submtted wth respect to each such frm.
ddtona copes of the questonnare may be obtaned from any coector of
nterna revenue.
Secton 1426: Defntons. 1930-3 -10O22
90, rtce 205.)
Status under Subchapters and C, Chapter 9, of the Interna
Revenue Code (formery Ttes III and I of the Soca Securty
ct) of , an orchestra eader, and muscans engaged by hm.
dvce s requested whether , an orchestra eader, who contracts
wth varous purchasers of musc to furnsh them wth the servces
of hs orchestra, s the empoyer of the members of the orchestra
1 Inqures reatng to enroment and power of attorney requrements shoud be
addressed to the Commssoner of Iuterna Revenue, Washngton, D. C, ttenton: Pub.
e.: P .
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2 1
Regs. 91, rt. 3.
wthn the meanng of Subchapters and C, Chapter 9, of the In-
terna Revenue Code (formery Ttes III and I of the Soca
Securty ct) or whether both he and the members of hs orchestra
are empoyees of the respectve purchasers of musc.
The organzaton conducted by s varousy known as and hs
Orchestra, and hs and, and by other smar desgnatons. The
orchestra s not mantaned as a unt e cept when perormng an en-
gagement. Upon the termnaton of an engagement, there remans
a nuceus of muscans, sometmes sma, sometmes arge, who com-
prse part of the orchestra conducted by durng the succeedng
engagement. Members of the orchestra are not requred to gve pref-
erence to any engagement contracted for by . Some of the mem-
bers of the orchestra have been wth for appro matey a month
and others have been wth hm at varous tmes over a perod of 10
years. Occasonay, a purchaser of musc has specfed that the
personne of the orchestra engaged by hm must be the same as that
whch e sted durng some pror engagement performed ether for
hm or for another purchaser. The orchestra s usuay composed
of 14 persons, ncudng , and a are members of the mercan ed-
eraton of Muscans. The orchestra traves from pace to pace and
occasonay an engagement requres e tra muscans, who are engaged
by for the perod of the partcuar engagement and at ts concuson
are dsmssed. The rues of the federaton requre that a member of a
traveng orchestra gve the eader two weeks notce of hs wth-
drawa uness, of course, the member was engaged for ess than two
weeks. The eader kewse s requred to gve a member two weeks
notce of hs dscharge. purchaser has the rght to termnate
hs contract wth n the event of a matera breach thereof.
The members of the orchestra are not pad f ed saares nor are
they guaranteed a mnmum saary or a mnmum amount of work.
Under the rues of the federaton, s not responsbe for the pay-
ment of the other members of the orchestra uness the purchaser
has dscharged hs contractua obgaton to . The ump sum stpu-
ated n the contracts generay s turned over by the purchaser
to , who pays each member of the orchestra hs weeky wages for hs
hours of servce, pays such e penses as the commsson of the book-
ng agency and the cost of musca arrangements, and retans the
baance. The remuneraton pad to the members of the orchestra s
not the same from week to week, but s governed argey by the scae
prescrbed by the oca unon n whose |ursdcton an engagement
s performed. Sometmes when the scae prescrbed by a partcuar
oca unon s very ow, the members are pad n e cess of that
scae. Remuneraton s not pad to members of the orchestra for
perods durng whch ther servces are not requred. pays no
persona e penses of the muscans e cept transportaton, whch the
federaton reguatons requre that the eader pay and whch s taken
nto consderaton n determnng the prce charged the purchaser.
. has a contnung contract wth the M Corporaton, a bookng
agency, under the terms of whch the M Corporaton, for a f ed
percentage of the contract prce, acts as hs agent n obtanng en-
gagements for the orchestra and pannng ts trps. Generay, the
bookng agent submts the names of a number of orchestras, for
209106 40 10
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Regs. 91, rt. 3.
2 2
whch t s actng as agent, to a purchaser, who seects the one
whch he deems best suted to hs estabshment.
On ugust 31, 1937, the ureau ssued Mmeographed 4651 (C. .
1937-2, 3 9), the second paragraph of whch reads as foows:
The purpose of ths mmeograph s to carfy the matter of the appcaton
of the soca securty ta es wth respect to the reatonshp whch e sts between
so-caed contractors, muscans, and purchasers of musc, and tosetfort
certan dstnctons between so-caed nonname orchestras and nam
orchestras.
Other portons of the mmeograph dstngush between name
and nonname orchestras and set out the facts whch w usuay
be found to e st wth respect to the rendton of servces by each type
of orchestra. It s then stated that n cases smar to those outbs
n the mmeograph t w usuay be true that the reatonshp t -
tween the purchaser of a nonname orchestra s servces and botb
the eader and members of the orchestra w be that of empoyer and
empoyee, whe n the cases of name orchestras t w usuay be
found that the members are empoyees of the eader.
The concusons reached n the mmeograph are appcabe wth
regard to stuatons smar to those outned theren. owever,
such concusons are predcated upon the e stence of certan fact
whch the mmeograph states w generay be found to e st| facts
reatng to the organzaton of the orchestras, and facts reatng to
the crcumstances under whch engagements are performed. Same
orchestras are so organzed and conducted that they may not be
cassfed as name or nonname orchestras wthn the meanng
of the mmeograph, whe others, though they may be cassfed s
name or nonname orchestras because of the manner n whch
they are organzed, perform servces under crcumstances dssmar
to those outned n the mmeograph. In such cases, prmary reance
may not be paced upon the provsons of the mmeograph.
Code, the reatonshp of empoyer and empoyee e sts when the
person for whom servces are performed has the rght to contro and
drect the ndvduas who perform the servces not ony as to the
resut to be accompshed by the work but aso as to the detas and
means by whch that resut s accompshed. ( rtce 3, Reguatons
91 artce 205, Reguatons 90 T. D. 4 5, C. . 1939-1, (Part 1),
396.) Mmeograph 4651, supra, s ntended ony as an ad to be used n
appyng the tests set out n the reguatons to stuatons nvovng
the performance of servces by orchestras. In determnng who s
the empoyer of the members of an orchestra durng a partcuar en-
gagement, t s necessary to determne who has retaned the rght to
contro and drect the orchestra not ony as to the resut to be accom-
pshed by the work but aso as to the detas and means by whch
that resut s accompshed, and the answer to ths queston n any
case depends upon the facts presented n that case n the ght of the
reevant portons of the reguatons. It s essenta that each case
be consdered separatey. The eader and members of an orchestra
may a be empoyees of the purchaser n vew of the facts shown
to e st n connecton wth one engagement and the same ender may
be an ndependent contractor and the members of the orchestra hs
empoyees under the facts of another engagement.
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Regs. 91, rt. 3.
In consderng stuatons nvovng orchestras, not ony must the
reatonshp e stng between the purchaser and the orchestra be
consdered, but due consderaton must aso be gven to the reaton-
shp e stng between the eader and the members of the orchestra.
In the present case, the reatonshp between 13 and the members of
hs orchestra w be consdered frst.
The organzaton conducted by s not a permanent one, athough
there s a certan nuceus whch generay forms a part or t when-
ever t pays. The orchestra s not mantaned as a unt e cept when
performng an engagement. That some form of agreement e sts
between and the members of the orchestra s evdenced by the fact
that the members are engaged by to pay for the dfferent engage-
ments, that the saares pad by at tmes e ceed the unon scae,
and that may dscharge any member of the orchestra by gvng
hm two weeks notce. Ordnary, the servces of the orchestra are
pad for by a ump sum, out of whch pays the varous members of
the orchestra. rom the remanng porton of ths sum, pays cer-
tan e penses and retans the baance. It s evdent that to an e tent
he contros the amount of hs own compensaton. No other member
of the orchestra can nterfere wth s dscreton n ths regard. or
hs representatve (sgnng for hm) sgns the contract obgatng
the orchestra to perform an engagement. Ordnary the members of
the orchestra are not named t s merey stated that the orchestra s
to be composed of a specfed number of muscans. The pur-
chaser does not know the names of the men n the orchestra nor
the amount of compensaton pad to each. Such matters are ar-
ranged between and the muscans he engages. has compete
dscreton n seectng the muscans. though the fact that s
not abe tc the muscans for the payment of ther saares uness
the purchaser has dscharged hs contractua obgaton to s
evdence ndcatng there may be no empoyer and empoyee reaton-
shp between the partes, t s not, n and of tsef, determnatve of
the queston and must be consdered n connecton wth a other
crcumstances.
Consderaton of the foregong ndcates that e ercses, or has
the rght to e ercse, that degree of contro over the manner n
whch the orchestra members are to perform ther servces whch s
contempated by artce 3 of Reguatons 91 and artce 205 of Regu-
atons 90, and that, consequenty he s the empoyer of the members
of the orchestra wthn the meanng of Subchapters and C, Chap-
ter 9, of the Interna Revenue Code (formery Ttes III and I
of the Soca Securty ct), uness, under the terms of the contract
entered nto by hm, he has so surrendered the rght of contro over
the mamer n whch the servces are rendered as to make the
purchaser the empoyer of both and the members of the
orchestra.
The orchestra has performed servces for varous purchasers
under dfferent types of contracts. Contracts contanng smar
provsons w be dscussed together.
1. Contracts negotated by the M Corporaton, a bookng agency.
(a) Short form contracts: These contracts are substantay dentca.
They are emboded n the same prnted form and dffer ony wth
respect to the typed-n portons whch set out the hours for pay.
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Regs. 91, rt 3.)
2 4
The attracton s desgnated as and s Orchestra, -whch s
to be composed of a specfed number of muscans, and the pur-
chaser s desgnated as the empoyer. The date, ocaton, and
hours of pay of the engagement are set out, and the orchestra agrees
to broadcast at the drecton of the management. of these con-
tracts are sgned by or hs representatve n hs behaf. Tn
members of the orchestra are not named and the remuneraton for
the servces of the orchestra s to be pad weeky to or hs repre-
sentatve n a ump sum. In one of these contracts, agrees to
dever the same orchestra on openng date that was contracted for
at the date of the contract. These engagements vary n ength from
one week to four weeks and the contracts were entered nto, respec-
tvey, wth an amusement park, a hote, and a baroom.
It appears from the terms of the contracts that these purchasers1
engage a compete musca unt, the members of whch have been
engaged and rehearsed by . The purchasers rey on to brn
an organzaton capabe of producng s quaty of musc. There
are no provsons n the contracts ndcatng that the purchaser
has retaned any substanta degree of contro over the manner n
whch the servces are to be rendered, nor s there any bass, under
the terms of the contracts or the crcumstances of the engagements,
for concudng that s actng as agent of the respectve pur-
chasers n hrng the muscans and conductng and managng the
orchestra. The fact that the horn s of pay are desgnated and that
the orchestra agrees to broadcast at the drecton of the purchaser
does not ndcate that the purchaser has retaned contro. These
provsons ony aow the purchaser to say what sha be done.
The reference made n the contracts to the purchaser as the
empoyer does not affect the stuaton and the true reatomhp
must be determned n the ght of a the facts. The purchaser
has no authorty to dscharge any ndvdua member of the orches-
tra, havng retaned the rght to e ercse such authorty n hs own
dscreton.
In vew of the foregong, t s hed that the purchasers who
engaged the servces of the orchestra under such contracts vrere pot
empoyers of and the members of hs orchestra wthn the meanng
of Subchapters and C, Chapter 9, of the Interna Revenue Code
(formery Ttes III and I of the Soca Securty ct), and
that, as to those engagements, was an ndependent contractor and
the members of the orchestra were hs empoyees.
(b) Long form contracts: These two contracts are smar to those
dscussed above under (a). The same provsons e stng n the con-
tracts under (a) are present here and t s further provded that the
orchestra s to furnsh, free of charge, pctures and other matera
sutabe for pubcty purposes. The orchestra aso agrees to broad-
cast as often as requred by the purchaser durng certan
hours t s provded that the purchaser must pay the cos
of the transportaton of the orchestra from ts ast engagement to
the engagement contracted for by the purchaser and t s pro-
vded that the personne of the orchestra sha be the same as durng
ts ast permanent engagement. One of the engagements s for 3
week and the other for one nght, and they were entered nto,
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2 5
Regs. 91, rt. 3.
respectvey, wt the manager of an automobe show and a State
unversty.
The reasonng set out n connecton wth the short form contracts
s equay appcabe here. None of the provsons n these agreements
ndcates that the purchaser retaned any substanta degree of con-
tro over the manner n whch the orchestra s to render ts servces,
nor s there any bass, under the terms of the contracts or the crcum-
stances of the engagements, for concudng that s actng as agent
of the purchasers : n hrng the muscans and conductng and man-
agng the orchestra. It s, therefore, hed that was actng as an nde-
pendent contractor and the members of the orchestra were hs
empoyees wthn the meanng of Subchapters and C, Chapter 9,
of the Interna Revenue Code (formery Ttes IIT and I of the
Soca Securty ct .
2. Contract negotated by the N Theatrca ookng gency.
Ths contract, entered nto wth the musement Corporaton, the
owner of severa theaters, s sgned by and provdes for an engage-
ment of one week. The contract states that t s entered nto between
the Corporaton and and hs Orchestra, the atter beng desgnated
as the artst. The reevant portons of ths contract read as foows:
The corporaton engages the artst and the atter agrees upon the terms, cove-
nants and condtons heren contaned, to present hs certan act under and ac-
cordng to the drecton of the corporaton or at any other theater or
pace desgnated by the corporaton, and to rado broadcast sad act or so much
thereof at such tmes and paces as the corporaton may drect and to report
for broadcastng rehearsas as and when drected.
The artst agrees to gve the number of performances each day requred by
the pocy of the theater, and, In addton thereto, to gve an e tra performance
on any hoday, when requested by the corporaton or the theater at whch the
artst s performng, wthout addtona compensaton.
The artst agrees to perform the sad act or specaty at such other theaters
n eu of those heren desgnated, under the terms of ths agreement, as requred
by the corporaton, and f the pace of performance Is changed, the corporaton
w pay any e tra raroad and baggage fares caused thereby, but otherwse, the
artst s to pay a transportaton.
The artst agrees (a) to abde by the rues and reguatons n force at sad
theater or other pace of performance (6) to report for rehearsas prompty at
such tmes as the corporaton may requre (c) to furnsh compete orchestraton
of musc used n act ( f) to furnsh the requred number of photographs and
such other advertsng and/or pubcty matter or nformaton as the corporaton
may requre (c) to provde at hs own e pense any and a stage hands, eec-
trcans or propertes needed n or for the sad act n e cess of those reguary
empoyed at the theater (/) where Sunday concerts are gven, the artst agrees
to dress as drected by the corporaton (g) the artst w not permt any reduc-
ton or change of personne or number of persons n sad act or any change or
ateraton n quaty thereof and (ft) the artst, or any member of hs act, w
not appear or perform pubcy or prvatey n any manner whatsoever for any
person, frm or corporaton between the date hereof and 30 days after the tme
f ed for the termnaton of ths agreement n any of the ctes mentoned heren
where the artst s to perform or n any cty otherwse desgnated by the corpora-
ton for the artst s performance under ths agreement, nor w the artst rado
broadcast or permt any member of the act to rado broadcast anywhere n the .
Unted States or Canada, pror to the tme heren f ed for the e praton of ths
agreement, or perform n any moton pcture wth or wthout voce synchronza-
ton durng sad perod wthout the wrtten consent of th corporaton.
Speca artst agrees to gve four performances day fve performances day
f requested by the corporaton.
rtst further agrees to work n show as drected by the torporaton.
The artst agrees to emnate any part of sad act, attracton or revue
deemed ob|ectonabe by the corporaton or the theater management and to
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Regs. 91, rt. 3.
2 6
mnke such addtons, substtutons or changes theren of tte, persons, ma-
tera, yrcs, musc or any other thng as the corporaton or the theater man-
agement may requre.
The artst agrees to |on wth other artsts n an afterpece, ensembe,
combnaton, or revue as requred so to do.
Under ths type of contract, the orchestra was engaged to work
n a theater as a part of a stage show. The above-quoted provson
of the contract show that the purchaser retaned the rght to ft
the orchestra nto the show n any manner desred and to e ercse
a substanta degree of contro over the manner n whch the eader
and the members of the orchestra rendered the partcuar servces for
whch they were engaged. It s, therefore, hed that the purchaser
under ths contract s the empoyer of and the members of h
orchestra wthn the meanng of Subchapters and C, Chapter
of the Interna Revenue Code (formery Ttes III and I of the
Soca Securty ct).
It shoud be especay noted that the above concusons were ar
rved at upon consderaton of the facts nvoved n the partcuar
engagements. It shoud not be nferred therefrom that Mmeograph
4651, supra, s revoked, snce, as stated above, the concusons readed
n the mmeograph are appcabe ony to stuatons smar to thrw
outned theren. The manner n whch the orchestra conducted b|
s organzed and the crcumstances under whch t performs serv-
ces are such, however, that the mmeograph does not furnsh an
e cusve test for determnng the status, under Subchapters and
C, Chapter 9, of the Interna Revenue Code (formery Ttes III
and I of the Soca Securty ct), of and the members of hs
orchestra.
Secton 1426: Defntons. 1939-41-1M
rtce 205.)
eature performers engaged by the O Crcus Co. pursuant to the
terms of wrtten contracts are empoyees of that company for
purposes of Subchapters and C, Chapter 9, of the Interna Reve-
nue Code (formery Ttes III and I of the Soca Securty
ct).
dvce s requested whether feature performers engaged by the
O Crcus Co. are empoyees of that company for the purpose of
Subchapters and C, Chapter 9, of the Interna Revenue Code.
The O Crcus Co., n pannng the show to be presented durng
the ensung season, engages the feature performers. The contracts
for the servces of the feature performers are entered nto by the com-
pany wth the performers, or, n those nstances where a number of
ndvduas make up a performng unt, wth a member of the group,
apponted by the performers for that purpose, who has supervson
over the personne of the group. Most of the performng unts
are composed of members of the same famy or of ndvduas as-
socated together over a ong perod of tme. Under the terms of
such contracts, the artst (whch term s defned theren to ncude
the entre personne of the act) agrees to furnsh the act to the
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2 7
Regs. 91, rt. 3.
company for a ump sum per week, and to mantan throughout
the season the property and personne of the act as represented.
The contracts aso specfy the number of performances consttutng
a week s work and provde that no compensaton sha be pad for
rehearsas durng or prevous to the engagement or for any per-
formance omtted durng the season. In addton to the ump-sum
payment per week, the company furnshes the artst wth meas,
car odgng, and transportaton, common and customary n the crcus
busness. It s understood, however, that the artst has the rght
to re|ect the prveges offered to hm for meas, car odgng, and
transportaton. The artst s prohbted from engagng or appear-
ng wth any other crcus or show n the Unted Sates durng the
perod of hs contract and s requred to produce and present hs
act to the entre satsfacton of the company at a tmes and paces.
The contracts set forth n deta the nature and manner of perform-
ance requred. In some nstances the contracts provde that par-
tcuar performances sha be presented as may be drected or
f requred, or that a desgnated member or the entre personne
of the act sha take part n ensembe numbers. In other nstances
the company agrees to furnsh costumes for a certan performance,
performers to take part n the act, food for anmas used n the
act, etc.
reatonshp of empoyer and empoyee e sts when the person for
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. It s not necessary that the empoyer
actuay drect or contro the manner n whch the servces are per-
formed 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 are the furnshng of toos and the furnshng of a pace
to work, to the person who performs the servces. In genera, f a
person s sub|ect to the contro or drecton of another merey as to
the resut to be accompshed by the work and not as to the means
and methods for accompshng the resut, he s an ndependent con-
tractor, not an empoyee. ( rtce 3, Reguatons 91, and artce
205, Reguatons 90 T. D. 4 5, C. . 1939-1 (Part 1), 396.)
In the present case the facts ndcate that, athough the feature
performers are aowed to determne among themseves many of the
detas ncdent to the producton of the crcus performance, n
order to produce and operate an e hbton such as s presented by
the O Crcus Co., t s essenta that the rght be retaned by the
company to drect and contro the ndvduas performng theren
shoud the occason arse requrng the e ercse of such rght.
Under the facts presented, the O Crcus Co. e ercses, or has the
rght to e ercse, over the performers n queston the drecton and
contro contempated by the reguatons as beng necessary to estab-
sh the ega reatonshp of empoyer and empoyee. ccordngy,
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Regs. 91, rt. 3.
2
t s hed that the feature performers are empoyees of that company
wthn the meanng of Subchapters and C, Chapter 9, of the
Interna Revenue Code (formery Ttes III and I of the Soca
Securty ct).
Secton 142G: Defntons. 1939-42-10066
90, rtce 205.)
Saes cerks traned by the O mpoyee Servce Co. and fur-
nshed to a reta estabshment to perform temporary servces
n such estabshment are empoyees of the O mpoyee Servce Co.
for the purpose of Subchapters and C, Chapter 9, of the Interna
Revenue Code (formery Ttes III and I of the Soca Securty
ct).
dvce s requested whether saes cerks traned by the O mpoyee
Servce Co. and furnshed to a reta estabshment to perform tem-
porary servces therefor are empoyees of the company or of the
estabshment for the purpose of Subchapters and C, Chapter
9, of the Interna Revenue Code (formery Ttes III and I of
The O mpoyee Servce Co. (herenafter referred to as the com-
pany) was formed for the purpose of tranng saes cerks and other
temporary empoyees and furnshng them to reta estabshments
whose busnesses are of such a nature as to requre the servces of
addtona ndvduas durng speca saes and certan other perods.
Upon request of a reta estabshment for a certan number of saes
cerks, the company w tran ndvduas to perform servces n ac-
cordance wth the store system adopted by such estabshment. The
company paces a supervsor (who s unquestonaby ts empoyee) n
the estabshment to whch saes cerks are furnshed. It s the duty
of the supervsor to ascertan whether the cerks have been propery
assgned to the respectve departments for whch they were requested,
and to see that such ndvduas are neat n appearance and dressed
n accordance wth the estabshment s reguatons. Reports are
made by the supervsor to the company showng the ength of tme
each cerk performs servces n addton to the number of saes
made. ach saes cerk s requred to forward to the company a
weeky tme tcket for pay ro computaton after t has been ap-
proved by the proper offca n the estabshment. The saes cerks
are sub|ect to the nstructons and contro of the supervsor and are
not under the supervson of the estabshment whe performng
ther servces. The estabshment does not have the rght to demand
any partcuar ndvduas, but s requred to accept the ndvduas
assgned to t. owever, t s the company s pocy to furnsh the best
cerks avaabe, and f the servces of any cerks prove to be unsats-
factory, the estabshment may request the company to remove those
partcuar ndvduas. The cerks are not sub|ect to dscharge by
the estabshment but the company may dscontnue ther servces at
any tme. The workng hours estabshed by the company conform
to those of the estabshment and are mantaned n accordance wth
the company s nstructons. The company carres pubc abty
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Regs. 91, rt. 4.
nsurance and standard workmen s compensaton and empoyers a-
bty nsurance on the saes cerks. The estabshment pays the
company stpuated amounts and the cerks receve standard wages
drect from the company.
reatonshp of empoyer and empoyee e sts when the person for
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. ( rtce 3, Reguatons 91, and artce
205, Reguatons 90 T. D. 4S 5, C. . 1939-1 (Part 1), 396.)
Under the facts presented, t appears that the O mpoyee Servce
Co. e ercses over the saes cerks the degree of drecton and contro
contempated by the reguatons as beng necessary to estabsh the
ega reatonshp of empoyer and empoyee. ccordngy, the saes
cerks are empoyees of that company wthn the meanng of Sub-
chapters and C, Chapter 9, of the Interna Revenue Code (for-
mery Ttes III and I of the Soca Securty ct).
Secton 142G: Defntons. 1939-52-10120
Reguatons 91, rtce 4: Who are empoyers. S. S. T. 3 0
rtce 204.)
or purposes of the provsons of Subchapters and C, Chap-
ter 9, of the Interna Revenue Code (formery Ttes III and I
of the Soca Securty ct), the estate of s the empoyer of those
persons engaged by the ega representatves of the deceudent n the
admnstraton of the estate and must report n one return for each
return perod the tota wages pad to empoyees of the estate regard-
ess of where the servces are performed.
dvce s requested reatve to the manner n whch returns shoud
be fed by the estate of n reportng the ta es ncurred under Sub-
chapters and C, Chapter 9, of the Interna Revenue Code (formery
Ttes III and I of the Soca Securty ct).
It s stated that , a resdent of the State of R, owned and operated
sma oan offces n the States of T and Y. ded and was ap-
ponted domcary admnstrator of the decedent s estate n the State
of R. was aso apponted ancary admnstrator of the estate n
the State of T, and C was apponted ancary admnstrator n the
State of Y. The operaton of the sma oan offces has been contnued
by the estate of durng the perod of admnstraton and pendng
the payment of the debts and egaces. The queston presented s
whether each admnstrator shoud fe a separate return reportng
thereon the ta es wth respect to the wages of empoyees performng
servces n the State n whch that admnstrator s actng, or whether
the ta es wth respect to the wages of a empoyees performng
servces for the estate shoud be reported on one return.
In S. S. T. 199 (C. . 1937-2, 405) t was hed that the appontment
of an admnstrator to operate the busness of a decedent does not
create a new empoyment but that the estate of the decedent contnues
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Regs. 91, rt. 6 290
to be the empoyer under the ct. That rung s appcabe ony
where the admnstrator s engaged n the settement and dspostoc
of the estate and does not appy where a separate trust s created an
the trust property s beng operated by the trustee. (See S. S. T. tt
C. . 193 -2, 306.) Inasmuch as the admnstrators n the nsta
case are engaged n the operaton of the decendent s busness actvtes
durng ordnary admnstraton proceedngs, the concuson reached
n S. S. T. 199, supra, s appcabe, and no change n empoyment ot
the ndvduas performng servces n connecton wth the bmv,r-
actvtes of occurred upon hs death and upon contnuaton of suet
actvtes by the ega representatves of decedent s estate.
It was hed n S. S. T. 21 (C. . -2, 404 (1930)) that an em-
poyer shoud report on one return, for purposes of the ta und
Tte I of the Soca Securty ct, the tota of the wages pad 1
a of hs empoyees, regardess of where such empoyees perform-:
servces wthn the Unted States. That rung s equay appes
wth respect to the ta es mposed under Tte III of that ct am
Subchapters and C, Chapter 9, of the Interna Revenue Code.
In the nstant case there s ony one empoyer, that s, the estate
of . It s mmatera that certan empoyees may perform servce
under the drecton of, and receve remuneraton from, an ancary
admnstrator n another State. ccordngy, t s hed that onyow
return for each return perod shoud be fed on whch the ta es wth
respect to the wages of a empoyees of s estate shoud be reported.
Secton 142C: Defntons. 1939-36-W
Reguatons 91, rtce 6: grcutura abor. S. S. T.374
rtce 206(1).)
Where servces performed by empoyees of the M Company In
connecton wth gradng and packng of farm products produced on
farms owned or tenanted by the company are not segregabe from
substanta servces performed by such empoyees n connecton
wth the gradng and packng of products of farms not owned or
tenanted by the company, none of such servces may be consdered
as agrcutura abor for purposes of Subchapters and C,
Chapter 9, of the Interna Revenue Code (formery Ttes III and
I of the Soca Securty ct), even though the gradng and pack-
ng of products produced on the company s farms are carred on
as an ncdent to ordnary farmng operatons as dstngushed from
manufacturng or commerca operatons.
dvce s requested whether the servces performed by theem-
poyees of the M Company n connecton wth the gradng and pack-
ng of products produced on farms owned or tenanted by the
Company, whch company aso grades and packs products produce
on farms of others, may be consdered as agrcutura abor whch
s e cepted from empoyment under Subchapters and C.
Chapter 9, of the Interna Revenue Code (formery Ttes ID
and I of the Soca Securty ct).
rtce 6 of Reguatons 91 and artce 206(1) of Reguatons ,
reatng to Ttes III and I , respectvey, of the Soca Secure
ct, and made appcabe by Treasury Decson 4 5 (C. .
(Part 1), 396) to Subchapters and C, respectvey, of Chapter
9 of the Interna Revenue Code, provde that the term agrcutura
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291
Regs. 91, rt. 6.
abor ncudes, among others, servces performed by empoyees n
connecton wth the processng, packng, packagng, transportng, and
marketng of farm products, provded the products n ther raw and
natura state were produced on a farm owned or tenanted by the em-
poyer, and provded such actvtes are carred on as an ncdent to
ordnary farmng operatons as dstngushed from manufacturng or
commerca operatons.
The products wth respect to whch the servces n queston were
performed are graded and packed n a packng shed ocated on a
farm owned by the company. mpoyees who perform servces n
connecton wth the rasng and harvestng of products of the com-
pany aso perform servces n connecton wth the gradng and pack-
ng operatons. It s the genera custom n the partcuar type of
farmng n whch the company s engaged for the producng com-
pany to carry on the handng operatons n queston. The equp-
ment used and methods empoyed by the company n handng the
crops are dssmar to the equpment and methods used n ke
operatons conducted by persons admttedy engaged n commerca
or manufacturng actvtes. The capta nvested n the packng
shed and equpment consttutes a sma porton of the nvestment
n the enterprse as a whoe. No marketng organzaton s man-
taned by the company, a crops beng sod at whoesae to produce
buyers.
though substanta quanttes of crops produced by neghbor-
ng farmers are graded and packed by the company, t appears that
the facts set forth n the precedng paragraph warrant a fndng that
the gradng and packng of crops produced an and owned or ten-
anted by the company are ncdent to the company s ordnary farm-
ng operatons. It foows, therefore, that servces performed by the
company s empoyees n connecton wth the handng of products
grown on the company s farms e cusvey consttute agrcutura
abor. It s cear aso that servces performed by the company s
empoyees n connecton wth the gradng and packng of products
that are produced on farms of others do not consttute agrcutura
abor wthn the meanng of that term as used n Subchapters
III and I of the Soca Securty ct). ( rtce 6, Reguatons
91, and artce 206(1), Reguatons 90 T. D. 4 5, C. . 1939-1 (Part
1),39G.)
The nformaton submtted dscoses that generay the crops pro-
duced on the company s farms are graded and packed concurrenty
wth crops produced on the farms of others, and that even at tmes
when such crops are not handed smutaneousy the changes from
the handng of one cass of products to the handng of the other
cass occur wth such frequency that t s mpossbe for the com-
pany to make a segregaton of the tme spent by each empoyee n
performng servces n gradng and packng of crops produced on
the company s farms from the tme spent by each empoyee n such
handng of products produced on the farms of others.
s ndcated n S. S. T. 125 (C. . 1937-1, 397) and n S. S. T.
2 C (C. . 193 -1, 427), where an empoyee durng certan portons
of a pay-ro perod, that s, a perod for whch a payment of re-
muneraton s ordnary made to the empoyee by the empoyer,
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Regs. 91, rt. 11.
292
renders servces whch consttute agrcutura abor and durng
other portons of the same pay-ro perod renders servces whch
consttute empoyment and the amount of tme devoted to each
type of servce s substanta, the servces whch consttute agrcu-
tura abor must be segregated from the servces whch consttute
empoyment on the bass of tme durng whch each type of
servce s rendered. If n such a case the agrcutura servces an
not be so segregated, the entre servces rendered durng that pay-
ro perod must be consdered as empoyment. Thus, f any
empoyee concurrenty performs servces whch f separate and ds-
tnct as to tme of performance woud consttute agrcutura
abor and other servces whch consttute empoyment, the entre
servces must be cassfed as empoyment.
The crcumstances surroundng the performance of servces n the
nstant case render t mpossbe for the company to effect a segrega-
ton n accordance wth the rues set forth n S. S. T. 125 and S. S. T.
2 6. supra. Snce the company s unabe to make such a segregaton
of servces performed by ts empoyees n gradng and packng the
products produced on ts farms from the substanta servces per-
formed by them n gradng and packng the products produced on
farms of others, t s hed that a of such servces must be consdered
as empoyment for purposes of Subchapters and C. Chapter 9,
of the Interna Revenue Code, even though the gradng and packng of
products produced on the company s farms are carred on as an ncdent
to ordnary farmng operatons as dstngushabe from manufactur-
ng or commerca operatons.
Secton 1426: Defntons. 1939-43-10071
Reguatons 91, rtce 11: Government empoyees. S. S. T.3IS
rtce 206(5)-(6).)
Servces performed by Indvduas engaged n the operaton
of the M Offce udng owned by the estate of , an Indan ward
of the Unted States, are sub|ect to the ta es mposed by Sub-
chapters and C, Chapter 9 of the Interna Revenue Code
(formery Ttes III and I of the Soca Securty ct), snce
the estate s not an nstrumentaty of the Unted States.
dvce s requested whether the ta es mposed by Subchapters
III and I of the Soca Securty ct) are appcabe wth respect
to servces performed by ndvduas engaged n the operaton of the
M Offce udng, whch s owned by the estate of , an Indan
ward of the Unted States.
The M Offce udng was purchased bv the Secretary of the
Interor wth restrcted funds of , an Indan ward of the Unted
States. The budng s hed n the custody of the ureau of Indan
ffars pursuant to the provsons of certan cts of Congress reat-
ng to Indans of the O Trbe, of whch s a member. renta
agent was authorzed by the Secretary of the Interor, through the
O Indan gency, to take over the management of the budng.
Under such authorzaton and wth the wrtten consent of , the
renta agent engages, drects, and contros on behaf of the estate
the ndvduas empoyed n the operaton of the budng. Ther
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293
Regs. 91, rt. 14.
remuneraton s determned by hm wth the approva of the agency,
and workmen s compensaton nsurance s carred n the name of the
owner of the budng for the protecton of those engaged n the
operaton thereof. Leases are made by the renta agent n accord-
ance wt the reguatons governng renta of restrcted property
and the agent retans hs stpuated commsson from the rents and
remts the baance to the O Indan gency. Large repar tems and
matters of pocv must be referred to the O Indan gency.
Sectons 1426(b)6 and 1607(c)5 of the Interna Revenue Code
e cept from the term empoyment, as used n Subchapters and
C of Chapter 9 of the Code, servce performed n the empoy of the
Unted States Government or of an nstrumentaty of the Unted
States. The e cepton e tends to every servce performed by an
ndvdua n the empoy of the Unted States, the severa States,
the Dstrct of Coumba, or the Terrtory of aska or awa, or
any potca subdvson or nstrumentaty thereof, ncudng every
unt or agency of government, wthout dstncton between those
e ercsng functons of a governmenta nature and those e ercsng
functons of a propretary nature. ( rtce 11. Reguatons 91
artce 206(5)-(6), Reguatons 90 T. D. 4 5. C. . 1939-1 (Part 1),
396.)
trust or an estate managed and conducted by a fducary, rather
than the fducary or the benefcary, s hed generay to be the em-
poyer for empoyment ta purposes. (S. S. T. 120, C. . 1937-1,
375.) In the present case the estate of s the empoyer, and the
servces are performed on behaf of a prvate estate. s the estate
s not engaged n carryng nto e ecuton any of the powers of the
Unted States (S. S. T. 16, C. . -2, 3 6 (1936)), such estate s
not an nstrumentaty of the Unted States wthn the e cepton pro-
vded by sectons 1426(b)6 and 1607(c)5 of the Interna Revenue
Code. ccordngy, the ta es mposed by Subchapters and C,
Chapter 9, of the Interna Revenue Code are appcabe wth respect
to servces performed by the ndvduas engaged n the operaton of
the M Offce udng.
Reguatons 91, rtce 14: Wages. S. S. T. 379
( so Subchapter C, Secton 1607 Regua-
tons 90, rtce 207.)
dvances made to empoyees of the M Compnny whch they are
egay obgated to repay do not consttute wages for purposes of
the ta es mposed by Subchapters and C, Chapter 9, of the
Interna Revenue Code (formery Ttes III and I of the Soca
Securty ct).
dvce s requested whether advances made to empoyees of the
M Company shoud be consdered wages sub|ect to the ta es mposed
by Subchapters and C, Chapter 9, of the Interna Revenue Code
(formery Ttes III and I of the Soca Securty ct).
The M Company engages n a genera nvestment bankng busness
and mantans tradng departments n ts prncpa offces n severa
ctes. These departments are operated by empoyees who have
proft-sharng agreements wth the company. t the end of each
caendar month a statement of account s made for the empoyees
showng the net profts credted to ther accounts. The net profts
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Regs. 100.
294
represent the gross earnngs of such empoyees, ess e penses ncurred
n the operaton of the tradng departments. These empoyees ma
make wthdrawas at any tme of amounts standng to ther credt and
are aso aowed, wth mtatons, cash advances where there s no
credt baance n ther accounts. t the tme such cash advances are
made, they are set up by the company on ts books as amounts due
from empoyees and are acknowedged by the empoyees ether b|
note or etter.
Sectons 1426(a) and G07(b) of the Interna Revenue Code defne
the term wages as used n Subchapters and C of Chapter 9 of
the Code to mean a remuneraton for empoyment, sub|ect to
mtaton under Subchapter not here matera. ( rtce 14. Regu-
atons 91 artce 207, Reguatons 90 T. D. 4 5, C. . 1939-1 (Pan
1),396.)
In S. S. T. 6 (C. . 1937-1, 355) t was hed that where ad-
vances are made to saesmen aganst unearned commssons ar.
ther empoyment s subsequenty termnated pror to earnng com-
mssons equa to the amounts advanced, the defct beng charged t
proft and oss, those advances consttute wages at the tme o
payment for purposes of Tte III of the Soca Securty ct. In
the nstant case thpre s an acknowedgment of the ndebtedness by
note or etter, the M Company carres the baances as accounts doe
from empoyees, and there s an obgaton on the part of the em-
poyees to repay the advances, whch obgaton must be satsfed a-
though the empoyment s termnated pror to payment. The ad-
vances n the present case are, therefore, dstngushabe from those
n S. S. T. 6 , supra.
Under the facts n the present case, t s hed that the advances n
queston are oans and do not consttute wages for purposes of the
ta es mposed by Subchapters and C, Chapter 9, of the Interna
Revenue Code.
Snce, under the facts presented, the credtng of net profts con-
sttutes constructve payment wthn the meanng of Reguatons
91 (whether or not the accounts show a credt baance), the wages
(represented by net profts) shoud be reported by the M Company
on the return fed for the perod wthn whch credted for purposes
of Subchapter of Chapter 9 of the Interna Revenue Code.
C PT R 9, SU C PT R . MPLOYM NT Y
C RRI RS.
Reguatons 100. 1939-33-9962
( so Carrers Ta ng ct of 1937.) C.T.W
Rungs pubshed under the Carrers Ta ng ct of 1937 app-
cabe under Subchapter , Chapter 9, of the Interna Revenue Code.
Treasury Decson 4 5 (C. . 1939-1 (Part 1), 396) reads n
part as foows:
reguatons (ncudng a Treasury decsons), prescrbed by the Comms-
soner of Interna Revenue and approved by the Secretary of the TreasWT-
appcabe under any provson of aw on the date of the enactment of t|
Interna Revenue Code, to the e tent such provson of aw s superseded W
the Code, are hereby prescrbed under, and made appcabe to, the provson3
of the Code correspondng to the provson of aw so superseded, In so far 43
any such reguaton Is not nconsstent wth the Code.
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295
Regs. 100, rt. 3.
These reguatons are ssued under authorty of the pro sons of secton 3791
of the Interna Revenue Code and under such other provsons of the Code as
correspond wth the severa provsons of aw under whch any reguaton or
Treasury decson hereby prescrbed and made appcabe was ssued.
rungs heretofore pubshed reatng to the provsons of the
Carrers Ta ng ct of 1937 are appcabe under Subchapter ,
Chapter 9, of the Interna Revenue Code n so far as such rungs are
not nconsstent wth the Code.
Reguatons 100, ktce 3: Who are empoyees. C. T. 1
( so Carrers Ta ng ct of 1937, Secton 1.)
Physcans, desgnated oca surgeons, engaged by the M Raway
Co. to assst the chef surgeon of that company n the treatment
of ts sck and n|ured empoyees and other persons n|ured on
the company s rght of way, are not empoyees of that company
wthn the meanng of Subchapter , Chapter 9, of the Interna
Revenue Code (formery the Carrers Ta ng ct of 1937).
dvce s requested whether physcans, desgnated oca surgeons,
who render medca servces to empoyees of the M Raway Co. and
other persons n|ured on the company s rght of way, are empoyees
of that company under Subchapter , Chapter 9, of the Interna
Revenue Code (formery the Carrers Ta ng ct of 1937).
It s stated that on May , 1939, the M Raway Co. by ora agree-
ment engaged the servces of certan physcans, desgnated oca
surgeons, to assst the chef surgeon of the company n the treatment
of ts sck and n|ured empoyees and other persons n|ured on the
company s rght of way. The oca surgeons perform ther servces
wthn assgned terrtores sub|ect to genera suggestons from the
chef surgeon. though the chef surgeon may advse a certan
course of treatment for patents, t s stated that the oca surgeons
are n every nstance soey responsbe for the resut of ther treat-
ment. They are requred to mate a report to the chef surgeon after
the frst e amnaton of each patent and another report when the
treatment s concuded. The oca surgeons are pad monthy re-
taner fees but receve no other remuneraton for ther servces. They
mantan offces at ther own e pense, furnsh ther own equpment,
and are not requred to keep reguar offce hours wth respect to the
servces rendered for the company or to devote a mnmum amount
of tme thereto. Ther servces are performed at ther own offces, n
hosptas, or wherever the patents may be. They are engaged n
genera practce and devote a reatvey sma porton of ther tme
to work for the company. The company agrees to gve reasonabe
notce of dsmssa to any oca surgeon whose servces are to be
dscontnued.
Secton 1532(b) of the Interna Revenue Code provdes n part as
foows:
The term empoyee means any person n the servce of one
or more empoyers for compensaton .
Secton 1532(d) provdes n part that
n ndvdua s n the servce of an empoyer whether hs servce Is rendered
wthn or wthout the Unted States f he s sub|ect to the contnung authorty
of the empoyer to supervse and drect the manner of rendton of hs servce,
whch servce he renders for compensaton .
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Regs. 100, rt. 5.
206
rtce 3(a) of Reguatons 100. made appcabe under the Cone
by Treasury Decson 4 5 (C. . 1939-1 (Part 1), 396), read-
n part as foows:
It s not necessary that the empoyer actuay drect or eontr.
the manner n whch the servces are performed t s suffcent f the em-
poyer has the rght to do so. The rght of an empoyer to dscharge an
ndvdua s aso an mportant factor ndcatng that the ndvdua s an
empoyee. Other factors ndcatng that an ndvdua s an empoyee are the
furnshng of toos and the furnshng of a pace to work by the empoyer t
the ndvdua who performs the servces. In genera, f an ndvdua -
sub|ect to the rontro or drecton of an empoyer merey as to the resut to
be accompshed by the work and not as to the means and methods for a
pshng the resut, he s an ndependent contractor. n ndvdua perfonn|
servces as an ndependent contractor s not, as to such servces, an empoy
wthn the meanng of the ct.
Generay, an ndvdua performng servces for an empoyer as defned t
secton 1(a) as a physcan, awyer, dentst, veternaran, contractor, suUo
tractor, pubc stenographer, or auctoneer, who foows an ndependent pn
fesson, trade, or busness, n whch he offers hs servces to the pubc, s u
ndependent contractor. Indvduas foowng the cangs mentoned ma|.
however, be empoyees.
Whether or not an ndvdua s an empoyee w be determned upon m
e amnaton of the partcuar facts of the case.
Under the facts presented, t s hed that the M Raway Co. nether
e ercses, nor has the rght to e ercse, the degree of contro over the
actvtes of the oca surgeons whch woud consttute them empoyees
under the provsons of secton 1532(b) of the Interna Revenue
Code and artce 3, supra. Ths concuson aso appes under the
Carrers Ta ng ct of 1937 pror to the effectve date of Subchapter
, Chapter 9, of the Code, . e., pr 1,1939, wth respect to surgeons
engaged under ke crcumstances. (Cf. C. T. 15, C. . 1939-1 (Part
1),31 .)
Secton 1532: Defntons. 1939-36-OW
Reguatons 100, rtce 5: Defnton of com- Mm.4W
pensaton.
( so Carrers Ta ng ct of 1937, Secton 1.)
Ta abty, under the Carrers Ta ng ct of 1937 and Sub-
chapter of Chapter 9 of the Interna Revenue Code, of amounts
of dues and nsurance premums whch empoyees of varous
unts of raway abor organzatons, natona n scope, and em-
poyee representatves are freed from payng.
Washngton, D. C, ugust 9,19 9-
Coectors of Interna Revenue and Oters Concerned:
The ureau has receved numerous nqures from coectors and
other persons reatve to the appcabty of the ta es mposed by
the Carrers Ta ng ct of 1937 and by Subchapter of Chapter 1
of the Interna Revenue Code wth respect to amounts of dues and
nsurance premums whch empoyees of varous unts of raway
abor organzatons, natona n scope, and empoyee representa-
tves, as defned n such ct and subchapter, are freed from the
necessty of payng. (Subchapter of Chapter 9 of the Interna
Revenue Code corresponds to and, as of pr 1, 1939, supersedes the
Carrers Ta ng ct of 1937.)
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297
Regs. 90.
Members of unts of varous raway abor organzatons are ord-
nary requred to pay reguar dues and, n some nstances, nsurance
premums. Many of such unts, however, have adopted the practce
of reevng offcers and other empoyees, or empoyee representatves,
of the necessty of payng such dues and nsurance premums. In
some nstances, subordnate unts of raway abor organzatons
reeve the empoyees or empoyee representatves from payment not
ony of dues assessed by the subordnate unts but aso of dues whch
woud otherwse be pad to superor dvsons or commttees of the
organzaton. Reef from such payments s effected by varous
methods, ncudng waver, remsson, credt, and refund.
Secton 1(e) of the Carrers Ta ng ct of 1937 provdes n part
as foows:
The term compensaton means any form of money remuneraton earned
by an ndvdua for servces rendered as an empoyee to one or more empoyers,
or as an empoyee representatve .
Smar provsons are contaned n secton 1532(e) of the Interna
Revenue Code.
rtce 5 of Reguatons 100, prescrbed under the Carrers Ta ng
ct of 1937 and made appcabe by Treasury Decson 4 5 (C. .
1939-1 (Part 1), 396) to Subchapter of Chapter 9 of the Interna
Revenue Code, provdes n part as foows:
The term compensaton means a remuneraton n money, or n somethng
whch may be used n eu of money (scrp and merchandse orders, for
e ampe), whch s earned by an ndvdua for servces performed as an em-
poyee for one or more empoyers, or as an empoyee representatve.
Under the provsons of the Carrers Ta ng ct of 1937, Sub-
chapter of Chapter 9 of the Interna Revenue Code, and the reg-
uatons reatng thereto, f a unt of a raway abor organzaton
whch ordnary requres ts members to pay dues or nsurance
premums frees a member from the necessty of payng such dues or
nsurance premums n consderaton of, or as remuneraton for,
servce perfor/ned as an empoyee or empoyee representatve
as denned n such provsons of aw and reguatons, the amount of
such dues or nsurance premums consttutes ta abe compensaton
wthn the meanng of such provsons.
Correspondence reatng to ths mmeograph shoud refer to ts
number and to the symbos C: RR.
Gut T. everng,
Commssoner.
C PT R 9, SU C PT R C T ON MPLOY RS O
IG T OR MOR .
Reguatons 90. 1939-47-10100
T. D.4953
TITL 26 INT RN L R NU C PT R I, SU C PT R D, P RT 400
Reguatons 90, as made appcabe to the Interna Revenue Code
by Treasury Decson 4SS5 C. . 1939-1 (Part 1), 396 , further
amended.
Ta for the caendar year 1939 under the edera Unempoy-
ment Ta ct (Subchapter C of Chapter 9 of the Interna Reve-
nue Code, as amended, whch supersedes Tte I of the Soca
Securty ct).
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Regs. 90.
29
Offce of Commssoner of Interna, Revenue,
Washngton, D. 0.
In order to prescrbe reguatons appcabe to the e cse ta
on empoyers of eght or more for the caendar year 1939, mposed
under the edera Unempoyment Ta ct (Subchapter C of Chap-
ter 9 of the Interna Revenue Code), as amended Tby sectons 60s,
G09, 610, 611, 612, 613, and 615 of the Soca Securty ct mend-
ments of 1939 (Pubc, No. 379, Seventy-s th Congress, frst sesson:
page 470, ths uetn ), Reguatons 90, approved ebruary 17,19S
Part 400, Tte 26, Code of edera Reguatons , ony as made app-
cabe to the Interna Revenue Code by Treasury Decson 4 5. ap-
proved ebruary 11 1939 C. . 1939 (Part 1), 396 Part 465,
Subpart , of such Tte 26 , as amended, are further amended s
foows:
(1) Immedatey precedng artce 1 secton 400.1, Tte 26, Cod
of edera Reguatons , ony as made appcabe to the Interna
Revenue Code, the foowng s nserted:
Subchapter C of Chapter 9 of the Interna Revenue Code Is
amended by addng at the end thereof the foowng new secton:
Sec. 1611. Ths subchapter may be cted as the edera
Unempoyment Ta ct.
(2) rtce 1 secton 400.1, Tte 26, Code of edera erna-
tons , ony as made appcabe to the Interna Revenue Code, s
amended by strkng out paragraphs (c) and (d), and by addng
at the end thereof the foowng new paragraphs:
(|) The term Interna Revenue Code means the ct entted n ct
to consodate and codfy the nterna revenue aws of the Unted Staes,
approved ebruary 10, 1939 ( 53 Stat, Part 1), as amended.
(fc) The term Soca Securty ct mendments of 1939 means e rt
entted n ct to amend the Soca Securty ct, and for other purpose ,
approved ugust 10, 1939 (Pubc, No. 379, Seventy-s th Congress, frst
sesson).
( ) The term edera Unempoyment Ta ct means Subchapter 0 of
Chapter 9 of the Interna Revenue Code, as amended by sectons 60 . 09. 610.
611, 612, 613, and 615 of the Soca Securty ct mendments of 1939. Surt)
Subchapter C, as so amended, comprses sectons 1600 to 1611, ncusve, o/
the Interna Revenue Code.
(m) The term ta means the e cse ta on empoyers of eght or nwt
mposed by secton 1600 of the edera Unempoyment Ta ct.
( ) The term ta abe year means the caendar year 1939.
(3) Immedatey after artce 1 secton 400.1, Tte 26, Code of
edera Reguatons , ony as made appcabe to the Interna Reve-
nue Code, the foowng new artce s nserted:
rt. 2 Sec. 400.2, Tte 26, Code of edera Reguatons, 1939 Sup. . So
of reguatons for caendar year 1039. (a) These reguatons reate to tn|
e cse ta on empoyers of eght or more for the caendar year 1939 mv 1
under the edera Unempoyment Ta ct (Subchapter C of Chapter 9 of the
Interna Revenue Code, whch superseded Tte I of the Soca Securty rt
wth respect to the ta for such year and subsequent vears), as amended hr
sectons 60 , 609, 610, 611, 012, 613, and 615 of the Soca Securty ct mend-
ments of 1939. The edera Unempoyment Ta ct, as so amended, com-
prses sectons 1000 to 1611, ncusve, of the Interna Revenue Code. pro-
vsons of, and references to, the Soca Securty ct or other aws of tM
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299
Regs. 90.
Unted States whch have been codfed n the edera Unempoyment Ta ct
or other portons of the Interna Revenue Code, but whch reman n these
reguatons, sha be doomed to be, and sha be read as f they were, provsons
of or references to the correspondng provsons of the Interna Revenue Code.
(6) These reguatons aso reate to servces performed durng the caendar
year 1931) whch consttute empoyment as defned n secton 1007(c) of the
edera Unempoyment Ta ct n force pror to anuary 1, 1940. (See aso
secton 13(a) of the Raroad Unempoyment Insurance ct, secton 902(f) of
the Soca Securty ct mendments of 1939, and secton 2 of the ct of
ugust 11, 1939 (Pubc, No. 400, Seventy-s th Congress, frst sesson), reatng,
respectvey, to the e empton from the ta of servce performed on and after
uy 1, 1939, n the empoy of an empoyer or as an empoyee representa-
tve as those terms arc defned n the Raroad Unempoyment Insurance ct,
to the e empton from the ta of servce performed pror to anuary 1, 1940,
n the empoy of foregn governments and certan of ther nstrumentates,
and to the e empton from the ta of certan servce performed pror to such
date n savagng tmber and cearng debrs eft by a hurrcane and see
artces 200( ), 200(9), and 206(10) sectons 400.200( ), 400.200(9), and
400.200(10), Tte 26, Code of edera Reguatons, 1939 Sup. , reatng to such
e emptons.
(c) Secton 014 of the Soca Securty ct mendments of 1939 amends
secton 1607 of the edera Unempoyment Ta ct, contanng defntons of
terms used n such ct (for e ampe, wages, empoyment, and agrcu-
tura abor ), but the changes In such defntons do not appy to servces per-
formed durng the caendar year 1939. Thus, for e ampe, whether partcuar
servces performed durng 1939 consttute empoyment w be determned under
the provsons of secton 1607(c) of the edera Unempoyment Ta ct n
force pror to anuary 1, 1940 (see artces 206(1) to 206(7), ncusve sec-
tons 400.200(1) to 400.200(7), ncusve, Tte 20, Code of edera Reguatons
and see aso artces 200, 206( ), 206(9), and 206(10) sectons 400.2C6,
400.206( ), 400.206(9), and 400.206(10), Tte 26, Code of edera Reguatons,
1939 Sup. ). s a further e ampe, a remuneraton (ncudng amounts e ceed-
ng 3,000) pad to an empoyee by an empoyer durng the caendar year 1939 for
empoyment durng such year s sub|ect to the ta , snce no mtaton as to the
amount ta abe s contaned n the defnton of wages n secton 1607(b) of the
edera Unempoyment Ta ct n force pror to anuary 1, 1940. ( s to
wages for purposes of the ta for the year 1939, see artces 207 to 210,
ncusve sectons 400.207 to 400.210, ncusve, of such Tte 26, 1939 Sup. .)
( 0 New reguatons w be promugated under the edera Unempoyment
Ta ct reatng to the ta for the caendar year 1940 and subsequent years.
(4) The provsons of aw under the capton Secton 901 of the
ct mmedatey precedng artce 200 secton 400.200, Tte 26,
Code of edera Reguatons , ony as made appcabe to the In-
terna Revenue Code, are strcken out, together wth the capton, and
the foowng s nserted n eu thereof:
Secton 1600 of the Interna Revenue Code s amended to read ag
foows:
very empoyer (as defned n secton 1607(a)) sha pay for
the caendar year 1939 and for each caendar year thereafter an
e cse ta , wth respect to havng ndvduas n hs empoy, equa
to 3 per centum of the tota wages (as defned n secton 1007(b))
pad by hm durng the caendar year wth respect to empoyment
(as defned n secton 1607(c)) after December 31, 193 .
m (5) rtce 201 secton 400.201, Tte 26, Code of edera Regua-
amended to read as foows:
rt. 201 Sec. 400.201, Tte 26, Code of edera Reguatons, 1939 Sup. .
Measure of ta for caendar year 1939. (a) The measure of the ta for the
caendar year 1939 s the tota amount of wages (wthout mtaton n
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Regs. 90.
300
amount sec artce 2(c) secton 400.2(c), Tte 26, Code of edera Regua-
tons, 1939 Sup. ) pad by an empoyer durng such caendar year wth rcsptt
to empoyment after December 31. 193 .
(h) Wages are pad for purposes of the ta mposed for the caendar year
1939 when actuay or constructvey pad. Wages are constructvey pa
when they are credted to the account of or set apart for an empoyee st that
they may be drawn upon by hm at any tme athough not then actuay re-
duced to possesson. To consttute payment n such a case the wages must
be credted or set apart to the empoyee wthout any substanta mtaton or
restrcton as to the tme or manner of payment or condton upon whch pay-
ment s to be made, and must be made avaabe to hm so that they may be
drawn at any tme, and ther payment brought wthn hs own contro and
dsposton.
rt. 202 Sec. 400.202, Tte 26, Code of edera Reguatons, 1939 Snp
Rate and compuaton of ta for caendar year 1930. The rate of ta ap-
pcabe for the caendar year 1939 s 3 per cent.
The ta for the caendar year 1939 s computed by appyng the 3 per cot
rate to the tota wages (wthout mtaton n amount see artce 2(f)
secton 400.2(c), Tte 26, Code of edera Reguatons, 1939 Sup. ) pad durfc
such year by the empoyer wth respect to empoyment after December 31,193
(7) rtce 203, as amended by Treasury Decson 4931. approved
ugust 29, 1939 page 312, ths uetn secton 400.203, Tte 2C.
Code of edera Reguatons, 1939 Sup. , ony as made appcabe to
the Interna Revenue Code, s amended by strkng out the ast para-
graph and by nsertng n eu thereof the foowng:
ven f an empoyer s not sub|ect to any State unempoyment compen-
saton aw, be s nevertheess sub|ect to the ta . owever, f he s sub|ect to
such a State aw, he s entted to credt aganst the ta to the e tent permtted
by secton 1001 of the edera Unempoyment Ta ct. (See artces 211(11
and 212 sectons 400.211(1) and 400.212, Tte 26, Code of edera Reguatons,
1939 Sup. .)
( ) rtces 206 and 20 , as amended by Treasury Decson 4931,
approved ugust 29, 1939 sectons 400.206 and 400.20 , Tte 26,
Code of edera Reguatons, 1939 Sup. , and artces 207. 210, and
302 sectons 400.207, 400.210, and 400.302 of such Tte 26 , ony a
made appcabe to the Interna Revenue Code, are each amended b|
strkng out the term payabe wherever t appears and by nsert-
ng n eu thereof the term pad : and such artce 210 s further
amended by strkng out the word actuay where t appears n
paragraph ( ) thereof.
(9) rtce 209(a) secton 400.209(a), Tte 20, Code of edera
Reguatons , ony as made appcabe to the Interna Revenue Code,
s amended to read as foows:
(a) Genera. Wages pad durng the caendar year 1939 wth respect to
empoyment after December 31, 193 , ncude tems pad n money and the
far vaue, at the tme of payment, of a tems other than money.
(10) The provsons of aw under the capton Secton 902 of ttt
ct precedng artce 211, as amended by Treasury Decson 4 12.
approved une 1 , 193 C. . 193 -1, 462 secton 400.211. Tte
26, Code of edera Reguatons, 193 Sup. , ony as made appcabe
to the Interna Revenue Code, are strcken out. together wth the
capton, and the foowng s nserted n eu thereof:
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301
Regs. 90.
Secton 1001 of the Interna Revenue Code s amended to read as
foows:
Sec. 1601. Credts ganst Ta .
(a) Contrbutons to State Unempoyment unds.
(1) The ta payer may, to the e tent provded In ths sub-
secton and subsecton (c), credt aganst the ta mposed by sec-
ton 1600 the amount of contrbutons pad by hm nto an
unempoyment fund mantaned durng the ta abe year under the
unempoyment compensaton aw of a State whch s certfed for
the ta abe year ns provded n secton 1603.
(2) The credt sha be permtted aganst the ta for the
ta abe year ony for the amount of contrbutons pad wth respect
to such ta abe year.
(3) The credt aganst the ta for any ta abe year sha be
permtted ony for contrbutons pad on or before the ast day
upon whch the ta payer s requred under secton 1604 to fe a
return for such year e cept that credt sha be permtted for
contrbutons pad after such ast day but before uy 1 ne t
foowmg such ast day, but such credt sha not e ceed 90 per
centum of the amount whch woud have been aowabe as credt
on account of such contrbutons had they been pad on or before
such ast day. The precedng provsons of ths subdvson sha
not appy to the credt aganst the ta of a ta payer for any
ta abe year f such ta payer s assets, at any tme durng the
perod from such ast day for fng a return for such year to une 30
ne t foowng such ast day, both dates ncusve, are n the cus-
tody or contro of a recever, trustee, or other fducary apponted
by, or under the contro of, a court of competent |ursdcton.
(4) Upon the payment of contrbutons nto the unempoy-
ment fund of a State whch are requred under the unempoyment
compensaton aw of that State wth respect to remuneraton on
the bass of whch, pror to such payment nto the proper fund,
the tn payer erroneousy pad an amount as contrbutons under
another unempoyment compensaton aw, the payment nto the
proper fund sha, for purposes of credt aganst the ta , be
deemed to have been made at the tme of the erroneous payment.
If, by reason of such other aw, the ta payer was entted to cease
payng contrbutons wth respect to servces sub|ect to such other
aw, the payment nto the proper fund sha, for purposes of credt
aganst the ta , be deemed to have been made on the date the
return for the ta abe year was fed under secton 1604.
(5) Refund of the ta (ncudng penaty and Interest co-
ected wth respect thereto, If any), based on any credt aowabe
under ths secton, may be made n accordance wth the provsons
of aw appcabe n the case of erroneous or ega coecton of
the ta . No nterest sha be aowed or pad on the amount of
any such refund.

(c) Lmt on Tota Credts. The tota credts aowed to a ta -
payer under ths subchapter sha not e ceed 90 per centum of the
ta aganst whch such credts are aowabe.
(11) rtce 211, as amended by Treasury Decson 4 12, approved
une 1 , 193 secton 400.211, Tte 26, Code of edera Reguatons,
193 Sup. , ony as made appcabe to the Interna Revenue Code, s
strcken out and the foowng new artce s nserted n eu thereof:
rt. 211(1) Sec. 400.211(1), Tte 26, Code of edera Reguatons, 1939
Sup. . Credt aganst taw for caendar year 19S9 for contrbutons pad. (a)
Genera. Sub|ect to the mtatons herenafter prescrbed n paragraph (6),
the ta payer may credt aganst the ta for the caendar year 1939 the tota
amount of contrbutons pad by hm under a State aws whch have been
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Regs. 90.
302
I
found by the Soca Securty oard to contnn the provsons specfed n
secton 1603(a) of the edera Unempoyment Ta ct provded that no credt
may be taken for a contrbuton under a State aw If such State has not been
duy certfed for the caendar year to the Secretary by the Soca Securty
oard. The contrbutons may be credted aganst the ta whether or not
they are pad wth respect to empoyment as defned n the edera Unempoy-
ment Ta ct
(6) Lmtatons on aowance of contrbutons as credt aganst ta The
aowance of contrbutons as credt aganst the ta for the caendar year 193S
s sub|ect to the foowng mtatons:
(1) The tota credt aowed to any ta payer for contrbutons to State unem-
poyment funds sha not e ceed 90 per cent of the ta aganst whch such credt
s apped.
(2) The contrbutons must have been actuay pad nto the State unempoy-
ment fund. Such payment must have been made on or before the ast day np
whch the return for the ta abe year s requred to be fed (see artce 3
I secton 400.303, Tte 26, Code of edera Reguatons , artce 304 secton
400,304, of such Tte 26, 1939 Sup. , and artce 305 secton 400.305, of suet
Tte 26 ), e cept that:
() Contrbutons may be pad nto a State unempoyment fund after sur-
ast day but before uy 1, 1940, and. n such case, may be credted aganst
the ta n an amount not to e ceed 90 per cent of the amount whch woud
have been aowabe as credt on account of such contrbutons had they
been pad Into the State unempoyment fund on or before such ast day.
(See e ampes , , and C of ths paragraph.)
() Contrbutons of a ta payer whose assets, at any tme durng the
perod from such ast day for fng a return for the caendar year 1939. to
une 30, 1940, both dates ncusve, are n the custody or contro of a
recever, trustee, or other fducary apponted by, or under the contro of,
a court of competent |ursdcton, may be pad nto the State fund at any
tme (sub|ect, however, to the provsons of artce 503 secton 400.303.
Tte 20, Code of edera Reguatons reatng to the statutory perod o(
mtatons appcabe to credts), and upon such payment may be credted
aganst the ta n the same amount that woud have been aowabe as
credt had the contrbutons been pad on or before the ast day upon whch
the return for the ta abe year was requred to be fed.
() Contrbutons for the caendar year 1939 pad nto the unempoy-
ment fund of a State whch are requred under the unempoyment com-
pensaton aw of that State, but whch are pad wth respect to remunera-
ton on the bass of whch the ta payer had, pror to such payment,
erroneousy pad an amount as contrbutons under another unempoyment
compensaton aw, sha be deemed for purposes of credt to have been
pad at the tme of the erroneous payment. If, by reason of such other
aw, the ta payer was entted to cease payng contrbutons for the caen-
dar year 1939 wth respect to servces sub|ect to such other aw, the
payment nto the proper fund sha be deemed for purposes of credt to
have been made on the date the return for the caendar year 1939 was
actuay fed under secton 1604 of the edera Unempoyment Ta ct.
(See e ampe D of ths paragraph.)
(3) The contrbutons must have been pad wth respect to the caendar year
1939. (See e ampes and of ths paragraph.)
ampe , ustratng artce S ) (b) (2) ): The edera return of the
M Company for the caendar year 1939 dscoses a tota ta of 12,000. The
company s abe for tota State contrbutons of ,000 for such year. The
due date of the company s edera return s anuary 31, 1940, no e tenson of
tme for rng the return havng been granted. The contrbutons are not pad
unt ebruary 1, 1940. If the contrbutons had been pad on or before
anuary 31, 1940, the entre amount coud have been credted aganst the ta
(such amount not e ceedng 00 per cent of the edera ta of 12,000). Snce
the contrbutons were pad after anuary 31, but before uy 1, 1940. the M
Company s entted to a credt of 90 per cent of the amount of the contrbu-
tons ( .(100), or 7,200, the net abty for edera ta beng 4, 00 ( 12,000
mnus 7,200).
ampe , ustratng artce. 211(1) ( b) (2) (): The facts are the same as
n e ampe , e cept that the M Company s abe for and pays tota State
contrbutons of 12,000, nstead of ,000. If the contrbutons had been pad
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303
Regs. 90.
on or before anuary 31, 1940. the amount aowabe as eredt woud have been
10, 00 (90 per cent of the edera ta of 12,000). Snce the contrbutons
were pad after anuary 31, but before uy 1, 1940, the M Company s entted
to a credt of 90 per cent of 10, 00, or 9,720, the net abty for edera ta
beng 2,2 0 ( 12,000 mnus 9,720).
ampe C, ustratng artce 211 (1) (6) ( ) (): The edera return of the
R Company for the caendar year 1939 dscoses a tota ta of 10,000. The
company s abe for tota State contrbutons of 9,000 for such year. The
due date of the company s edera return s anuary 31, 1940, no e tenson of
tme for fng the return havng been granted. The R Company pays ,000
of the tota State contrbutons on or before such date, and the remanng
1,000 on ebruary 1, 1940. If the 1,000 had been pad on or before anuary 31,
11)40, that amount coud have been credted aganst the ta (such amount pus
the ,000 pad on or before anuary 31, 1940, not e ceedng 90 per cent of
the edera ta of 10,000). Snce the 1,000 was pad after anuary 31, but
before uy 1, 1940, the R Company s entted to a credt of 90 per cent of ths
amount or 900, pus the credt of ,000 aowabe for the contrbutons pad
on or before anuary 31, 1940. The net abty for edera ta s thus
1,100 ( 10,000 mnus ,900).
ampe D, ustratng artce 211(1) (6) (2) ( ): mpoyer N, whose ed-
era return for the caendar year 1939 dscoses a tota ta of 1,000, empoys
ndvduas n State and State Y durng the caendar year 1939. N assumes
n good fath that the servces of hs empoyees are covered by the unempoy-
ment compensaton aw of State Y, and pays as contrbutons to Sate Y the
amount of 900 based upon the remuneraton of the empoyees. of the
servces were In fact covered by the unempoyment compensaton aw of State
, and none by the aw of State Y. The payment to State Y was made on
anuary 31, 1940. When the error was dscovered thereafter, N pad to
State contrbutons n the amount of 900 based upon such remuneraton.
Snce the contrbutons were pad to State Y on anuary 31, 1940, the contrbu-
tons to State are, for purposes of the credt, deemed to have been pad on
such date. N Is entted to a credt of 900 aganst the edera ta of 1,000,
the net abty for edera ta beng 100 ( ,000 mnus 900).
ampe , ustratng artce 211 (1) (6) (3): Under the unempoyment com
pensaton aw of State , empoyer M s requred to report In hs contrbuton
return for the quarter ended December 31, 1939, a remuneraton payabe for
servces rendered n such quarter. porton of such remuneraton s not pad
to hs empoyees unt ebruary 1, 1940. On anuary 20, 1940, M pays to the
State the tota amount of contrbutons due wth respect to a remuneraton
so requred to be reported. Such contrbutons, ncudng those wth respect
to the remuneraton pad on ebruary 1, 1940, may be ncuded n computng
the credt aganst the ta for the caendar year 1939. Ths Is true even though
the remuneraton pad on ebruary 1, 1940 (If t consttutes wages ), s re-
qured to be reported n the edera return for 1940 and not n the edera
return for 1939.
ampe , ustratng artce 2 (1) (6) ( ): Under the unempoyment
compensaton aw of State Y, empoyer N s requred to Incude n hs con-
trbuton return for the quarter ended December 31, 1939, certan remuneraton
pad on December 30, 1939, to an empoyee for servces to be rendered after
December 31. On anuary 20, 1940, N pays to the State the tota amount of
contrbutons due wth respect to a remuneraton requred to be reported on the
contrbuton return. Such contrbutons, ncudng those wth respect to the re-
muneraton pad on December 30, 1939, may be ncuded n computng the credt
aganst the ta for the caendar year 1939.
(c) If, subsequent to the fng of the return for the caendar year 1939, a
refund s made by a State to the ta payer of any part of hs contrbutons for
such year whch had been credted aganst the ta , the ta payer Is requred to
advse the Commssoner under oath of the date and amount of such refund
and the reason therefor, and to pay the ta , If any, due as a resut of such
refund, together wth nterest from the date when the ta was due.
(12) The provsons of aw under the captons Secton 909 of the
ct and Secton 910 of the ct mmedatey precedng artce
212, as amended by Treasury Decson 4 76, approved November 30,
193 C. . 193S-2, 33 secton 400.212, Tte 26, Code of edera
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Regs. 90.
304
Reguatons. 193 Sup. , ony as made appcabe to the Interna
Revenue Code, are strcken out, together wth the captons, and the
foowng s nserted n eu thereof:
Spcton 60 ) of the Soca Securty ct n nfmpTts of 15 3 .
Secton 1G01 of the Interna Revenue Code s amended to read as
foows:

(b) ddtona Credt. In addton to the credt aowed under
subsecton (a), a ta payer may credt aganst the ta mposed by sec-
ton 1000 for any ta abe year an amount, wth respect to the unem-
poyment compensaton aw of each State certfed for the ta abe
year as provded n secton 1602 (or wth respect to any provsons
thereof so certfed), equa to the amount, f any, by whch the con-
trbutons requred to be pad by hm wth respect to the ta abe year
were ess than the contrbutons such ta payer woud have boon
requred to pay f throughout the ta abe year he had been sub|ect
under such State aw to the hghest rate apped thereunder n te
ta abe year to any person havng ndvduas n hs empoy, or to a
rate of 2.7 per centum, whchever rate s ower.

(13) rtce 212, as amended by Treasury Decson 4 76, appwed
November 30, 193 secton 400.212, Tte 26, Code of edera Regu-
atons, 193 Sup. , ony as made appcabe to the Interna Revenue
Code, s amended to read as foows:
rt. 212 Sec. 400.212, Tte 26, Code of edera Reguatons, 1939 Sm. .
ddtona credt aganst ta for caendar year 1930. (a) Genera. In add-
ton to the credt aganst the ta aowabe under secton 1601(a) of the edera
Unempoyment Ta ct for contrbutons actuay pad to State unempoyment
funds (see artce 211(1) secton 400.211(1), Tte 26, Code of edera Regua-
tons, 1939 Sup. ), the ta payer may be entted to a further credt under
secton 1601(b) of such ct. Ths further or addtona credt s aowabe
to the ta payer wth respect to the amount of contrbutons whch he s reered
from payng to au unempoyment fund under the provsons of a State aw
whch have been certfed for the caendar year 1939 as provded In secton
1002(b) of such ct. Generay, an addtona credt Is avaabe to an em-
poyer, f, by reason of havng stabzed the empoyment of hs empoyees n
any State, or for some other reason, he s permtted to pay contrbutons to such
State for the caendar year 1939, or porton thereof, at a ower rate than tf
hghest rate apped under such aw n such year. or the purposes of th
artce and artce 213 secton 400.213, Tte 26, Code of edera Reguatons.
1939 Sup. , the phrase hghest rate apped means the hghest rate whch
s actuay apped under the State aw n the caendar year 1939 to any person
havng ndvduas n hs empoy. The computaton of the addtona credt
and the mtatons upon ts aowance are set forth n the remanng para-
graphs of ths artce.
(6) Method of computng amount of addtona credt aowahe rth rctfec
to a State aw. (1) In ascertanng the addtona credt for the caendar year
1939 wth respect to a partcuar State aw as to whch the Soca Securty
oard, n accordance wth the provsons of secton 1602(b)(1) of the edera
Unempoyment Ta ct, certfes to the Secretary that reduced rates of con-
trbutons were aowabe wth respect to such year ony n accordance wth
the provsons of secton 1002(a) of such ct, the ta payer must frst compute
the foowng amounts:
( ) The amount of contrbutons (whether or not wth respect to em-
poyment as defned In the edera Unempoyment Ta ct) whch te
ta utycr woud have been requred to pay under the State aw for such
year f throughout the year he had been sub|ected to the hghest rate
apped under such aw In such year, or to a rate of 2.7 per cent, whch-
ever rate s ower.
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305 Regs. 90.
( ) The amount of contrbutons (whether or not wth respect to em-
poyment as defned n the edera Unempoyment Ta ct) he was re-
qured to pay under the State aw wth respect to such year, whether or
not pad.
The amount computed under ( ) shoud then he subtracted from the amount
computed under ( ), and the resut w be the addtona credt for the ta -
abe year wth respect to the aw of that State.
ampe: empoys ndvduas n State ony durng the caendar year 1939.
The hghest rate apped n such year under the unempoyment compensaton
aw of State to any ta payer was 3 per cent. owever, had obtaned a
reduced rate of 1 per cent under the aw of such State and was requred to pay
hs entre year s contrbutons at that rate. The amount of remuneraton of
s empoyees sub|ect to contrbutons under such State aw was 25,000. The
amount of wages pad by durng that year wth respect to empoyment under
the edera aw kewse was 26,000, the edera ta at the per cent rate
beng 750. s addtona credt under secton C01(b) s 425, computed as
foows:
Remuneraton sub|ect to contrbutons 25, 000
Contrbutons at 2.7 per cent rate 675
Less:
Contrbutons requred to be pad at reduced rate of 1 per cent 250
ddtona credt to 425
Snce the 2.7 per cent rate Is ess than the hghest rate apped (3 per cent), the
2.7 per cent rate s used n computng the amount ( 675) from whch the amount
of contrbutons requred to be pad at the reduced rate ( 250) s deducted n
order to ascertan the addtona credt ( 125). Thus, s entted to an add-
tona credt under secton 1 01(b) of the edera Unempoyment Ta ct of
425.
(2) If the Soca Securty oard makes a certfcaton to the Secretary wth
respect to a partcuar State aw for the caendar year 1939 pursuant to secton
1602(b)(2) of the edera Unempoyment Ta ct, the addtona credt of the
ta payer for such year wth respect to such aw sha be computed n such
manner as the Commssoner sha determne.
(c) mount of addtona credt aowabe where contrbutons are pad under
more than one State aw. If the ta payer s permtted to pay contrbutons at a
reduced rate under more than one State aw n the caendar year 1939, the
addtona credt aowabe wth respect to each State aw sha be computed
separatey (n accordance wth ( ) above), and the tota addtona credt aow-
abe aganst the ta sha be the aggregate of the addtona credts aowabe
wth respect to such State aws.
(d) Lmtatons on aovance of addtona credt. The aowance of the
addtona credt tnder secton 1601(b) of the edera Unempoyment Ta ct
s sub|ect to the foowng mtatons:
(1) In no case Is a ta payer entted to an addtona credt uness under the
State aw he s permtted to pay contrbutons for the caendar year 1939, or
porton thereof, at a rate whch s ower than the hghest rate apped under
such aw n such year. If the State aw does not make provson for such a
ower rate no addtona credt s avaabe to the ta payer and he can take
ony the credt aowabe under secton 1601(a) of such ct for contrbutons
actuay pad. (See artce 211(1) secton 400.211(1), Tte 26, Code of ed-
era Reguatons, 1939 Sup. .)
(2) The aggregate of such addtona credt and te credt under secton
1601(a) of such ct (see artce 211(1) secton 400.211(1), Tte 26, Code of
edera Reguatons, 1939 Sup. ) sha not e ceed 90 per cent of the ta aganst
whch credt Is taken.
(3) No addtona credt sha be aowed e cept to the e tent that the State
unempoyment compensaton aw under whch such reduced rate s permtted
Is certfed for the caendar year 1939 to the Secretary by the Soca Securty
oard as meetng the condtons set forth n secton 1602 of such ct.
(14) rtce 213, as added bv Treasury Decson 4 76, approved
November 30, 193 secton 400.213, Tte 2G, Code of edera cgu-
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Regs. 90.
306
atons, 193 Sup. , ony as made appcabe to the Interna Revenu
Code, s amended to read as foows:
rt. 213 Sec. 400.213, Tte 26, Code of edera Reguatons, 1939 Sup. .
Proof of credt for caendar year 1939. (a) Credt under secton 1601(a) f
edera Unempoyment Ta ct. Credt aganst the ta for contrbutons pad
nto State unempoyment funds for the caendar year 1939 sha not be aowed
uness there s submtted to the Commssoner:
(1) certfcate of the proper offcer of each State (the aws of whfck
requred the contrbutons to be pad) showng, for the ta payer:
( ) The tota amount of contrbutons requred under the State aw wth
respect to the caendar year 1939 (e cusve of penates and n teres I
actuay pad on or before the date the edera return s requred to be
fed and
( ) The amounts and dates of such requred payments (e cusve of
penates and nterest) actuay pad after the date the edera renn
s requred to be fed.
(2) n affdavt by the ta payer that no part of any payment made by ba
nto a Stae unempoyment fund for the caendar year 1939. whch s camed a-
a credt aganst the ta , was deducted or s to be deducted from the wages of
ndvduas n hs empoy.
(3) Such other or addtona proof as the Commssoner may deem necessary
to estabsh the rght to the credt provded for under secton 1601 (a) of the
edera Unempoyment Ta ct.
(6) ddtona credt under secton 1601(h) of edera Unempoyment Te
ct. ddtona credt under secton 1601(b) of the edera Unempoyment
Ta ct sha not be aowed uness there s submtted to the Commssoner,
n addton to the proof requred by paragraph (a) above:
(1) certfcate of the proper offcer of each State (wth respect to the
aw of whch the addtona credt s camed) showng, for the ta payer who
s permtted to pay contrbutons to such State at a rate whch s ower
than the hghest rate apped under the aw of such State:
( ) The tota remuueratou wth respect to whch contrbutons were
requred to be pad by the ta payer under the State aw for the caendar
year 1939
( ) The rate of contrbutons apped to the ta payer under the State
aw for the caendar year 1939
(C) The tota amount of contrbutons the ta payer was requred
to pay under the State aw wth respect to the caendar year 1939, whether
or not pad and
(D) The hghest rate of contrbutons apped under the State aw
n the caendar year 1939 to any ta payer havng ndvduas In hs
empoy.
If under the aw of such State dfferent rates of contrbutons were apped
to the ta payer durng partcuar perods of the caendar year 1939, the
certfcate sha set forth the nformaton caed for n ( ), ( ), and (C)
wth respect to each such perod, as we as the tota amount of contrbutons
the ta payer was requred to pay under such aw, whether or not pad,
and the nformaton caed for n (D).
(2) Such other or addtona proof as the Commssoner may deem necessary
to estabsh the rght to the addtona credt provded for under secton
1601(b) of the edera Unempoyment Ta ct.
(15) The foowng provsons of aw under the capton Secton
005(b) of the ct precedng artce 300, as amended by Treasury
Decson 4931, approved ugust 29, 1939 page 312, ths uetn
secton 400.300, Tte 26, Code of edera Reguatons, 1939 Sup. ,
ony as made appcabe to the Interna Revenue Code, are strcken
out:
The Commssoner may e tend the tme for fng the return of the
t mposed by ths tte, under such rues and reguatons as he may pre-
scrbe wth the approva of the Secretary of the Treasury, but no such e ten-
son sha be for more than s ty days.
(1C) Immedatey precedng the capton Secton 1102 of the
Revenue ct of 1926, made appcabe by secton 905(b) of the ct
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307
Regs. 90.
precedng artce 300, as amended by Treasury Decson 4931, ap-
Sroved ugust 29, 1939 secton 400.300, Tte 26, Code of edera
Reguatons, 1939 Sup. , ony as made appcabe to the Interna
Uevenue Code, the foowng s nserted:
Secton 012 of tue Soca Securty ct mendments of 1939.
Secton 1601(b) of the Interna Revenue Code s amended to
read as foows:
(b) tenson of Tme for ng. The Commssoner may e -
tend the tme for fng the return of the ta mposed by ths sub-
chapter, under such rues and reguatons as he may prescrbe wth
the approva of the Secretary, but no such e tenson sha be for more
than nnety days.
(17) rtce 304 secton 400.304, Tte 26, Code of edera Regu-
atons , ony as made appcabe to the Interna Revenue Code, s
amended by strkng out 60 days where that phrase appears n
the second sentence of such artce, and by nsertng n eu .thereof
90 days.
(1 ) rtce 307(a) secton 400.307(a), Tte 26, Code of edera
Reguatons , ony as made appcabe to the Interna Revenue Code,
(a) very person sub|ect to the ta sha, wth respect to the caendar year
1939, keep such permanent records as are necessary to estabsh:
(1) The tota amount of remuneraton pad durng the caendar year 1939
to hs empoyees n cash or n a medum other than cash, showng separatey,
(a) tota remuneraton pad wth respect to servces not sub|ect to the ta ,
performed wthn the Unted States, (6) tota remuneraton pad wth respect
to servces performed outsde of the Unted States, and (c) tota remuneraton
pad wth respect to a other servces.
(2) The amount of contrbutons pad by hm nto each State unempoyment
fund, wth respect to servces sub|ect to the aw of such State, showng sepa-
ratey (a) payments made and not deducted (or to he deducted) from the
remuneraton of empoyees, and (ft) payments made and deducted (or to be
deducted) from the remuneraton of empoyees.
(3) The Informaton requred to be shown on the prescrbed return and the
e tent to whch such person s abe for the ta .
(19) Immedatey precedng artce 504 secton 400.504, Tte 26,
Code of edera Reguatons , ony as made appcabe to the Interna
Secton 1601 of the Interna Revenue Code s amended to read as
foows:
(a) CoNTunuToNa to State Unempoyment unds.

(5) Refund of the ta (Incudng penaty and nterest coected
wth respect thereto, f any), based on any credt aowabe under
ths secton, may be made n accordance wth the provsons of
aw appcabe In the case of erroneous or ega coecton of the
ta . No Interest sha be aowed or pad on the amount of any
such refund.

rt. 503 Sec. 400.503 , Tte 26, Code of edera Reguatons, 1939
Sup. . Refund under secton 1601(a)(5) of edera Unempoyment Ta ct.
If the ta aganst whch an amount s aowabe as credt under secton 1601
of the edera Unempoyment Ta ct has been pad wthout the beneft of
such credt, the ta payer sha be entted to a refund of the ta equa to the
amount of such aowabe credt (See artces 211(1), 212, and 213 sectons
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Regs. 90, rts. 206 (9) and 503 4. 30
400.211(1), 400.212, and 400.213, Tte 26, Code of edera Reguatons, 193
Sup. , reatng, respectvey, to credt aganst the ta for contrbutons pad,
addtona credt, and proof of credt, for the caendar year 1939.) The ta -
payer sha aso be entted to a refund of the amount of nterest or penaty,
f any, coected from hm wth respect to the amount of ta refunded.
No nterest, however, sha be aowed or pad by the Government on the amouDt
of any such refund. very cam for such refund sha be made on orm W3
n accordance wth the provsons of ths artce and artce 503 secton 40O.5U3.
Tte 26, Code of edera Reguatons , reatng to refund and credt of taw
erroneousy coected. cam whch does not compy wth these requrement
w not be consdered for any purpose as a cam for refund.
n secton 1609 of the edera Unempoyment Ta ct (Subchapter
C of Chapter 9 of the Interna Revenue Code (53 Stat., Part 1),
and sectons 60 . G09, 612, and 615 of the Soca Securty ct mend-
ments of 1939 (Pubc, No. 379, Seventy-s th Congress, frst sesson).)
Guy T. everng,
ohn W. akes,
( ed wth the Dvson of the edera Regster November 14, 1939, 9.33 a. m.)
Reguatons 90.
Soca Securty ct mendments of 1939. (See Mn. 4592, page
251.)
Reguatons 90, rtces 206(9) and 503 . 1939-37-10015
( so Soca Securty ct, Tte I .) T. D. 4933
TITL 26 INT RN L R NU . C PT R I. SU C PT R D. P RT 400:
Reguatons 90, as amended, reatng to the e cse ta on em-
poyers under Tte I of the Soca Securty ct, and such regua-
tons as made appcabe to the Interna Revenue Code by Treasury
Decson 4 5 C. . 1939-1 (Part 1), 390 , further amended.
empton from ta aton under Tte I of the Soca Securty
ct and Chapter 9, Subchapter C, of the Interna Revenue Code of
servces rendered pror to anuary 1, 1940, n the empoy of foregn
governments and certan of ther Instrumentates.
Washngton, D. C.
In order to conform Reguatons 90, approved ebruary 17, 193S
ng to the e cse ta on empo| ers under Tte I of the Soca
Securty ct, and such reguatons as made appcabe to the Interna
Revenue Code by Treasury Decson 4 S5, approved ebruary 11.
1939 C. . 1939-1 (Part 1), 396 Part 465, Subpart , of suc
Tte 26 , to secton 902(f) of the Soca Securty ct mendments of
1939, approved ugust 10, 1939 (Pubc, No. 379, Seventy-s th Con-
gress, frst sesson), each of such reguatons are further amended
foows:
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309 Regs. 90, rts. 206(9) and 503 .
(1) Immedatey precedng sectons 901 and 907(b) of the Soca
Securty ct quoted mmedatey precedng artce 207 secton
400.207, Tte 26, Code of edera Reguatons , the foowng s
nserted:
No ta sha be coected under Tte I of the Soca
Securty ct or under the edera Unempoyment Tu ct,
wth respect to servces rendered pror to anuary 1, 1940, whch are
descrbed n subparagraphs (11) and (12) of sectons 1607(c)
sha be refunded In accordance wth the provsons of aw appcabe
In the case of erroneous or ega coecton of the ta . No nterest
Subchapter C of Chapter 9 of the Interna Revenue Code s amended
Sec. 1611. Ths subchapter may be cted as the edera Unem-
poyment Ta ct.
Seetoo 614 of the Soca Securty ct mendments of 1939.
ffectve anuary 1, 1940, secton 1607 of the Interna Revenue Code
Is amended to read as foows:
When used n ths subchapter

(c) mpoyment. The term empoyment means any servce per-
formed pror to anuary 1, 1940, whch was empoyment as defned n
ths secton pror to such date, and any servce, of whatever nature,
performed after December 31, 1939, wthn the Unted States by an
empoyee for the person empoyng hm, rrespectve of the ctzenshp
or resdence of ether, e cept

(11) Servce performed n the empoy of a foregn government
(ncudng servce as a consuar or other offcer or empoyee or a
nondpomatc representatve)
(12) Servce performed n the empoy of an nstrumentaty
whoy owned by a foregn government
( ) If the servce s of a character smar to that per-
formed n foregn countres by empoyees of the Unted States
Government or of an nstrumentaty thereof and
( ) If the Secretary of State sha certfy to the Secretary
of the Treasury that the foregn government, wth respect
to whose nstrumentaty e empton s camed, grants an
equvaent e empton wth respect to smar servce per-
formed n the foregn country by empoyees of the Unted
States Government and of nstrumentates thereof .
rt. 206(9) Sec. 400.206(9), Tte 26, Code of edera Reguatons .
empton from ta aton of servces performed n the empoy of foregn govern-
ments and certan of ther nstrumentates. (a) Servce performed n the
empoy of a foregn government. Servce performed n the empoy of a foregn
government s not sub|ect to the ta . The e empton embraces not ony
servces performed by ambassadors, mnsters, and other dpomatc repre-
sentatves but aso Incudes servces performed as a consuar or other offcer or
empoyee of a foregn government or as a nondpomatc representatve thereof.
or purposes of the e empton, the ctzenshp of the empoyee s mmatera.
It s aso mmatera whether the foregn government grants an equvaent
e empton wth respect to smar servces performed n the foregn country by
ctzens of the Unted States.
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Regs. 90, rte. 206(9) and 503 . 310
(6) Servce performed n 1he empoy of certan nstrumentates of foregn
governments. Servce performed n the empoy of certan nstrumentates of
a foregn government s kewse not sub|ect to the ta . The e empton e tends
to a servces performed n the empoy of an nstrumentaty of the govern-
ment of a foregn country, wthout dstncton between those e ercsng func-
tons of a governmenta nature and those e ercsng functons of a propretary
nature, provded:
(1) The nstrumentaty s whoy owned by the foregn government
(2) The servces are of a character smar to those performed n foreen
countres by empoyees of the Unted States or of an Instrumentaty thereof
and
(3) The Secretary of State certfes to the Secretary of the Treasury that the
foregn government wth respect to whose nstrumentaty e empton s camed,
grants an equvaent e empton wth respect to servces performed n the foregs
country by empoyees of the Unted States Government and of ustnnentauM
thereof.
or purposes of ths e empton the ctzenshp of the empoyee s kewse
mmatera.
(2) Immedatey precedng artce 504 secton 400.504, Tte 26.
Code of edera eguatons , the foowng s nserted:
No ta sha be coected under Tte I of the Soca Securty
ct or under the edera Unempoyment Ta ct, wth
respect to servces rendered pror to anuary 1, 1940, whch are de-
scrbed n subparagraphs (11) and (12) of sectons 1607(c)
of the Interna Revenue Code, as amended, and any such ta hereto-
fore coected (ncudng penaty and nterest wth respect thereto,
f any), sha be refunded n accordance wth the provsons of aw
appcabe n the case of erroneous or ega coecton of the ta .
No nterest sha be aowed or pad on the amount of any such
refund.
bt. 503 Sec. 400.503 , Tte 26, Code of edera Reguatons . Refvn
under secton 902(f) of the Soca Securty ct mendments of 1939. ny
ta (ncudng nterest or penaty, f any) pad wth respect to servces ren-
dered pror to anuary 1, 1940, whch are descrbed n paragraph (11) or (12)
of secton 1607(c) of the edera Unempoyment Ta ct, as amended by
secton 614 of the Soca Securty ct mendments of 1939 (see artce 206(9)
secton 400.206(9), Tte 26. Code of edera Reguatons, 1939 Sup. ), may
be refunded to the person who pad the amount of such ta to the coector.
No nterest sha be aowed or pad by the Government on the amount of any
such refund. very cam for such refund sha be made on orm 43 n
accordance wth the provsons of ths artce and artce 503 secton 400.503,
Tte 26. Code of edera Reguatons , reatng to refund and credt of ta es
erroneousy coected. cam whch does not compy wth these requrements
n secton 90S of the Soca Securty ct (49 Stat., 643 42 U. S. G,
Sup. I , 110 ), and sectons 1609 and 3791 of the Interna Revenue
Code (53 Stat., Part 1) and nterprets secton 902(f) of the Soca
Securty ct mendments of 1939 (Pubc, No. 379, Seventy-s th
Congress, frst sesson) and secton 1607(c) (11) and (12) of the
edera Unempoyment Ta ct, as amended by secton 614 of such
Soca Securty ct mendments of 1939.)
Gut T. everng,
Commssoner of Interna Revenue,
ohn W. anes,
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311 Regs. 90, rts. 206 (10) and 50S -
Ueguatons 90, rtces 206(10) and 503 . 1939-39-10032
( so Soca Securty ct, Tte I .) T. D. 4940
TITUS 26 INT RN L R NU . C PT R I, SU C PT R D, P RT 400 SU -
Reguatons 90, as amended, reatng to the e cse ta on em-
poyers under Tte I of the Soca Securty ct, and such regua-
tons as made appcabe to the Interna Revenue Code by Treasury
Decson 4 5 C. . 1939-1 (Part 1), 396 , further amended.
empton from ta aton under Tte I of the Soca Securty
ct and the edera Unempoyment Ta ct (Chapter 9, Subchap-
ter C, of the Interna Revenue Code) of certan servces rendered
pror to anuary 1, 1940, n savagng tmber and cearng debrs
eft by a hurrcane.
Washngton, D. C.
In order to conform Reguatons 90, approved ebruary 17, 1936
ng to the e cse ta on empoyers under Tte I of the Soca Secu-
rty ct, and such reguatons as made appcabe to the Interna
1939 C. . 1939-1 (Part 1), 396 Part 465, Subpart , of such
Tte 26 , to secton 2 of the ct approved ugust 11, 1939 (Pubc,
No. 400, Seventy-s th Congress, frst sesson), entted n ct to
provde for the refund or credt of the nterna-revenue ta pad on
sprts ost or rendered unmarketabe by reason of the foods of 1936
and 1937 where such sprts were n the possesson of the orgna ta -
payer or rectfer for bottng or use n rectfcaton under Govern-
ment supervson as provded by aw and reguatons, each of such
reguatons are further amended as foows:
(1) Immedatey precedng sectons 901 and 907(b) of the Soca
Securty ct quoted mmedatey precedng artce. 207 secton
400.207, Tte 26, Code of edera Reguatons , the foowng s
nserted:
Secton 2 of the ct approved ugust 11, 1910 (Pubc. No. 400, Seventy-s th
Securty ct or under the edera Unempoyment Ta ct,
wth respect to servces rendered pror to anuary 1, 1940, n the em-
of the ta . No Interest sha be aowed or pad on the amount of any
such refund.
et. 206(10) Sec. 400.206(10), Tte 26, Code of edera Reguatons .
empton from ta aton of servces performed n savagng tmber and cear-
ng debrs eft by a hurrcane. Certan servces performed In savagng tmber
and cearng and of brush and other debrs eft by a hurrcane are not sub|ect
to the ta . In order to be e empted from the ta the servces must be per-
formed:
(1) Pror to anuary 1, 1940 and
(2) s an empoyee of the owner or tenant of and on whch a hurrcane
has eft brush or other debrs, or tmber n need of savagng by reason of
such hurrcane and
( ) In cearng such and of such brush or other debrs, or In savagng
such tmber.
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Regs. 90.
312
(2) Immedatey precedng artce 504 secton 400.504, Tte 26.
Code of edera Reguatons , the foowng s nserted:
Secton 2 of the ct approved ugust 11, 1939 (Pubc, No. 400, Sevent|-eta
Securty ct or under the edera Unempoyment Ta ct,
wth respect to servces rendered pror to anuary 1, 1940, In the em-
of the ta . No nterest sha be aowed or pad on the amount of any
such refund.
ut. 003 Sec. 400.503 , Tte 26, Code of edera Reguatons ,
fund under secton 2 of the ct approved ugust 11, 1939. ny ta (ucudh
nterest or penaty, f any) pad wth respect to servces rendered pror to
anuary 1, 1940, whch are descrbed n secton 2 of the ct approved ngus
11, 1 39 (Pubc, No. 400, Seventy-s th Congress, frst sesson), may be re-
funded to the person who pad the amount of such ta to the coector. (S
artce 206(10) secton 400.206(10), Tte 26, Code of edera Reguaton
1930 Sup. .) No nterest sha be aowed or pad by the Government on tbe
amount of any such refund. very cam for such refund sha be made
orm 43 n accordance wth the provsons of ths artce and artce S3
secton 400.003, Tte 26, Code of edera Reguatons , reatng to refund am
credt of ta es erroneousy coected. cam whch does not compy wth
these requrements w not be consdered for any purpose as a cam for refund.
n secton 90 of the Soca Securty ct (49 Stat., 643 42 U. S. C,
Sup. I , 110 ), and sectons 1609 and 3791 of the Interna Revenue
Code (53 Stat., Part 1).)
Gut T. everno,
ohn W. anks,
( ed wth the Dvson of the edera Regster September 22, 1939, 12.52 p. m)
Secton 1607: Defntons. 1939-36-10CW
Reguatons 90. T. D. 4931
TITL 20 INT RN L R NU . Cn PT R I, SU C PT R D, P RT 400
Reguatons 90, as made appcabe to the Interna Revenue Code
by Treasury Decson 4 5 C. . 1939-I art 1), 396 , amended.
Servces e cepted from mpoyment under secton 1607(c)
of the Interna Revenue Code (whch supersedes secton 907(c),
Tte I , of the Soca Securty ct) by reason of the provsons
of secton 13(a) of the Raroad Unempoyment Insurance ct.
Washngton, D. C.
To Coectors of Inferna Revenue and Others Concerned:
Secton 13(a) of the Raroad Unempoyment Insurance ct.
approved une 25, 193 (52 Stat., 1110 42 U. S. G, Sup. I ,
1107(c)( )), provdes:
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313
Regs. 90.
ffectve uy 1, 1939, secton 907(c) of the Soca Securty ct s
hereby amended by substtutng a semcoon for the perod at the end
thereof, and by addng: ( ) servce performed n the empoy of an
empoyer as defned n the Raroad Unempoyment Insurance ct and
servce performed as an empoyee representatve as defned n sad
ct
Secton 1607(c) of Subchapter C of Chapter 9 of the Interna
Revenue Code, as enacted ebruary 10,1939 (53 Stat,, Part 1), whch
supersedes secton 907(c) of the Soca Securty ct, provdes:
mpoyment. The term empoyment means any servce, of what-
ever nature, performed wthn the Unted States by an empoyee for hs
empoyer, e cept
(1) grcutura abor
(2) Domestc servce n a prvate home
(3) Servce performed as an offcer or member of the crew of a
vesse on the navgabe waters of the Unted States
(4) Servce performed by an Indvdua n the empoy of hs
son, daughter, or spouse, and servce performed by a chd under
the age of 21 n the empoy of hs father or mother
(5) Servce performed n the empoy of the Unted States Gov-
ernment or of an nstrumentaty of the Unted States
(6) Servce performed n the empoy of a State, a potca sub-
dvson thereof, or an nstrumentaty of one or more States or
potca subdvsons
(7) Servce performed In the empoy of a corporaton, com-
munty chest, fund, or foundaton, organzed and operated e -
cusvey for regous, chartabe, scentfc, terary, or educatona
purposes, or for the preventon of cruety to chdren or anmas,
no part of the net earnngs of whch nures to the beneft of any
prvate sharehoder or ndvdua.
Secton 22 of the ct of une 20, 1939 (Pubc, No. 141, Seventy-
s th Congress), provdes:
The provsons of the Raroad Unempoyment Insurance ct, as
heren amended, sha be n fu force and effect notwthstandng the
enactment of the Interna Revenue Code.
Reguatons 90, approved ebruary 17, 1936 (Part 400, Tte 26.
Code of edera Reguatons), as made appcabe to the Interna
1939 C. . 1939-1, (Part 1), page 396 (Part 465, Subpart , of such
Tte 26), are amended as foows, n order to conform wth the above-
quoted provsons of aw:
(1) Immedatey precedng artce 1 (secton 400.1, Tte 26, Code
of edera Reguatons), as made appcabe to the Interna Revenue
Code, the foowng s nserted:
Secton 13(a) of the Raroad Unempoyment Insurance ct
ct.
(2) rtce 203 (secton 400.203, Tte 26, Code of edera Regua-
tons), artce 204 (secton 400.204 of such Tte 26), artce 206
(secton 400.206 of such Tte 26), artce 20 (secton 400.20 of such
Tte 26), and artce 211(b)3 (secton 400.211(b)3 of such Tte
26), as made appcabe to the Interna Revenue Code, are each
amended by strkng out 206(7), n the parenthetca cross-refer-
209190 40 11
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Regs. 90.
314
ence to artces 206 to 206(7), ncusve, as contaned n each of such
artces, and by nsertng n eu thereof 206( ).
(3) Immedatey after artce 206(7) (secton 400.206(7), Tte26.
Code of edera Reguatons), as made appcabe to the Ltera
Secton 13(a) of the Raroad Unempoyment Insurance ct.
ct.
Secton 1, as amended, of the Raroad Unempoyment Insurance ct
or the purposes of ths ct,
(a) The term empoyer means any carrer (as defned n sub-
secton (b) of ths secton), and any company whch s drecty or
Indrecty owned or controed by one or more such carrers or under
common contro therewth, and whch operates any equpment or facty
or performs any servce (e cept truckng servce, casua servce, and
the casua operaton of equpment or factes) n connecton wth the
transportaton of passengers or property by raroad, or the recept,
devery, eevaton, transfer n transt, refrgeraton or cng, storage,
or handng of property transported by raroad, and any recever,
trustee, or other Indvdua or body, |udca or otherwse, when n the
possesson of the property or operatng a or any part of the busness
of any such empoyer: Provded, however, That the term empoyer
sha not ncude any street, nterurban, or suburban eectrc raway,
uness such raway s operatng as a part of a genera steam-raroad
system of transportaton, but sha not e cude any part of the genera
steam-raroad system of transportaton now or hereafter operated by
any other motve power. The Interstate Commerce Commsson s
hereby authorzed and drected upon request of the oard, or upon
compant of any party Interested, to determne after hearng whether
any ne operated by eectrc power fas wthn the terms of ths
provso. The term empoyer sha aso ncude raroad assoca-
tons, traffc assocatons, tarff bureaus, demurrage bureaus, weghng
and nspecton bureaus, coecton agences, and other assocatons,
bureaus, agences, or organzatons controed and mantaned whoy
or prncpay by two or more empoyers as herenbefore defned and
engaged n the performance of servces n connecton wth or nc-
denta to raroad transportaton and raway abor organzatons,
natona n scope, whch have been or may be organzed n accordance
wth the provsons of the Raway Labor ct, and ther State and
Natona egsatve commttees and ther genera commttees and ther
nsurance departments and ther oca odges and dvsons, estabshed
pursuant to the consttuton and by-aws of such organzatons.
(b) The term carrer means an e press company, seepng-car
company, or carrer by raroad, sub|ect to Part I of the Interstate
Commerce ct
(c) The term company ncudes corporatons, assocatons, and
|ont-stock companes.

(f) The term empoyee representatve means any offcer or offca
representatve of a raway abor organzaton other than a abor
organzaton ncuded In the term empoyer as defned n secton 1(a)
who before or after ugust 29, 1935, was n the servce of an empoyer
as defned n secton 1(a) and who s duy authorzed and desgnated
to represent empoyees In accordance wth the Raway Labor ct, and
any Indvdua who Is reguary assgned to or reguary empoyed by
such offcer or offca representatve n connecton wth the dutes of
bs offce.

(r) The term oard means the Raroad Retrement oard.
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315
Regs. 90, rt. 205.
rt. 206( ) (Secton 400.206( ), Tte 26, Code of edera Reguatons). m-
poyees and empoyee representatves under the Raroad Unempoyment Insur-
ance ct. Servces performed on and after uy 1, 1939, n the empoy of an
empoyer or as an empoyee representatve, as those terms are defned In
the Raroad Unempoyment Insurance ct, are e cepted.
(4) Immedatey precedng the ast paragraph of artce 300 (sec-
ton 400.300, Tte 26, Code of edera Reguatons), as made app-
cabe to the Interna Revenue Code, the foowng new paragraph s
nserted:
Returns requred under Subchapter O of Chapter 9 of the Interna Revenue
Code to be made by empoyers who are aso empoyers as defned n the Ra-
road Unempoyment Insurance ct sha be made n the same manner and at
the same tme and pace as returns are requred under such subchapter to be
made by other empoyers sub|ect to such subchapter.
(5) rtce 400 (secton 400.400, Tte 26, Code of edera Regu-
atons), as made appcabe to the Interna Revenue Code, s
amended by addng at the end thereof the foowng new paragraph:
The ta mposed under Subchapter C of Chapter 9 of the Interna Revenue
Code on empoyers who are aso empoyers as defned n the Raroad Unem-
poyment Insurance ct sha be due and payabe n the same manner and at
the same tme and pace as the ta s due and payabe by other empoyers
sub|ect to such subchapter.
(Ths Treasury decson s prescrbed pursuant to the foowng
sectons of aw: Secton 1607(c) of the Interna Revenue Code (53
Stat., Part 1), secton 13(a) of the Raroad Unempoyment Insur-
ance ct (52 Stat., 1110 42 U. S. C, Sup. I , 1107(c) ), secton 22
of the ct of une 20, 1939 (Pubc, No. 141, Seventy-s th Con-
gress), and secton 1609 of the Interna Revenue Code (53 Stat.,
Part 1).)
Gut T. everng,
ohn W. anes,
Secton 1607: Defntons.
Reguatons 90, rtce 204: Who are empoyers.
dmnstrators domcary and ancary. (See S. S. T. 3 0,
page 2 9.)
Reguatons 90, rtce 205: mpoyed ndvduas. S. S. T. 372
ce presdents of the M Corporaton are not honorary
offcers wthn the meanng of Mmeograph 4 0 (C. . 1939-1 (Part
1), 312) and shoud be ncuded n determnng the tota num-
ber of empoyees for the purpose of Subchapter C, Chapter 9, of the
Interna Revenue Code (formery Tte I of the Soca Securty
ct).
dvce s requested whether the vce presdents of the M Corpo-
raton shoud be ncuded n the tota number of empoyees n deter-
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Regs. 90, rt. 206.
316
mnng whether the corporaton s sub|ect to the ta mposed by
Subchapter C, Chapter 9, of the Interna Revenue Code (formem
Tte I of the Soca Securty ct).
The M Corporaton contends that the vce presdents are honor-
ary offcers and shoud not be consdered as empoyees of the cor-
poraton. It s ponted out that the board of drectors of the
Corporaton assgned no dutes to the vce presdents and that the|
have performed no physca servces for the corporaton. It s ak
stated that they receve no compensaton as vce presdents of u
corporaton, that the purpose of the board of drectors n appont
the ndvduas to such offces was to assocate ther names wth tb
corporaton snce they are men of promnence n ther respectrf
communtes, and that n the event a vce presdent resgned or ded
the vacancy thereby created woud not be fed.
Secton 1607(h) of Subchapter C, Chapter 9 of the Interna trc-
nue Code provdes that the term empoyee ncudes an offcer of a
corporaton. In accordance wth ths provson of aw, the offcers of
a corporaton shoud be ncuded for the purpose of determnng
whether the corporaton empoys a suffcent number of empoyee
for the prescrbed perod to be an empoyer sub|ect to the ta m-
posed by Subchapter C, Chapter 9, of the Interna Revenue Code.
The fact that the offcer does not receve any remuneraton or tha:
he performs no physca servce for the corporaton does not neces-
sary mean that he s not an empoyee.
Mmeograph 4 0 (C. . 1939-1 (Part 1), 312), made appcabe
to Subchapter C, Chapter 9, of the Interna Revenue Code, hods
that an honorary offcer of a corporaton may not, n any rea sense,
be regarded as an offcer of the corporaton and concudes that an
honorary offcer s not an empoyee for purposes of the ta mposed
under Tte I of the Soca Securty ct. In determnng whether
the concuson reached n Mmeograph 4 0 appes n any partcuar
nstance, t s necessary to decde whether the ndvdua nvoved
an honorary offcer.
In the present case the record does not dscose that the vce pres-
dents of the M Corporaton have an honorary status. The offces
were created by the by-aws of the corporaton. The by-aws provde
that each vce presdent sha have such powers as are mcdent to the
offce of vce presdent and sha perform such dutes as may be as-
sgned to hm by the board of drectors. In the absence or dsabty
of the presdent, the dutes of hs offce sha be performed by one of
the vce presdents.
Under the facts presented, t s hed that the vce presdents of the
M Corporaton are not honorary offcers wthn the meanng of
Mmeograph 4 0. ccordngy, the vce presdents shoud be n-
cuded as empoyees of the M Corporaton for purposes of Subchapter
C, Chapter 9, of the Interna Revenue Code (formery Tte I of
Reguatons 90, rtce 205: mpoyed ndvduas.
Research assocates performng servces at the Natona ureau
of Standards. (See S. S. T. 370, page 274.)
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317
Regs. 90, rt. 207.
Informaton requred for rungs as to whether saes agents are
empoyees. (See Mm. 4767 (rev.), page 276.)
usness anayst and consutant (See S. S. T. 373, page 275.)
Orchestra eader contractng wth varous purchasers. (See
S. S. T. 375, page 2 0.)
eature performers of the O Crcus Co. (See S. S. T. 376, page
2 6.)
Saes cerks. (See S. S. T. 377, page 2 .)
Reguatons 90, rtce 206(1): grcutura abor.
Status of servces of empoyees who perform both e cepted and
none cepted servces. (See S. S. T. 374, page 290.)
Reguatons 90, rtce 206(5)-(6): Government empoyees.
Indvduas renderng servces to the estate of an Indan ward of
the Unted States. (See S. S. T. 37 , page 292.)
Reguatons 90, rtce 207: Wages.
dvances made to empoyees whch they are egay obgated to
repay. (See S. S. T. 379, page 293.)
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Regs. 100, rt. 6.
31S
C RRI RS T ING CT O 1937.
Reguatons 100.
ppcabty of rungs under Carrers Ta ng ct of 1937 to
Interna Revenue Code. (See C. T. 19, page 294.)
Secton 1: Defntons.
Reguatons 100, rtce 3: Who are empoyees.
Physcans engaged by raroad company. (See C. T. 1 , page 295 )
Secton 1: Defntons.
Reguatons 100, rtce 5: Defnton of compensaton.
Ta abty of amounts of dues and nsurance premums empoyees
are freed from payng. (See Mm. 4949, page 296.)
Reguatons 100, rtce 6: Items ncuded as C. T. 1
compensaton.
The vaue of housng accommodatons furnshed secton fore-
men of the M Raroad Co. as a part of ther remuneraton, such
vaue beng f ed by agreement between the empoyer and empoyee,
consttutes ta abe compensaton for the purpose of t he Ca -
rers Ta ng ct of 1937.
dvce s requested whether the vaue of housng accommodaton
furnshed secton foremen under crcumstances set forth beow con-
sttutes compensaton wthn the meanng of secton 1(e) of the
Carrers Ta ng ct of 1937.
It s stated that pror to uy , 19 , t had been the practce
of the M Raroad Co. to furnsh, wherever practcabe, housng ac-
commodatons for secton foremen snce t was desrabe to have ths
cass of empoyees aways avaabe, and snce, n manv cases, the
raroad passed through sectons of the country where other sutabe
housng coud not be found. The desre of the raroad company to
furnsh such accommodatons to a secton foremen was not com-
petey reazed and agtaton arose among the foremen who were
not furnshed housng accommodatons for an aowance n eu
of such accommodatons. s a resut of negotatons, an agree-
ment was entered nto whch specfes the amount of remuneraton to
be pad to a secton foremen. Those who are not furnshed housng
accommodatons are pad 10a doars n cash each month, and those
furnshed such accommodatons are pad 9a doars n cash, t beng
agreed that the vaue of the housng accommodatons be f ed at |
doars per month.
Secton 1(e) of the Carrers Ta ng ct of 1937 provdes as
foows:
The term compensaton means any form of money remuneraton earned
by an ndvdua for servces rendered as an empoyee to one or more em-
poyers, or as an empoyee representatve, ncudng remuneraton pad for
tme ost as an empoyee, but remuneraton pad for tme ost sha be deemed
earned n the month n whch such tme s ost Such term does not ncude
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319 Regs. 91, rt. 13 and 504)4.
tps, or the vountary payment by an empoyer, wthout deducton from the
remuneraton of the empoyee, of the ta mposed on such empoyee by secton
2 of ths ct
Where t s agreed by the empoyer and empoyee that housng ac-
commodatons of a -f ed vaue consttute a part of the empoyee s
tota remuneraton, t s hed that the vaue of such accommodatons
consttutes compensaton for the purpose of the Carrers Ta ng
ct of 1937. On the other hand, where the empoyment agreement
does not provde, ether e pressy or mpedy, for the ncuson of
a f ed vaue for housng accommodatons as part of the empoyee s
remuneraton, such vaue does not consttute ta abe compensaton.
determnaton of whether, n any case, the vaue of such accom-
modatons consttutes ta abe compensaton must, of course, be based
upon the partcuar facts of that case.
In the present case the resut of the agreement entered nto was to
estabsh a certan money remmeraton for a foremen. In other
words, the effect of the agreement was that a foremen woud re-
ceve the same amount of wages, some foremen recevng a wages
n cash, and others n cash and housng accommodatons. The f ed
vaue of the housng accommodatons so furnshed s, n effect, sub-
tracted from the tota amount of the foremen s agreed wages n de-
termnng the amount of cash compensaton to be pad to hm. Un-
der the crcumstances n ths case, t s hed that the f ed vaue of the
housng accommodatons, that s, the dfference between the cash pay-
ment of wages to those not furnshed housng accommodatons and
the cash payment to those furnshed such accommodatons, const-
tutes ta ahe compensaton for the purpose of the Carrers Ta -
ng ct of 1937. The concusons reached are equay appcabe to
the vaue of smar tems furnshed to an empoyee by hs empoyer.
T S UND R SOCI L S CURITY CT.
TITL III. T S WIT R SP CT TO MPLOYM NT.
Reguatons 91.
Soca Securty ct mendments of 1939. (See Mm. 4952, page
251.)
Reguatons 91.
ppcabty of rungs and mmeographs under Soca Securty ct
to Interna Revenue Code. (See S. S. T. 371, page 266.)
Reguatons 91, rtces 13y2 and 504y2.
Servces performed n the empoy of foregn governments and nstru
mentates, Reguatons 91 amended. (See T. D. 4934, page 270.)
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Regs. 90, rte. 211 and 503 320
Reguatons 91, rtces 13 and 5043/4-
Savagng tmber and cearng debrs eft by a hurrcane, Regua-
tons 91 amended. (See T. D. 4941, page 272.)
TITL I . T ON MPLOY RS O IG T OR MOR
Reguatons 90.
Soca Securty ct mendments of 1939. (See Mm. 4952, page
251.)
Reguatons 90.
ppcabty of rungs and mmeographs under Soca Securty ct
to Interna Revenue Code. (See S. S. T. 371, page 266.)
Reguatons 90, rtces 206(9) and 503 .
Servces performed n the empoy of foregn governments and nstru-
mentates, Reguatons 90 amended. (See T. D. 4933, page 30 .)
Reguatons 90, rtces 206(10) and 503 .
Savagng tmber and cearng debrs eft by a hurrcane, Regua-
tons 90 amended. (See T. D. 4940, page 311.)
Reguatons 90, rtces 211 and 503 2. 1939-3 -10023
T. D.4937
TITL 2 INT RN L R NU . C PT R I, SU C PT R D, P RT 400.
Reguatons 90, as amended, reatng to the e cse ta on empoy-
ers under Tte I of the Soca Securty ct, further amended.
Credts aganst, and refunds of, the ta mposed by Tte I
of the Soca Securty ct for the caendar years 1930, 1937, and
193 .
Washngton, D. C.
In order to conform Reguatons 90, approved ebruary 17, 1936
Part 400, Tte 26. Code of edera Reguatons , as amended, to
secton 902 (a), (b), (c), (d), and (h) of the Soca Securty ct
mendments of 1939 (Pubc, No. 379, Seventy-s th Congress, frst
sesson), such reguatons are further amended as foows:
(1) Immedatey precedng artce 211, as amended by Treasury De-
cson 4 12, approved une 1 , 193 C. . 193 -1, 462 secton
400.211, Tte 26, Code of edera Reguatons, 193 Sup. , the
foowng s nserted:
(a) ganst the ta mposed by secton 901 of the Soca Securty
ct for the caendar year 1936, 1937, or 193 , any ta payer sha be
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321 Regs. 90, rts. 211 and 503
aowed credt for the amount of contrbutons, wth respect to empoy-
ment durng such year, pad by hm nto an unempoyment fund under
a State aw
(1) efore the s teth day after the date of the enactment of
ths ct
(2) On or after such s teth day, wth respect to wages pad
after the forteth day after such date of enactment
(3) Wthout regard to the date of payment, f the assets of the
ta payer are, at any tme durng the ffty-nne-duy perod foowng
such date of enactment, n the custody or contro of a recever,
trustee, or other fducary apponted by, or under the contro of, a
court of competent |ursdcton.
(b) Upon the payment of contrbutons nto the unempoyment fund
of a State whch are requred under the unempoyment compensaton
aw of that State wth respect to remuneraton on the bass of whch,
pror to such payment nto the proper fund, the ta payer erroneousy
pad an amount as contrbutons under another unempoyment compen-
saton aw, the payment nto the proper fund sha, for purposes of
credt aganst the ta mposed by secton 901 of the Soca Securty
ct for the caendar years 1936, 1937, and 193 , respectvey, be deemed
to have been made at the tme of the erroneous payment. If, by
reason of such other aw, the ta payer was entted to cease payng
contrbutons wth respect to servces sub|ect to such other aw, the
payment nto the proper fund sha, for purposes of credt aganst the
ta , be deemed to have been made on the date the return for the
ta abe year was fed under secton 905 of the Soca Securty ct.
(c) The provsons of the Soca Securty ct n force pror to
ebruary 11, 1939 (e cept the provsons mtng the credt to amounts
pad before the date of fng returns), sha appy to aowance of credt
under subsectons (a), (b), and (h), and the terms used n such sub-
sectons sha have the same meanng as when used In Tte I of the
Soca Securty ct pror to such date. The tota credt aowabe
aganst the ta mposed by secton 901 of such ct for the caendar
years 1936, 1937, and 193 , respectvey, sha not e ceed 90 per centum
of such ta .

(h) Notwthstandng the provson of secton 907(f) of the Soca
Securty ct mtng the term contrbutons to payments requred by
a State aw, credt sha be permtted aganst the ta mposed by secton
901 of such ct for the caendar year 1936 or 1937, for so much of any
payments made as contrbutons for such year nto the unempoyment
fund of a State whch are hed by the hghest court of such State not
to be requred payments under the unempoyment compensaton aw of
such State f they are not returned to the ta payer. So much of such
payments as are not so returned sha be consdered to be contrbu-
tons for the purposes of secton 903 of such ct The perods of
mtatons prescrbed by secton 3312(a) of the Interna Revenue Code
sha not begn to run, n the case of the ta for suc year of any ta -
payer to whom any such payment s returned, unt the ast such
payment s returned to the ta payer.

(2) rtce 211, as amended by Treasury Decson 4 12, approved
une 1 , 193 secton 400.211, Tte 26, Code of edera Reguatons,
193 Sup. , s further amended to read as foows:
bt. 211. Credt of contrbutons aganst ta for caendar years 19S6, 19S7,
and 193 . (a) Genera. Sub|ect to the mtatons herenafter prescrbed n
paragraph (6), the ta payer may credt aganst the ta for the caendar
year 1936, 1937, or 193 the tota amount of hs contrbutons under a State
aws whch have been found by the Soca Securty oard to contan the pro-
vsons specfed n secton 903(a) of the Soca Securty ct provded that
no credt may be taken for a contrbuton under a State aw f such State has
not been duy certfed for the caendar year to the Secretary by the Soca
Securty oard.
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Regs. 90, rte. 211 and 503 .
322
(6) Lmtaton on aowance of contrbutons at credt aganst to . The
aowance of contrbutons as credt aganst the ta for the caendar yea
1936, 1937, or 193 s sub|ect to the foowng mtatons:
(1) The tota credt aowed to any ta payer for contrbutons to State
unempoyment funds wth respect to empoyment durng any one year sha
not e ceed 90 per cent of the ta aganst whch suc credt s apped.
(2) The contrbutons must have been actuay pad Into the State unempoy-
ment fund. Such payment must have been made before October 9, IDS,
e cept that:
() The contrbutons wth respect to wages pad after September 19, 19S
(for empoyment durng the caendar year 1936, 1937, or 193 ), may be pad
nto the State fund on or after October 9, 1939, sub|ect, however, to the pre-
vsons of artce 503 of these reguatons secton 400.603, Tte 26, Code of
edera Reguatons , reatng to the statutory perod of mtatons appcabe
to credts.
( ) The contrbutons of a ta payer whose assets, at any tme durng the
perod ugust 11, 1939, to October , 1939, Incusve, are n the custody or
contro of a recever, trustee, or fducary apponted by, or under the WDto
of, a court of competent |ursdcton, may be pad nto the State fund at u|
tme, sub|ect, however, to the provsons of artce 503 of these reguatons
secton 400.503, Tte 26, Code of edera Reguatons , reatng to the statu-
tory perod of mtatons appcabe to credts.
( ) The contrbutons pd Into the unempoyment fund of a State whct
are requred under the unempoyment compensaton aw of that State, wt
respect to remuneraton on the bass of whch the ta payer had, pror to suet
payment, erroneousy pad an amount as contrbutons under another un-
empoyment compensaton aw, sha be deemed to have been made at the
tme of the erroneous payment. If, by reason of such other aw, the ta payer
was entted to cease payng contrbutons wth respect to servces sub|ect tu
such other aw, the payment nto the proper fund sha be deemed to hare
been made on the date the return for the ta abe year was actuay fed under
secton 905 of the Soca Securty ct
(3) The contrbutons must have been pad wth respect to empoyment a
defned n secton 907(c) of the Soca Securty ct, that s, wth reepert
to servces performed by an empoyee wthn the Unted States and not e cepted
by such ct. (See artces 206 to 206(7) sectons 400.206 to 400.206(7),
Tte 26, Code of edera Reguatons , ncusve.)
(4) The contrbutons must have been pad wth respect to servces performed
durng the caendar year covered by the return.
(c) Contrbutons. The term contrbutons for purposes of credt agan t
the ta means payments requred to be made by an empoyer pursuant to a State
aw nto the unempoyment fund of such State, to the e tent that such payments
are made by the empoyer wthout any part thereof beng deducted or dedudbe
from the wages of ndvduas n hs empoy. Notwthstandng the provson
mtng the term to payments requred by a State aw, the term aso ncudes so
much of any payments made as contrbutons for the caendar year 1936 or 19,1.
nto the unempoyment fund of a State whch payments are hed by the hghot
court of such State not to be requred payments under the unempoyment com-
pensaton aw of such State, as are not returned to the ta payer.
(d) If, subsequent to the fng of the return, a refund s made by a State to
the ta payer of any part of hs contrbutons whch had been credted aganst
the ta , the ta payer s requred to advse the Commssoner under oatb of tbe
date and amount of such refund and the reason therefor, and to pay the ta.
any, due as a resut of such refund, together wth Interest from the date when
the ta was due.
(3) Immedatey precedng artce 50Sy2, as added bv Treafurr
Decson 4 12, approved une 1 , 193 secton 400.503y2, Tte 6,
Code of edera Reguatons, 193 Sup. , the foowng s nserted:
ecton 902(d) of the Soca Securty ct mendments of 1939.
Refund of the ta (ncudng penaty and nterest coected wth re-
spect thereto, f any), based on any credt aowabe under subsectons
(a), (b), and (h), may be made n accordance wth the provsons of a
appcabe n the case of erroneous or Iega coecton of the ta . No
nterest sha be aowed or pad on the amount of any such refund.
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323
Regs. 90, rt. 209.
(4) rtce 503 4, as added by Treasury Decson 4 12, approved
une 1 ,193 secton 400.503/2, Tte 26, Code of edera Reguatons,
193 Sup. , s amended to read as foows:
rt. 503 4- Refund under secton 002(d) of the Soca Securty ct mend-
ments of 19 9. (a) If the ta aganst whch an amount s aowabe as credt
under secton 902 (a), (b), and (h) of the Soca Securty ct mendments of
1939 (see artce 211, as amended secton 400.211, Tte 26, Code of edera
Reguatons, 1939 Sup. ) has been pad wthout the beneft of such credt, the
ta payer sha be entted to a refund of the ta equa to the amount of such
aowabe credt. The ta payer sha aso be entted to a refund of the
amount of nterest or penaty, f any, coected from hm wth respect to the
amount of ta refunded. No nterest, however, sha be aowed or pad by the
Government on the amount of any such refund.
(6) very cam for refund under secton 902(d) of the Soca Securty
ct mendments of 1939 sha be made on orm 43 In accordance wth the
provsons of ths artce and artce 503 secton 400.503, Tte 20, Code of
edera Reguatons . cam whch does not compy wth these requrements
Ths Treasury decson s effectve ony wth respect to the ta
mposed by Tte I of the Soca Securty ct for the caendar
years 1936, 1937, and 193 . or provsons wth respect to subse-
quent caendar years, see the edera Unempoyment Ta ct (Sub-
chapter C of Chapter 9 of the Interna Revenue Code, as amended
by the Soca Securty ct mendments of 1939 (Pubc, No. 379,
Seventy-s th Congress frst sesson)).
secton 902(c) of the Soca Securty ct mendments of 1939 (Pub-
c, No. 379, Seventy-s th Congress, frst sesson), and secton 90 of
the Soca Securty ct (49 Stat, 643 42 U. S. C, Sup. I , 110 ) and
nterprets secton 902 (a), (b), (c), (d), and (h) of the Soca Secu-
rty ct mendments of 1939 (Pubc, No. 379, Seventy-s th Con-
gress, frst sesson), and sectons 902 and 907 of the Soca Securty
ct (49 Stat, 639, 642 42 U. S. C, Sup. I , 1102, 1107).)
Gut T. evernq,
ohn W. anes,
Reguatons 90, rtce 209: Items ncuded as S. S. T. 369
wages.
Computaton of wages under Tte I of the Soca Securty ct
n the case of a saesman whose e penses for a caendar year e -
ceed the commssons payabe for empoyment wthn that year.
dvce s requested whether n cases where the e penses of a saes-
man e ceed hs commssons for any caendar year t s permssbe to
carry over and deduct such e cess from commssons payabe wthn
the succeedng year for the purpose of computng the saesman s ta -
abe wages under Tte I of the Soca Securty ct for that year.
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Regs. 90, rt. 209.
324
The term wages as defned n secton 907(b), Tte I , of the
Soca Securty ct ncudes a remuneraton for empoyment.
mounts pad to traveng saesmen or other empoyees as aowance
or rembursements for traveng or other e penses ncurred n the
busness of the empoyer consttute wages ony to the e tent of the
e cess of such amounts over the e penses actuay ncurred and ac-
counted for by the empoyee. ( rtce 209(c), Reguatons 90.) It
S. S. T. 2 (C. . -2,397 (1936)) t was hed that where a saesmr:
s pad a certan amount to cover hs saary and e penses ncurred
hs empover s busness, the bass for computng the ta mposed h
secton 901, Tte I , of the ct s the tota amount pad or payabs
mnus the e penses actuay ncurred and accounted for by the a e
man. In S. S. T. 365 (C. . 1939-1, (Part 1), 307) t was be-
that, for purposes of Tte III of the ct, the e cess of e pert
ncurred by a saesman wthn the ast quarter of a caendar year over
commssons pad wthn that quarter may not be carred over ac
deducted from commssons earned wthn the frst quarter of the suc-
ceedng caendar year for the purpose of computng the wages of tr
saesman for that quarter.
Snce the ta mposed by secton 901, Tte I , of the Soca
curty ct s specfcay eved upon a caendar year bass, t s hed
that where a saesman s e penses e ceed hs commssons for any ta-
abe year, such e cess may not be carred over and deducted from
commssons payabe wthn the subsequent year for the purpose of
computng the wages of the saesman for that year. urthermore,
athough ony the tota wages payabe by an empoyer wth respect to
empoyment wthn a caendar year are requred to be reported n the
return fed for that year, n computng that tota, the wages of each
ndvdua empoyee must be separatey determned. That s, the em-
poyer may not compute the tota wages by deductng the tota e -
penses ncurred by a empoyees from the tota commssons payabe
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MISC LL N OUS T RULINGS.
ST T T .
INT RN L R NU COD .
ST T T S CTION 13. CR DITS G INST T .
Reguatons 0(1937), rtce 9(6) : Credt for 1939-36-9996
estate, nhertance, egacy, or successson ta es. T. D. 4932
rtce 2(b): tenson of tme for pay-
ment of ta attrbutabe to a reversonary
or remander nterest.
rtces 9 and 2 of Reguatons 0(1937 dton) as made app-
cabe to the Interna Revenue Code amended. Credt for estate.
Inhertance, egacy, or successon ta es.
Offce of Commssoner of Interna Revent e,
Washngton, D. C.
In order to conform Reguatons 0 (Part 0, Tte 26, Code of
edera Reguatons), as made appcabe to the Interna Revenue
Code (53 Stat., Part 1) by Treasury Decson 4 5, approved ebru-
ary 11, 1939 C. . 1939-1 (Part 1), 396 (Part 465, Subpart ,
Tte 26, Code of edera Reguatons), to the Revenue ct of 1939
(53 Stat., 62), such reguatons are amended as foows:
1. Insert mmedatey precedng artce 9(a) (secton 0.9(a) of
such Tte 26):
Sbc. 403. Revenue ct of 1939.
(a) Secton 13(b) of the Interna Revenue Code (reatng to the 0
per centum credt for estate, egacy, successon, and nhertance tu es
pad) s amended by nsertng after Dstrct of Coumba, the foow-
ng: or any possesson of the Unted States, .
(b) The amendment made by subsecton (a) sha be appcabe ony
wth respect to estates of decedents dyng after the date of the enactment
of ths ct.
2. (a) Insert mmedatey foowng the frst sentence of artce
9(6) (secton 0.9(b), Tte 26, Code of edera Reguatons):
If the decedent ded after une 29, 1939, the credt aganst the basc edera
estate ta , s, under the same condtons, authorzed by secton 13(b) of the
Interna Revenue Code, as amended by secton 403 of the Revenue ct of 1939,
for estate, nhertance, egacy, or successon ta es pad to any State or Terrtory,
the Dstrct of Coumba, or any possesson of the Unted States.
(325)
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Regs. 0 (1937), rt. 44.
32G
(b) Insert mmedatey after the comma foowng the word Ter-
rtory n the frst and fourth paragraphs of artce 9(b), the words
possesson of the Unted States foowed by a comma.
(c) Insert mmedatey after Dstrct of Coumba n the second
paragraph of artce 9(6):
(or, If the decedent ded after une 29, 1939, to any possesson of the Unted
States).
(d) Insert mmedatey after the word Terrtory n the s th
paragraph of artce 9(b) the words or possesson of the Unted
States.
3. Insert n the seventh paragraph of artce 2(6) (secton 0. 2,
Tte 26, Code of edera Reguatons) after the comma foowng
the word Terrtores the words or possessons of the Unted States
foowed by a comma.
(Ths Treasury decson s prescrbed pursuant to secton 13(b) of
the Interna Revenue Code (53 Stat., Part 1), as amended by secton
403 of the Revenue ct of 1939 ( 53 Stat, 62), and secton 3791(a)
of the Interna Revenue Code.)
Gut T. ever g,
ohn W. anes,
S CTION 12(d). N T ST T TR NS RS OR PU LIC
C RIT L , ND R LIGIOUS US S.
Reguatons 0 (1937), rtce 44: Transfers for 1939-36-10001
pubc, chartabe, regous, etc., uses. . T. 13
bequest of a remander Interest n s estate to the M ssoca-
ton sub|ect to the condtons that the assocaton sha not remove
from a certan county or cease to operate for the same purpose as
pror to s death s deductbe n determnng the vaue of the
net estate of .
dvce s requested whether, n determnng the vaue of the net
estate of , a resdent of rzona, the bequest herenafter descrbed
s aowabe as a deducton under secton 12(d) of the Interna
Revenue Code.
Secton 12(d) provdes n part for the deducton from the vaue
of the gross estate of bequests to or for the use of any corporaton
organzed and operated e cusvey for chartabe purposes, no part
of the net earnngs of whch nures to the beneft of any prvate
stockhoder or ndvdua, and no substanta part of the actvtes of
whch s carryng on propaganda, or otherwse attemptng, to
nfuence egsaton.
Under the terms of s w, the resdue of hs estate s bequeathed
n trust for the beneft of hs wfe and the M ssocaton, a corpora-
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327
Regs. 0 (1937), rt. 44.
ton. The ncome of the trust s to be pad to the wfe for fe, and
after her death to the M ssocaton so ong as the assocaton, as
then e stng, sha be mantaned n N County, and n the event
that the assocaton, as then e stng, sha be removed from N
County or sha cease to operate as an assocaton for the care and
mantenance of orphan chdren, the trust sha cease and the prn-
cpa thereof sha be dstrbuted to s hers. The assocaton had
been mantanng a home n N County, rz., for orphan chdren
pror to and at the tme of s death.
The queston s whether the possbty that the M ssocaton may
remove from N County, or cease to operate as an assocaton for the
care and mantenance of orphan chdren, affects the deductbty of
the bequest of the remander nterest n determnng s net estate.
Inasmuch as the M ssocaton had been operatng a home for
orphan chdren n N County pror to, and at the tme of, s death,
t evdenty was the ntenton of that the ncome of the trust
shoud be pad to the assocaton so ong as t contnued to operate
n N County for the same purposes t had operated up to s death.
There s no evdence of any act or omsson on the part of the asso-
caton whch woud gve tne trustee any rght to cam a forfeture
of the bequest.
The M ssocaton, by vrtue of s w, has a vested remander
n the trust ncome sub|ect to beng dvested by reason of ts remova
from N County or the cessaton of ts operaton of a home for orphan
chdren, whch are condtons subsequent. (See argason v. Com-
mssoner, 21 . T. ., 1032, acquescence, C. . -2, 22 (1931).)
Condtons subsequent are those whose effect s not produced unt
after the vestng of the estate. a condton subsequent de-
feats the estate n case t does not happen or s not performed.
(Unted States v. urth Natona ank n Wchta, ans., 3 ed.
(2d), 5.) In 107 . L. R, 03, appears the foowng annotaton to
the decson cted above:
Where the condtons and crcumstances were such that the vaue of the
condtona gft or bequest coud be reasonaby ascertaned by recognzed
methods from known data, or the contngency whch mght defeat t was so
remote and whoy mprobabe that the uncertanty was not apprecaby
greater than the genera uncertanty that attends human affars, the amount
of such gft or bequest has generay been hed to be deductbe. See, for e -
ampe, Ithaca Trust Co. v. Unted States (1929) (279 U. S., 151, 73 L. ed,
647. 49 S. Ct, 291 Ct D. 61, C. . III-1, 313 (1929)1) Unted States v.
Provdent Trust Co. (1934) (291 U. S., 272, 7 L. ed., 793, 54 S. Ct., 3 9 Ct
D. 797, C. . III-1, 365 (1934) ) rst Nat. ank v. Snead (192 C. C. .
5) (24 . (2d), 1 6).
(See aso Lucas v. Mercante Trust Co., 43 ed. (2d), 39.)
Under the facts presented n ths case, t s hed that the bequest
of the remander nterest to the M ssocaton s deductbe n de-
termnng the vaue of the net estate of .
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Regs. 0 (1937), rt. 50.
32S
S CTIONS 62 ND 63.
Reguatons 0 (1937), rtce 50: Stus of 1939-4 -1011C
property. T.D.4956
TITL 2 INT RN L R NU . C PT R I, P RT 0. ST T T .
rtce 60, Reguatons 0 (1037 edton), amended. Stus of
property.
Washngton, D. C.
rtce 50 of Reguatons 0, 1937 edton (secton 0.50 of Tte
26, Code of edera Reguatons), and that artce as made appcabe
to the Interna Revenue Code by Treasury Decson 4 5, appwd
ebruary 11, 1939 C. . 1939-1 (Part 1), 3961 (Part 465, Subp
, of such Tte 26), s hereby amended to read as foows:
bt. 50. Stus of property. Rea estate, tangbe persona property, and te
wrtten evdence of ntangbe persona property whch s treated as beng b
property Itsef are wthn the Unted States If physcay stnated theren
or e ampe, a bond for the payment of money s not wthn the Unted Staes
uness physcay stuated theren. Stock of a domestc corporaton, howew.
consttutes property wthn the Unted States, Irrespectve of where the certf-
cates thereof are physcay ocated.
Intangbe persona property the wrtten evdence of whch s not treated s
beng the property Itsef consttutes property wthn the Unted States f cot
s stng of a property rght Issung from or enforcbe aganst a resdent of the
Unted States or a domestc corporaton (pubc or prvate). If not sub|ect to
the e cepton prescrbed n secton 303(e). Under the provsons of that secton
the amount recevabe as nsurance upon the fe of a nonresdent decedent
(nonresdent aen decedent, If death occurred after the enactment of
Revenue ct of 1934), and moneys deposted by or for such a decedeat,
was not engaged n busness n the Unted States at the tme of hs death, wtb
any person carryng on the bankng busness, sha not be deemed property
wthn the Unted States.
Property of whch the decedent has made a transfer ta abe under te
provsons of artce 15 s deemed to be stuated n the Unted States f
stuated ether at the tme of the transfer or at the tme of the decedent s
death. (See artces 15 to 21, ncusve.)
(Ths Treasury decson s prescrbed pursuant to the foowff
sectons of aw: Sectons 62, 937, and 3791 (a) 1 of the Interna
Revenue Code (53 Stat., Part 1) secton 303(d) of the Revenue ct
of 1926 (44 Stat., 72), as amended by secton 403(d) of the Revenue
ct of 1934 (4 Stat., 753 26 U. S. C, 462) secton 1101 of th
Revenue ct of 1926 (44 Stat., I 26 U. S. C, 1691) and secton
403 of the Revenue ct of 1932 (47 Stat., 245), as amended by secton
403(f) of the Revenue ct of 1934 (4 Stat, 753 26 U. S. C., 537).)
Gut T. everng,
Commssoner of Interna Reverau.
ohn W. anes,
( ed wth the Dvson of the edera Regster November 21, 1939,12.56 p. m-
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329
Regs. 70 (1929), rt. 25.
TITL n. ST T T . (1926)
S CTION 302(g).
Reguatons 70 (1929), rtce 25: Ta abe
nsurance.
1939-33-9956
Ct. D. 1413
estate ta revenue act op 1026 decson of court.
1. Gross state Insurance Proceeds Premums Pad by Pedges.
The decedent and hs wfe entered Into an agreement wth a cor-
poraton of whch he was presdent, whereby nsurance poces on
hs fe, ssued n the usua form and namng hs wfe as benefcary,
wth reservaton of the rght to change such desgnaton, were
pedged to the corporaton as coatera securty for payment of the
premums by the pedgee unt the nsured attaned the age of 40
years, or unt he ded, f that event shoud frst occur t beng
agreed that f he shoud de before reachng that age, the pedgee
shoud be pad from the nsurance proceeds the amount of a the
premums whch t had pad, wth nterest, and 25,000 n addton,
and that f the Insured shoud reach the age of 40, he and hs wfe
shoud then pay to the pedgee the amount of a premums pad by
t, wth nterest, and that thereafter the pedgee shoud have no
further Interest n the poces. The Insured ded before attanng
the age of 40, and the benefcary pad to the pedgee the amounts
agreed upon. ed: That the nsured retaned tte to the poces,
wth a the ega ncdents of ownershp, unt hs death that the
payment of premums must be attrbuted to the nsured, who owned
and pedged the poces, and not to the benefcary or to the
pedgee and that the poces were taken out by the Insured,
wthn the meanng of secton 302(g) of the Revenue ct of 192
and the appcabe reguatons, so that that porton of the proceeds
recevabe by the benefcary In e cess of the statutory e empton
was requred to be ncuded n the gross estate of the decedent.
2. Decson ffrmed.
(36 . T. ., 113 ) affrmed.
een . Neson, dmnstratr of the state of rank R. McDermand, /r.
Deceased, pettoner, v. Commssoner of Interna Revenue, respondent.
101 Ted. (2d), 56 .
On petton to revew decson of the Unted States oard ot Ta ppeas.
Sanborn, Crcut udge, devered the opnon of the court
Ths s a petton to revew a decson of the oard of Ta ppeas redeter-
mnng a defcency n the edera estate ta due upon the estate of rank R
McDermand, r., deceased, resutng from the faure of the pettoner to n-
cude proceeds of certan poces of fe nsurance n gross estate. (36 . T. .,
113 .)
rank R. McDermand, r., the Insured under s poces of fe Insurance
aggregatng 200,000 n face vaue, whch were pedged to the Coumban og
Catte Powder Co., a Mssour corporaton of whch he was presdent, ded
uy 3, 1931, at the age of 30 years. s wfe, een McDermand (now een
. Neson), was the benefcary under each of the poces, and receved the
efore Sanborn, Woodrough, and Thomas, Crcut udges.
ebruary 23, 1939.
opnon.
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Regs. 70 (1929), rt. 25.
330
proceeds. She pad to the pedgee, from the proceeds of the poces, 1 , 46.0 .
the amount of premums whch t had pad wth 5 per cent Interest, and 2n.O00
In addton. These payments were made n fufment of an agreement whch
she and her husband had made wth the pedgee ugust , 1929 (amended
pr 26, 1930).1 In substance, the agreement was that the pedgee shoud pay
a premums upon these poces unt the Insured reached the age of 40 years
or unt he ded f that event shoud frst occur that If he ded before he was
40 years of age, the pedgee shoud be pad, out of the proceeds of the Insur-
ance, a premums whch It had pad, wth nterest at 5 per cent per annum,
and 25,000 n addton that If the Insured ved unt he was 40 years of age,
he and hs wfe shoud then pay to the pedgee a premums pad by t, wth
nterest, and that, upon such payment beng made, the pedgee shoud have no
further nterest n the poces.
Three of the pedged poces, aggregatng 100,000 n face vaue, had been
apped for and ssued to the nsured severa months before the pedge agree-
rtces of agreement, made and entered nto ths th day of ugust, 1929. by and
between Coumban og Catte Powder Co., a corporaton organzed and e stng under
the aws of the State of Mssour, of the frst part, and rank R. McDermand, r.. and
een McDermand, hs wfe, of the second part, a of ansas Cty, Mo., wtnesseth:
Whereas the recent death of rank R. McDermand, Sr., has made necessary new manage-
ment of frst party, of whch rank R. McDermand, r., s presdent, as the successor of
rank R. McDermand, Sr. and
Whereas for the ne t severa years the death of the sad rank R. McDermand. r.,
woud be a serous oss to frst party and
Whereas rank R. McDermand, r., one of the second partes, s desrous of havng hs
fe nsured In favor of hs wfe, een McDermand, the other of sad second partes, and
desres the ad of frst party n provdng for and payng the premums on such nsurance.
Now. Therefore, for and n consderaton of the sum of one doar ( 1) each to the
other In hand pad, the recept of whch Is hereby acknowedged, and of the mutua
covenants and agreements heren made. It Is greed by and between the partes hereto as
foows to wt:
1. The sad rank R. McDermand, r., one of second partes, agrees to procure and have
hs fe Insured In approved and recognzed od ne fe nsurance company or companes,
n the sum of one hundred seventy-four thousand fve hundred doars ( 174,500), payabe
to een McDermand, hs wfe, the other of second partes.
2. The premums on sad Insurance from year to year unt the death of the sad rank
R. McDermand, r., or unt such tme as he attans the age of 40 years, sha be pad by
frst party.
. Shoud the sad rank R. McDermand, r., de at or pror to attanng the age of
40 years, It Is agreed that there sha be pad to frst party, from and out of the nsurance
herenabove mentoned, the foowng tems:
(a) The sum of twenty-fve thousand doars ( 25,000).
(6) sum equvaent to a premums on sad nsurance pad by frst party.
(c) Interest upon a premums aforesad pad by frst party from the date of the
respectve payments, at the rate of fve per cent (5 ) per annum.
nd It Is agreed that the benefcary under the terms of the poces aforesad, sha
come Into possesson of and hod the amount necessary to meet the aforesad tems (a),
(b), and (c), as trustee for frst party and prompty upon recept thereof from the
nsurance company or companes, she agrees to pay the same to frst party, and sad
poces of Insurance sha be, and hereby are pedged, as coatera securty to sad pay-
ment so to be made to frst party. The baance of sad nsurance sha be the absoute
property of the benefcary under the provsons of sad poces of Insurance.
4. Shoud the sad rank R. McDermand, r., ve to attan the age of 40 years, then,
and at that tme, the partes of the second part agree to and sha pay frst party. Its
successors or assgns, a sum of money equvaent to a sums pad by frst party to and
upon the premums for nsurance aforesad, together wth Interest thereon at the rate of
fve per cent (G ) per annum from the date of the respectve premum payments and
upon the sad rank R. McDermand, r., attanng the ace of 40 years the sad frst party
sha be under no obgaton to make any further or addtona premum payments on sad
Insurance, and thereafter, and upon recevng payment as aforesad. It sha have no rcbt.
tte nor cam In and to sad nsurance or any of the proceeds arsng therefrom, but toe
whoe of sad pocy or poces sha be pad as per the terms of sad pocy or poces,
and ths contract sha thereafter be nu and vod.
In wtness whereof, the sad Coumban og Catte Powder Co. has caused the-
presents to be sgned by ts presdent and attested by Its secretary and the corporate sea
to be hereto attached, and the sad second partes have hereto set hands and seas on the
day and year frst above wrtten.
Coumban noo Catte owdks Co.
y Sgnature of partes.
It beng to the mutua Interest of the undersgned, and n consderaton of one doar
( 1) each to the other n hand pad, the recept of whch Is hereby acknowedged, t t
agreed that the nsurance provded for n paragraph 1 of the wthn contract may be
Increased from one hundred seventy four thousand fve hundred doars ( 174,500) to two
hundred thousand doars ( 200,000) the sad Insurance beng n a respects sub|ect to
the terms and provsons of the wthn contract bearng date ugust , 1929.
Done ths 26 day of pr, 1930.
Coumban oo 4 Catte Powdeb Co.
y Sgnature of partes.
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331
Regs. 70 (1929), rt. 25.
ment was made. The other three poces were a apped for by, and ssued to,
the Insured durng the eght months subsequent to that tme. The poces were
20-payment fe poces In the usua form, reservng to the nsured the rght
to change the benefcary and provdng oan and surrender vaues after three
years. They were assgnabe wthout the consent of the benefcary.
The queston presented Is whether the s poces n sut were token out
by the nsured, so that that porton of the Insurance recevabe by the bene-
fcary n e cess of 40,000 was requred to be ncuded n gross estate, by vrtue
of the provsons of secton 302(g) of the Revenue ct of 1926 ch. 27, 44 Stat,
9, 70-71 20 U. S. C, secton 441(g) and the appcabe Treasury reguatons.
The pettoner contends that when the nsured entered nto the pedge agree-
ment and secured ts fufment by deverng the poces to the pedgee, he
no onger had any Interest n them transferabe by death, and that none of the
premums were pad by hm ether drecty or Indrecty. The respondent con-
tends that the nsured, In effect, borrowed the money wth whch the premums
were pad, and remaned the owner of the poces, and that hs death resuted
n termnatng substanta rghts under the poces.
Reduced to ts smpest terms, t seems to us that ths s a pan case of an
nsured pedgng hs poces of nsurance as securty for the payment of pre-
mums whch he woud otherwse have to pay hmsef. Whether the arrange-
ment consttuted the Insured a debtor of the pedgee In a strct and technca
sense, we regard as of no substanta mportance. The pedgee contracted that
there shoud be repad to t by the nsured and hs wfe or from the proceeds
of the poces the moneys whch It advanced for premums. It charged these
premum payments upon ts books to The rank R McDcrmand, r., Insur-
ance ccount. If the nsured dd not contract a debt, he at east assumed an
obgaton that the amount advanced by the pedgee for premums shoud be
repad and that t shoud retan possesson of the poces unt t was repad.
It must be remembered that substance, not form, shoud contro In the app-
caton of ta ng statutes. (Unted States v. Phes, 257 U. S., 156, 16 T. D.
3270, C. . 5, 37 (1921) S. . Mac ueen Co. v. Commssoner (3 Cr.), 07 .
(2d), 57, 5 Lonsdae v. Commssoner ( Cr.), 32 . (2d), 537, 539 C t. D.
93, C. . III-2, 237 (1929) everng v. Gordon ( Cr.), 7 . (2d), 663,
666 Sanborn v. Commssoner ( Cr.), . (2d), 1 4, 137.)
The Insured retaned the tte to these poces sub|ect to the pedge agree-
ment. The rghts of the benefcary, whch were contngent under the terms
of the poces, were not enarged by the pedge agreement. The fact that
the nsured, by pedgng hs poces for a or more than they were worth, made
t mpractcabe to surrender them for cash, to secure pocy oans, or even to
change the benefcary, a, we thnk, unmportant n determnng whether the
proceeds recevabe by the benefcary were to be ncuded n the nsured s
Sec. 302. The vaue of tbe 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

(g) To the e tent of the amount recevabe by the e ecutor as nsurance under poces
taken out by the decedent upon hs own fe and to the e tent of tbe e cess over 40,000
of the amount recevabe by a other benefcares as nsurance under poces taken out
by the decedent upon hs own fe.
Treasury Reguatons 70 (1929 d.):
rt. 25. Ta abe nsurance. The statute provdes for the Incuson In the gross estate
of Insurance taken out by tbe decedent upon hs own fe, as foows: (a) Insurance
recevabe by, or for tbe beneft of, tbe estate (b) a other Insurance to the e tent that
t e ceeds In the aggregate 40,000.
The term nsurance refers to fe Insurance of every descrpton, Incudng death
benefts pad by fraterna benefca socetes, operatng under tbe odge system. Insurance
Is deemed to be taken out by tbe decedent n a coses where he pays a the premums,
ether drecty or ndrecty, whether or not he makes the appcaton. On tbe other
hand, tbe nsurance s not deemed to be taken out by the decedent, even though the
appcaton Is made by hm, where a the premums are actuay pad by the benefcary.
Where a porton of the premums were pad by the benefcary ana the remanng porton
by the decedent the Insurance w be deemed to have been taken out by the atter In the
proporton that the premums pad by hm bear to the tota of premums pad.
rt. 27. Insurance recevabe by other benefcares. Insurance In e cess of 40,000
recevabe by benefcares other than the estate, regardess of when taken out, must be
ncuded n the gross estate where the decedent durng hs fe retaned ega Incdents
of ownershp n the poces of nsurance, as, for e ampe, a power to change the bene-
fcary, to surrender or cance the poces, to assgn them, to revoke an assgnment of
them, to pedge them for oans, or to dspose otherwse of them and ther proceeds for
hs own beneft,
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Regs. 70 (1929), rt. 25.
332
gross estate. It Is, of course, true that any coatera whch, to the e tent
of ts fu vaue, s pedged to secure a oan, s, as a practca matter, not
usabe as securty for another oan, but t st beongs to the pedgor cd
remans a part of hs estate, sub|ect to the rghts of the pedgee.
So n ths case the nsured retaned tte to the poces, wth a the ncdents
of ownershp. Not unt hs death dd the rghts of the benefcary becom
vested. Then for the frst tme, t became certan that the nsured woud
never change the benefcary, that he woud never surrender the poces for
cash, or cance them, or agan pedge them as securty for a oan. The term-
naton by death of the ega ncdents of ownershp, whch freed the benefcary
from the possbty of ther e ercse, was a transfer |ustfyng the ncuson n
gross estate of so much of the proceeds of these poces as was recevabe
by the benefcary n e cess of the statutory e empton. (Chase Nat. ank t,
Unted States, 27 U. S., 327, 335 Ct. D. 40, C. . III-1, 30 (1929) Water
v. Unted States ( Cr.), 3 . (2d), 103, 10 rown v. Commssoner (6 Cr.).
95 . (2 1), 1 4, 1 Igeheart v. Commssoner (5 Cr.), 77 . (2d), 704,711
Ct. D. 10 9, C. . -1, 3o (1936) .)
Moreover, we thnk that the payment of the premums upon these poces
must be attrbuted to the nsured, who owned and pedged them, and not to tn
benefcary or to the pedgee. or that reason, aso, the nsurance s to be
regarded as havng been taken out by the nsured. (Lang v. Commssoner,
304 U. S., 264, 26 -270 ank of merca v. Commssoner (9 Cr.), 90 . (M,
9 1, 9 3 Ct. D. 129 , C. . 193 -1, 504 Waker v. Commssoner ( Cr.), S3 .
(2d), 103, 109 everng v. RcyUne (2 Cr.), 3 . (2d), 215, 216-217 Wt / f.
Crooks (D. C), 52 . (2d), 692, 695.)
The order of the oard s affrmed.
Reguatons 70 (1929), rtce 25: Ta abe nsur- 1939-50-1011
ance. CtD.1423
ST T T R NU CT OP 1926 D CISION OP COURT.
1. Gross state Payment to enefcares Undeb nnuty
Contract Not empt rom Ta aton as Lfe Insurance.
contract entered nto between the decedent and the Sun Lfe
ssurance Co. of Canada whereby, n consderaton of a snge pay-
ment of 42,000, the company agreed to pay to the decedent an
annuty of 1,400 durng hs fe, to pay to hm or hs assgns the
sum of 40,000 at any tme upon surrender of the contract, or to
pay to benefcares named n the contract at east the prncpa
sum of 40,000 upon proof of decedent s death, s an annuty or
nvestment contract and not a fe nsurance contract, and the
amount pad to the benefcares pursuant to the terms of the
contract s therefore ncudbe n the gross estate of the decedent
for estate ta purposes.
2. Decson ffrmed.
Decson of the Unted States oard of Ta ppeas (193 ) (37
. T. ., 435) affrmed.
pedge Is a contract for the devery of personaty, to be retaned by the ped m
securty for the performance of some obgaton due trom the pedgor the cg
remanng n the pedgor and possesson ony passng to (he pedgee, who has sp| -
property In the thng pedged unt the obgaton secured s satsfed. 7f, f ,.
Unon Cent. Lfe Ins. Co., 133 Mo. pp, 345, 112 S. W., 754, 75U-760 MM|
Commsson Co. v. C. It. bert Commsson Co.. 244 Mo., 3 . 147 S. W., 1005. 10(.:
v. cnrchs (Mo. pp.), 250 S. W., 492, 494 Wams . Uchmetz (Mo. pp.). 14 h ,
(2d), 900. 907 New York Lfe Ins. Co. . Itees ( Cr.), 1 ) . (2d). 7 1, 7 4:
Co. v. ger, 103 U. S., 352, 350 21 R. C. L., sectons 1, 5, 7, pages C3fM .)
obgaton or debt s an essenta eement of the pedge. (Insurance Co. v.
supra, 350.)
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333
Regs. 70 (1929), rt. 25.
Unted States Cbcut Court of ppeas fob the bst Crcut.
Od Coony Trust Co. et a., ecutors, of the W of verett Morss, pettoner
for revew, v. Commssoner of Interna Revenue.
102 . (2d), 3 0.
Petton (or revew of a decson of the Unted States oard of Ta ppeas.
efore ngham, Wson, and bewsteb, .
March 2, 1039.
OPINION.
bewsteb, .: Ths Is a petton for revew of a decson of the Unted States
oard of Ta ppeas, determnng a defcency n the estate ta abty of the
estate of whch the pettoners are e ecutors. The queston s whether a sum
of money pad to the benefcares pursuant to a pocy ssued by the Sun Lfe
ssurance Co. of Canada shoud be ncuded In the gross estate of the decedent
The decedent, verett Morss, ded December 27, 1933.
On ugust 27, 192 , the ssurance company entered Into a wrtten contract
wth Morss. The contract, theren termed a pocy, provded that n con-
sderaton of the payment of a snge premum of 42,000 the company woud
pay to the decedent (theren caed the annutant ) a yeary annuty of 1,400
durng hs fetme, and woud pay at hs death to the benefcares named n the
pocy the greater of two amounts frst the prncpa sum of 40,000 together
wth a proportonate part of the annuty payment for the fractona perod
between the date of the ast annuty payment and the date of death, or, second,
a sum equa to the premum pad for the pocy ess the sum of a annuty
payments whch shoud have been made under t a annuty payments, Incud-
ng the proportonate payment on the death of the annutant, to be ncreased
by such dvdends as mght be aotted by the company out of ts surpus
Interest earnngs. The benefcares were the decedent s three chdren, and
t was provded that shoud any chd have predeceased the annutant, hs or
her share sha be pad to hs or her ega wfe or husband, f any, otherwse
to the e ecutors, admnstrators or assgns of the annutant In eu of pay-
ment n one sum of the amount payabe at death, optons were gven for
aternatve methods of settement by annuty or Instament payments.
The age of the decedent was stated In the pocy as 63. The pocy was
stated to be ssued n consderaton of the representatons and agreements con-
taned n the wrtten appcaton therefor, and t was provded that f the age
of the annutant had been msstated, the amount payabe shoud be such sum as
the premum pad woud have purchased accordng to the rate at the true age.
The pocy contaned a provson permttng ts surrender to the company at any
tme for an amount equa to the prncpa sum, and the company agreed that
It woud advance to the annutant, upon proper assgnment of the pocy, any
amount not e ceedng the cash vaue of the pocy. There was a provson
aso permttng the annutant to change the benefcares. The contract was
descrbed as Lfe nnuty Prncpa Sum Payabe at Deat Snge Premum
nnua Dvdends.
fter the death of the decedent, the ssurance company n due course pad
to hs three chdren the sum of 40,994.20. Of ths amount, 40,000 was the
prncpa sum under the pocy and 994.20 was accrued annuty.
The pettoners, n ther edera estate ta return, reported the recept of
sad sum of 40,994.20 as Insurance on the fe of the decedent, payabe to the
named benefcares, and e cuded the amount of 40,000 as Insurance recev-
abe by benefcares other than the estate not In e cess of 40,000.
The Commssoner added to the vaue of the gross estate the amount of
40,000, havng concuded that the agreement under whch the payment was
made was not a pocy of nsurance but an annuty contract, and as such was
ta abe to the estate.
The oard of Ta ppeas hed that the Commssoner was correct n ncudng
that amount n the gross estate.
It was stpuated between the partes n the proceedngs before the oard that
the foowng facts shoud be deemed to be true for the purposes of the appea.
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Regs. 70 (1929), rt. 25. 334
The consderaton pad by the decedent for the Issue of the contract was
aocted by the Sun Lfe ssurance Co. of Canada on an actuara bass, s
porton of such consderaton beng treated as an amount pad for a fe
annuty durng the fe of the decedent and the other porton of such consdera-
ton as an amount pad as a snge premum for a pad-up fe nsurance poc|
on the fe of the decedent. Sub|ect to ony mnor varatons, the amounts so
aocated accord wth the pubshed premum rates of the Sun Lfe ssurance
Co. of Canada for the ssue of such fe annuty and fe nsurance contract
respectvey, ssued n each nstance to a mae person of the age of the decedent
Contracts of the type ssued by the Sun Lfe ssurance Co. of Canada to the
decedent, n ugust, 192 , were commony wrtten at that tme by the Sun fe
ssurance Co. of Canada and by numerous other nsurance companes. -4c
actua aocaton of the consderaton pad for the ssue of such contracts s
customary made by the Sun Lfe ssurance Co. of Canada and by other nsur-
ance companes wrtng smar contracts, the method of aocaton empoyed ad
the resuts of such aocaton beng substantay as set forth above wth respect
to the aocaton of the consderaton pad under the contract of the decedent
The Commssoner reserved the rght to ob|ect to these facts as beng rree-
vant and mmatera, and the oard apparenty deemed them mmatera
The statute upon whch pettoner rees s secton 302(g) of the Revenue ct
of 1926 (26 U. S. C. ., 411) whch provdes for the ncuson n a decedents
gross estate of the e cess over 40,000 of the amount recevabe by a bene-
fcares, other than decedent s estate, as nsurance under poces taken out by
the decedent upon hs own fe. The case turns upon the queston whether toe
contract descrbed above was a contract of fe nsurance or an annuty or
nvestment contract. The oard of Ta ppeas hed that the contract made
by the decedent was not a contract of fe nsurance. In ts opnon t sad:
Ths seems evdent from readng the contract. urther, there s no evdent
that decedent apped for fe nsurance or submtted to the usua physcs
e amnaton. The company appears to have been unconcerned wth the eement
of fe e pectancy or physca condton, even though decedent was 63 years of
age at the tme he made the contract. The snge payment n the amount of
42,000 does not appear to have been a premum for fe nsurance. It was not
consderaton gven for an agreement to ndemnfy aganst the oss of fe nor
does the amount of the payment appear to have been proportoned to any We
nsurance rsk.
s the oard of Ta ppeas ponted out, the company agreed to pay the
annutant the amount of 1,400, annuay, for fe, to be ncreased by such
dvdends as may be aotted by the company out of ts surpus nterest earn-
ngs to pay to the annutant or hs assgns 40,000, of anp tme upon surrender
of the contract to pay to the benefcares of the annutant at east the prn-
cpa sum of 40,000 upon proof of death of the annutant. The amount of te
annuty agreed to be pad s 3 /- (three and one-haf per cent) of the prncpa
amount. Thus t appears that the company guaranteed to the annutant a
return of 3 (three and one-thrd per cent) on the tota amount pad to the
company and a return of at east the prncpa amount of 40,000 ether to the
annutant or hs assgns durng hs fe, on surrender of the pocy, or to W
benefcares upon hs death. The oard, n ts opnon, added that:
The death of the annutant operated to termnate the contract rather than
cause an nsurer s obgaton to become payabe. The company had an obp-
ton at a tmes to pay the prncpa sum set forth n the contract condtoned
ony on the surrender thereof. Death of the annutant was not the soe con-
tngency for payment of the prncpa sum.
We are of the opnon that the decson of the oard of Ta ppeas was
correct. contract of nsurance s generay regarded as one whereby, for3
stpuated consderaton, a party undertakes to ndemnfy another aganst oss
by a specfed contngency or per, caed a rsk. In the case of fe nsur-
ance, the contngency s the death of the nsured. The contract now wder
consderaton does not present the essenta requstes of fe nsurance. There
s no undertakng by the company to ndemnfy anyone for a oss. The e tent
of ts abty for the prncpa sum was not contngent upon the event of death.
That event ony determned the tme when and the persons to whom the sum
advanced was to be repad. The pettoner argues that the company assumed
a rsk, but we have dffcuty n dscoverng any rsk whch was dependent upon
the duraton of the fe of the nsured. To go to reates, we are confronted
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335
Regs. 0 (1937), rt. 44.
wth a case where the decedent turned over to the company 42,000 and took
the company s agreement that It woud return 40,000 at any tme he or hs
assgns so requested, and n the meantme woud pay to hm an amount equa
to 3 (three and one-haf per cent) of that sum so ong as the company
retaned It. It Is true the company made the further agreement that upon the
decedent s death the 40,000 was to be pad over to the benefcares. We do
not thnk that such an undertakng Invoved the knd of rsk whch
characterzes fe nsurance.
It s the pettoner s contenton that the pocy combnes an annuty feature
and a fe nsurance feature, and, so far as It provdes for a payment of the
prncpa sum on the death of the Insured, t s a contract of fe nsurance.
Ths contenton s not sound because the obgatons of the company were such
that the nvestment feature predomnates and gves character to the contract.
In other ursdctons, there s authorty for the proposton that annuty and
Investment contracts are not fe nsurance contracts, even though provson
s made for the payment to benefcares named. (State e re. Thornton v.
Probate Court, 1 6 Mnn., 351 In re Wash, 19 . Supp., 567 Moskourtz
v. Davs, 6 . (2d), 1 Carro v. qutabe Lfe ssurance Socety of the
Unted States, 9 . Supp., 223.)
Moskovetz v. Davs, supra, was a case where a snge premum had been pad
for an agreement to pay a specfed sum at a future date. If the pocyhoder
ded before that date, the sum of the premums pad was to be pad to hs son.
In the course of the opnon, the court sad:
We thnk the contract smpy represents an nvestment or pnre endowment
wth provson for the return of premums rather than fe nsurance.
The mere fact that the company agreed to pay over to named benefcares
the prncpa of 40,000 upon the annutant s death s not suffcent to ustfy
gvng to a purey nvestment contract the attrbutes of fe nsurance n the
absence of the essenta requste of such nsurance.
We are not abe to see resembance between the pocy whch s the sub|ect
of ths controversy and poces before the court n cverng v. Inter-Mountan
Lfe Insurance Co. (294 U. S., 6 6) and everng v. Inos Lfe Insurance Co.
(299 U. ., ), but t may be noted that the court. In appyng provsons of the
ncome ta aws, drew a cear dstncton between abty arsng from death of
the nsured and abty whch coud not be attrbuted to fe nsurance rsk.
The pettoner has assgned as error the refusa of the oard of Ta ppeas
to receve n evdence the facts stpuated to be true, as rected above. On the
partcuar facts of ths case, we agree that the queston presented coud we
be determned wth reference to the provsons of the contract wthout recourse
to accountng or actuara practces of the Sun Lfe ssurance Co. or of any
other company ssung smar poces.
The order or decson of the oard of Ta ppeas s affrmed.
S CTION 303(a)3 O T R NU CT O 1926, S M ND D Y S C-
TION 07 O T R NU CT O 1932, ND S CTIONS 403 ND 406
O T R NU CT O 1934.
Rect|atons 0 (1937), rtce 44: Transfers for 1939-32-9951
pubc, chartabe, regous, etc., uses. . T. 12
Where the corpus of the trust, from whch chartabe bequests
under the w of are payabe, may be used n whoe or n part
for the comfort, support, mantenance, and/or happness of the
testator s wdow, the bequests are not deductbe from the gross
estate for edera estate ta purposes.
dvce s requested whether n determnng the vaue of the net
estate of , a resdent of Massachusetts who ded on May 3, 1936, the
bequests herenafter descrbed are aowabe as deductons under sec-
ton 303(a)3 of the Revenue ct of 1926, as amended by secton 07
of the Revenue ct of 1932 and sectons 403 and 406 of the Revenue
ct of 1934.
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Regs. 0 (1937), rt. 44.
336
Secton 303(a)3 of the Revenue ct of 1926, as amended, provdes
n part for the deducton from the vaue of the gross estate of e-
quests to or for the use of any corporaton organzed and operated
e cusvey for chartabe purposes, no part of the net earnngs of
whch nures to the beneft of any prvate stockhoder or ndvdua
and no substanta part of the actvtes of whch s carryng on
propaganda.
Under the terms of s w, the resdue of hs estate was be-
queathed n trust for the beneft of hs wdow for fe, wth reman-
ders n part to hs chdren for fe and n part to desgnated char-
tabe corporatons.
The w provdes n part as foows:
My sad trustee sha aso have the rght to pay to, or for the beneft of n|
sad wfe such sum or sums from the prncpa of the trust fur
and at such tme or tmes as my sad trustee sha n ts soe dscreton d :
wse and pro er for the comfort, support, mantenance, and/or happneu
my sad wfe, and t s my wsh and w that In the e ercse of ts dscrefr:
wth reference to such payments from the prncpa of the trust fund to |
sad wfe my sad trustee sha e ercse ts dscreton wth bera :
to my sad wfe, and consder her wefare, comfort and happness pror to
cams of resduary benefcares under ths trust. Itacs supped.
The queston s whether the fact that the bequests to the chartabe
corporatons are sub|ect to dmnuton through the use of a part or
the whoe of the trust corpus for the comfort, support, mantenance,
and/or happness of s wdow affects the deductbty of the be-
quests n determnng the net estate.
It s to be noted that under the w the corpus of the trust ma|
be used n whoe or n part by the trustee n ts dscreton not ony
for the comfort, support, or mantenance of the decedent s wdo
but aso for her happness, and that the trustee sha e ercse ts ds-
creton wth beraty and consder the wdow s wefare, comfort,
and happness pror to cams of the other benefcares.
In construng a provson n the w of a resdent of Connectcut
authorzng the trustee to pay over to the testator s wdow such part
of the prncpa of the trust fund whch may be deemed necessary or
advsabe for her comfortabe mantenance and support, the Crcut
Court of ppeas for the Second Crcut stated that the queston
depends upon how the courts of Connectcut nterpret such a pro-
vson. ( artford-Connectcut Trust Co. v. aton, 36 ed. (2d),
710.) The decedent n the nstant case was a resdent of Massachu-
setts on the date of hs death. The decson of the Supreme udca
Court of Massachusetts n Dana v. Dana (1 5 Mass., 156, 70 N.
49, 50) construed anguage smar to that n the w now under con-
sderaton. That decson s summarzed by the Supreme Court of
Inos n Rock Isand ank d- Trust Co. v. Rhoads (353 111.. 1
1 7 N. ., 139), wheren the court hed that the word comfort
must be construed as reatng to support and ease, and that the won
satsfacton was a word of wder meanng and must be construe
as ntendng more than support and comfort. The court sad m
part as foows:
The anguage n ths w s not unke that consdered n Dana v. f 9
(1 5 Mass., 150, 70 N. ., 49, 50). The w n that case gave to the wdo
power to se so much of the corpus of the estate as she thought necessary w
her own comfort and happness. It was there hed that the power of d
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337
Regs. 0 (1937), rt. 44.
posa gven was not aone for her comfortabe physca support and e stence,
though such was undoubtedy n the mnd of the testator, but n addton she
was to spend and en|oy n the argest manner for her happness. It was
there sad: If, through reasons of regon or of benevoence, and for her
menta satsfacton, she chose to devote any part of the estate eft to her
n ad of ether chartabe or phanthropc ob|ects, there s nothng n the
terms of hs w that restrcts her from makng such use of the prncpa. If
the testator dd not care to confne her dscretonary powers, there s no duty
ncumbent on us to seek for reasons to mt ther e ercse. So, n ths case,
power to dspose of the prncpa of the estate as she sha deem necessary to
her satsfacton may propery be sad to Incude such regous or chartabe
donatons or gfts as she mght choose to make from the corpus, and where
such s not for the purpose of budng up her separate estate.
(See aso Lord v. Roberts, 4 N. ., 517, 153 ., 1 Coburn v.
urngame, 190 Ca., 697, 214 P., 226 noernschUd et a. v. Com-
mssoner, 97 ed. (2d), 213 Php W. ood et a., ecutors, v.
Commssoner, 22 . T. ., 1000 umes v. Unted States, 276 U. S.,
4 7 Gage et a, v. O Ne, 7 N. ., 539,103 ., 262 McDonad, -
ecutor, v. Wech, 17 ed. Supp., 549.)
The fact that the wdow had funds of her own suffcent for her
support does not change the ega force of the anguage empoyed
by the testator or cut down hs ceary e pressed ntenton by makng
hs purpose depend n any degree upon the fact that she possessed a
separate estate. (Dana v. Dana, supra.)
n vew of the foregong, t s hed that the bequests here nvoved
are not deductbe n determnng the vaue of the net estate of
for the reason that the rght of the trustee to nvade the corpus of
the trust n favor of the wdow makes the amount of the bequests so
uncertan as to be unascertanabe as of the date of s death.
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Regs. 79(1936), rt. 1 .
33
GI T T .
INT RN L R NU COD .
S CTION 1005. GI TS M D IN PROP RTY.
Reguatons 79 (1936), rtce 1 : Stus of
property
1939-4 -10109
T.D.4
TITL 26 INT RN L R NU . C PT R L P RT 5. GI T T
rtce 1 , Reguatons 79, amended. Stus of property.
Washngton, D. C.
The second paragraph of artce 1 of Reguatons 79, 1936 edton
(secton 5.1 of Tte 26, Code of edera Reguatons), and that
artce as made appcabe to the Interna Revenue Code by Treasury
Decson 4 5, approved ebruary 11, 1939 C. . 1939-1 (Part 1),
396 (Part 465, Subpart , of such Tte 26), s hereby amended to
Rea estate, tangbe persona property, and the wrtten evdence of ntangb
persona property whch s treated as beng the property tsef are wthn t
Unted States f physcay stuated theren. or e ampe, a bond for tbe
payment of money s not wthn the Unted States uness physcay stuated
theren. Stock of a domestc corporaton, however, consttutes property wthn
the Unted States, rrespectve of where the certfcates thereof are physca T
ocated. (See secton 531(b).) Intangbe persona property the wrtten ev-
dence of whch s not treated as beng the property tsef consttutes property
wthn the Unted States f consstng of a property rght ssung from
enforcbe aganst a resdent of the Unted States or a domestc corporaton
(pubc or prvate), rrespectve of where such wrtten evdence s physcay
ocated.
(Ths Treasury decson s prescrbed pursuant to the foomn
sectons of aw: Sectons 1030(b) and 1029 of the Interna Revenue
Code (53 Stat., Part 1) and sectons 531(b) and 530 of the Revenue
ct of 1932 (47 Stat., 259 26 U. S. C, 5 0, 579).)
Gut T. everng,
ohn W. anes,
( ed wth the Dvson of the edera Regster November 21. 1939,12.56 p. a)
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339
Regs. 79 (1933), rt. 3
TITL n. GI T T . (1932).
S CTION 501. IMPOSITION O T .
Reguatons 79(1933), rtce 3: Transfers
n trust.
1939-47-10095
Ct. D. 1425
GI T T R NU CT OP 1932 D CISION OP SUPR M COURT.
1. Transfer n Trust Reservaton of Power to Change ene-
fcares.
The transfer of remander Interests resutng from the creaton
of a trust by a donor who retans a fe estate, wth reservaton
to hmsef of a power to change the benefcares of the trust
but wthout power to Increase hs own benefca nterest n the
trust property, does not consttute a competed gft at the tme of
the creaton of the trust and s not sub|ect to the gft ta mposed
by the Revenue ct of 1932.
2. Decson ffrmed.
Decson of the Unted States Crcut Court of ppeas, Second
Crcut (1939) (101 . (2d), 1012), affrmed.
mon O. Rasqun, Coector of Interna Revenue of the Unted States for the
rst Dstrct of New York, pettoner, v. Oeorge rents umphreys.
30 U. S., 54.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Second Crcut.
Mr. ustce Stone devered the opnon of the Court
Decson In ths case turns on the queston, dfferng ony n form from that
ths day decded n No. 34, Sanford v. etoerng Ct D. 1426, page 340, ths
uetn , whether, n case of an nter vvos transfer of property n trust, re-
servng to the donor power to desgnate new benefcares other than hmsef,
the gft becomes compete at the tme of the creaton of the trust and sub|ect
to the gft ta Imposed by the Revenue ct of 1932.
In December, 1934, respondent created a trust of persona property for hs
own beneft for fe, wth remanders over to specfed casses of benefcares.
y the trust ndenture he reserved to hmsef a power to change the bene-
fcares of the trust and to prescrbe the condtons under whch the new
benefcares shoud take an nterest n the trust, but wthout any power to
ncrease hs own benefca Interest n the trust property.
Respondent pad the gft ta assessed aganst hm wth respect to the trans-
fer of the remander nterests upon creaton of the trust, and brought the pres-
ent sut n the dstrct court to recover the ta as Iegay coected. udgment
n hs favor was affrmed by the Crcut Court of ppeas for the Second
Crcut (101 . (2d), 1012) on the authorty of essen v. oey (91 . (2d),
954). We granted certorar May 22, 1939, so that ths case mght be con-
sdered wth the Sanford case.
The gft ta , secton 319 of the 1924 ct, so far as now matera, reappeared
n secton 501 of the 1932 ct (47 Stat., 169). Other pertnent provsons of
the earer ct were reenacted wthout change of present moment n sectons
501, 510, 01. The appcabe estate ta provsons are secton 302(c) (d) of
the 1926 ct (44 Stat., 40, 71). Secton 501(c) of the 1932 ct added a new
provson that transfers n trust, wth power of revocaton n the donor, shoud
be ta ed on renqushment of the power. Ths was repeaed by secton 511
of the ct of 1934 (4 Stat., 6 0), because urnet v. Guqgcnhem (2 U. S.,
2 0 Ct D. 636, C. . II-1, 374 (1933) ) had decared that such was the aw
Supreme Cout of the Unted States.
November 6, 1939.
opnon.
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Regs. 67 (1924), rt. 1.
340
wthout specfc egsaton. ( . Rept. No. 704, Seventy-thrd Congress, second
sesson, page 40 S. Rept No. 55 , Seventy-thrd Congress, second sesson,
page 50.)
or the reasons stated n our opnon n the Sanford case we concude that
the reserved power n the donor at the tme of the creaton of the trust ren-
dered the gft ncompete and not sub|ect to the gft ta . s ponted out n
our opnon n the Sanford case the Treasury reguaton under the 1932 rt,
artce 3, Reguatons 79 (1933 edton), n force when the trust was created,
affords no bass for modfcaton of our constructon of the statute. What-
ever vadty the amended reguaton of 1936 may have n ts prospectve
operaton, we thnk t s so pany n confct wth the statute as to precude
ts appcaton retroactvey so as to sub|ect to ta such transfer as was made
by the creaton of the trust In 1934. (Cf. Ieverng v. R. . Reynod Tobectt
Co.. 306 U. S., 110.)
ffrmed.
Mr. ustce uteb took no part n the consderaton or decson of ths case.
TITL III. GI T T . (1924)
S CTION 319.
Reguatons 67 (1924), rtce 1: Transfers 1939-47-10096
reached. Ct. D. 1426
GI T T R NU CT O 1924 D CISION O SUPR M COURT.
1. Transfer n Trust Reservaton of Power to Desgnate ene-
fcares Renqushment of Power.
n nter vvos transfer of property n trust, by a donor who re-
serves the power to desgnate new benefcares other than hm-
sef, becomes a competed gft and sub|ect to the gft ta mposed
by the Revenue ct of 1924 upon the renqushment of such
power.
2. Statutory Constructon.
The constructon of a statute, derved from Its anguage and
hstory, can not be modfed because of Treasury reguatons or ad-
mnstratve practce where the reguatons are wthout persuasve
force n determnng the true constructon, and where the admn-
stratve practce confcts wth other provsons of the statute and
s so nconsstent wth appcabe decsons of the courts as to pro-
duce confuson n the admnstraton of the aw.
3. Decson ffrmed.
Decson of the Unted States Crcut Court of ppeas, Thrd
Crcut (1939) (103 . (2d), 1), affrmng a memorandum opn-
on of the Unted States oard of Ta ppeas, affrmed.
state of Chares enry Sanford, Deceased, enne R. ard, Substtutonary
dmnstratr , C. T. ., pettoner, v. Commssoner of Interna Revenue.
(30 U. S., 39.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Thrd Crcut.
November 6, 1939.
opnon.
Mr. ustce Stone devered the opnon of the Court
Ths and Its companon case, No. 37, Rasqun v. umphreys Ct D. 1425
page 339, ths uetn present the snge queston of statutory constructon
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341
Regs. 67 (1924), rt. 1.
whether In the case of nn nter vvos transfer of property In trnst, by a donor
reservng to hmsef the power to desgnate new benefcares other than hmsef,
the gft becomes compete and sub|ect to the gft ta mposed by the edera
revenue aws at the tme of the renqushment of the power. Coreatve ques-
tons, mportant ony f a negatve answer s gven to the frst one, are whether
the gft becomes compete and ta abe when the trust Is created or, n the case
where the donor has reserved a power of revocaton for hs own beneft and has
renqushed t before renqushng the power to change benefcares, whether
the gft frst becomes compete and ta abe at the tme of renqushng the
power of revocaton.
In 1913, before the enactment of the frst gft ta statute of 1924, decedent
created a trust of persona property for the beneft of named benefcares,
reservng to hmsef the power to termnate the trust n whoe or n part, or
to modfy t. In 1919 he surrendered the power to revoke the trust by an
approprate wrtng n whch he reserved the rght to modfy any or a of the
trusts but provded that ths rght sha n no way be deemed or construed
to ncude any rght or prvege In the donor to wthdraw prncpa or ncome
from any trust In ugust, 1924, after the effectve date of the gft ta
statute, decedent renounced hs remanng power to modfy the trust fter
bs death n 192 , the Commssoner foowng the decson n esscn v. oey
(91 . (2d), 954), n 1937, rued that the gft became compete and ta abe
ony upon decedent s fna renuncaton of hs power to modfy the trusts and
gave notce of a ta defcency accordngy.
The order of the oard of Ta ppeas sustanng the ta was affrmed by
the Court of ppeas for the Thrd Crcut (103 . (2d), 1), whch foowed
the decson of the Court of ppeas for the Second Crcut In esscn v. oey,
supra, n whch we had dened certorar (302 U. S., 750). In the essen case,
as n the umphreys case now before us, a gft n trust wth the reservaton
of a power n the donor to ater the dsposton of the property In any way not
benefca to hmsef, was hed to be Incompete and not sub|ect to the gft ta
nnder the 1932 ct so ong as the donor retaned that power.
We granted certorar In ths case May 15, 1939, and n the umphreys case
May 22, 1939, upon the representaton of the Government that t has taken
nconsstent postons wth respect to the queston nvoved n the two cases
and that because of ths fact and of the doubt of the correctness of the decson
n the essen case decson of the queston by ths Court s desrabe n order
to remove the resutant confuson n the admnstraton of the revenue aws.
It has contnued to take these Inconsstent postons here, statng that t s
unabe to determne whch constructon of the statute w be most advanta-
geous to the Government n pont of revenue coected. It argues n ths case that
the gft dd not become compete and ta abe unt surrender by the donor of
bs reserved power to desgnate new benefcares of the trusts. In the
umphreys case t argues that the gft upon trust wth power reserved to the
donor, not afterward renqushed, to change the benefcares was compete
and ta abe when the trust was created. It concedes by ts bref that a dec-
son favorabe to the Government n ether case w necessary precude a
favorabe decson n the other.
In ascertanng the correct constructon of the statutes ta ng gfts, t s
necessary to read them n the ght of the cosey reated provsons of the
revenue aws ta ng transfers at death, as they have been Interpreted by our
decsons. Secton 319 of the Revenue ct of 1924 (43 Stat, 253), reenacted as
secton 501 of the 1932 ct (47 Stat, 169), mposed a graduated ta upon gfts.
It suppemented that ad on transfers at death, whch had ong been a feature
of the revenue aws. When the gft ta was enacted Congress was aware that
the essence of a transfer Is the passage of contro over the economc benefts
of property rather than any technca changes n ts tte. (See urnet v.
Guggenhem, 2 U. S., 2 0, 2 7 Ct D. 636, C. . n-1, 374 (1933) .) oow-
ng the enactment of the gft ta statute ths Court n Renecke v. Northern
Trust Co. (27 U. S., 339 (1929) T. D. 4261, O. . III-1, 305 (1929) ), hed
that the renqushment at death of a power of revocaton of a trust for the
beneft of ts donor was a ta abe transfer. Cf. atonsta v. Satonsta (276
U. S., 260) Chase Natona ank v. Unted States (27 U. ., 327 Ct D. 40,
C. . III-1, 30 (1929) ), and smary In Porter v. Commssoner (2 U. S.,
436 (1933) Ct. D. 647, C. . II-1, 354 (1933) ), that the renqushment by
a donor at death of a reserved power to modfy the trust e cept n hs own
favor s kewse a transfer of the property whch coud consttutonay be
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342
ta ed under the provsons of secton 302(d) of the 1926 Revenue ct (reenact-
ng n substance 02(d) of the 1924 ct) athough enacted after the creaton
of the trust (Cf. Suen v. Wsconsn, 240 U. S., 625 Curry v. McCaness, 307
U. S., 357 Graves v. ott, 307 U. S., 3 3.) Snce t was the renqushment
of the power whch was ta ed as a transfer and not the transfer n trust, the
statute was not retroactvey apped. (Cf. Nchos v. Coodge, 274 U. S., 531
T. D. 4072, C. . I-2, 351 (1927) everng v. emhoz. 296 U. S., 93, 9 .)
The ratonae of decson n both cases s that ta aton s not so much con-
cerned wth the refnements of tte as t s wth the actua command over
the property ta ed (see Corss v. owers, 2 1 U. S., 376, 37 Ct D. 1 3,
C. . I -1, 254 (1930) Satonsta v. Satonsta, supra, 261 urnet v. Guggen-
hem, supra 2 7), and that a retenton of contro over the dsposton of the
trust property, whether for the beneft of the donor or others, renders the gft
ncompete unt the power s renqushed whether In fe or at death. The
rue was thus estabshed, and has ever snce been consstenty foowed by
the Court, that a transfer of property upon trust, wth power reserved to the
donor ether to revoke t and recapture the trust property or to modfy ts
terms so as to desgnate new benefcares other than hmsef s ncompete,
and becomes compete so as to sub|ect the transfer to death ta es ony on
renqushment of the power at death.
There s nothng n the anguage of the statute, and our attenton has not
been drected to anythng n ts egsatve hstory to suggest that Congress had
any purpose to ta gfts before the donor had fuy parted wth hs nterest n
the property gven, or that the test of the competeness of the ta ed gft was to
be any dfferent from that to be apped n determnng whether the donor has
retaned an nterest such that t becomes sub|ect to the estate ta upon ts
e tngushment at death. The gft ta was suppementary to the estate ta .
The two are In par matera and must be construed together. ( urnet v.
Ouygenhem, supra, 2 6.) n Important, f not the man purpose of the gft
ta was to prevent or compensate for avodance of death ta es by ta ng the
gfts of property nter vvos whch, but for the gfts, woud be sub|ect n ts
orgna or converted form to the ta ad upon transfers at death.1
Secton 322 of the 1924 ct provdes that when a ta has been mposed by
secton 319 upon a gft, the vaue of whch s requred by any provson of the
statute ta ng the estate to be ncuded n the gross estate, the gft ta s to be
credted on the estate ta . The two ta es are thus not aways mutuay e -
cusve as n the case of gfts made In contempaton of death whch are com-
pete and ta abe when made, and are aso requred to be ncuded n the
gross estate for purposes of the death ta . ut secton 322 s wthout appca-
ton uness there Is a gft nter vvos whch s ta abe ndependenty of any
requrement that t sha be ncuded n the gross estate. Property transferred
n trust sub|ect to a power of contro over ts dsposton reserved to the donor
s kewse requred by secton 302(d) to be ncuded n the gross estate. ut
t does not foow that the transfer n trust s aso ta abe as a gft. The pont
was decded n the Guggenhem case where t was hed that a gft upon trust,
wth power n the donor to revoke t s not ta abe as a gft because the transfer
s ncompete, and that the transfer whether nter vvos or at death becomes
compete and ta abe ony when the power of contro s renqushed. We thnk,
as was ponted out n the Guggenhem case, supra, 2 5, that the gft ta statute
does not contempate two ta es upon gfts not made n contempaton of death.
The rft ta provsons of the Revenue ct of 1924 were added by amendments to
the revenue b ntroduced on the foor of the ouseand the Senate. (Cong. Record. o-
ume 65. Part 3, pages 311 -3119 Part 4, pages 3170. 3171 Part page 094.) The
sponsor of the amendment n both ouses urged- the adopton of the b as a eoronanr
or as suppementa to the estate ta . Cong. Record oume 65, Part 3 pages 3119-
S120 122 Part: 4, page 3172 Cong. Record, oume d3, Part , pages 095. 096.)
The gft ta of 1924 was repeaed when Congress, concurrenty wth the enactment of
sect on 302 5) of the Revenue ct of 192 (4f Stat., 70, 125. 26) estabshng a con-
cusve presumpton that gfts wthn two years of death were made In contempaton of
death and therofore sub|ect to the estate ta . gft ta was reeuacted by secton 501 of
the Revenue ct of 1932 (47 Stat., 169), shorty after t was decded In Iener v. Donna
(2 31 U. s 312 CtD 473, C. . I-1, 324 (1932) ), that the egsatve enactment of
such a presumpton voated the ffth amendment. , ,
Secton 501(c) of the 1932 ct added a new provson that transfers n trust wth
DO WOT of revocaton n the donor, houd be ta ed on renqushment of the power. Ths
was repen by secton 511 of the ct of 1934 (4 Stat, 6 0). because urnet v. Gmm
ft m (2 TT. S. 2 0). had decared that such was the aw wthout specfc egsatoa.
(II. ept. No. 704, Seventy-thrd Congress, second sesson, page 40, S. ept o. 55S,
Seventy-thrd Congress, second sesson, page 50.)
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343
Regs. 67 (1924), rt. 1.
one upon the gft when a trust Is created or when the power of revocaton, If
any, s renqushed, and another on the transfer of the same property at death
because the gft prevousy made was ncompete.
It s pan that the contenton of the ta payer n ths case that the gft be-
comes compete and ta abe upon the renqushment of the donor s power to
revoke the trust can not be sustaned uness we are to hod, contrary to the
pocy of the statute and the reasonng n the Guggenhem case, that a second
ta w be ncurred upon the donor s renqushment at death of hs power to
seect new benefcares, or uness as an aternatve we are to abandon our
rung n the Porter case. The Government does not suggest, even n Its argu-
ment n the umphreys case, that we shoud depart from our earer rungs,
and we thnk t cear that we shoud not do so both because we are satsfed
wth the reasonng upon whch they rest and because departure from ether
woud produce nconsstences n the aw as serous and confusng as the n-
consstences n admnstratve practce from whch the Government now seeks
reef.
There are other persuasve reasons why the ta payer s contenton can not
be sustaned. y sectons 315(b), 324, and more specfcay by secton 510 of
the 1932 ct, the donee of any gft s made personay abe for the ta to the
e tent of the vaue of the gft f the ta s not pad by the donor. It can
hardy be supposed that Congress ntended to mpose persona abty upon the
donee of a gft of property, so ncompete that he mght be deprved of t by the
donor the day after he had pad the ta . urther, secton 321 (b) e empts
from the ta , gfts to regous, chartabe, and educatona corporatons and the
ke. gft woud seem not to be compete, for purposes of the ta , where the
donor has reserved the power to determne whether the donees utmatey
entted to receve and en|oy the property are of such a cass as to e empt the
gft from ta aton. part from other consderatons we shoud hestate to
accept as correct a constructon under whch t coud pausby be mantaned
that a gft n trust for the beneft of chartabe corporatons s then compete so
that the ta ng statute becomes operatve and the gft escapes the ta even
though the donor shoud ater change the benefcares to the none empt cass
through e ercse of a power to modfy the trust n any way not benefca to
hmsef.
The argument of pettoner that the constructon whch the Government sup-
ports here, but assas n the umphreys case, affords a ready means of evason
of the gft ta s not mpressve. It s true, of course, that under t gft ta es
w not be mposed on transactons whch fa short of beng competed gfts.
ut f for that reason they are not ta ed as gfts they reman sub|ect to death
ta es assessed at hgher rates, and the Government gets ts due, whch was
precsey the end sought by the enactment of the gft ta .
Nor do we thnk that the provsons of secton 219(g) of the 1924 ct have
any persuasve nfuence on the constructon of the gft ta provsons wth
whch we are now concerned. One purpose of the gft ta was to prevent or
compensate for the oss of surta upon ncome where arge estates are spt up
by gfts to numerous donees. Congress was aware tat donors n trust mght
dstrbute ncome among severa benefcares, athough the gft remans so
ncompete as not to be sub|ect to the ta . It deat wth that contngency n
secton 219(g) whch ta es to the settor the ncome of a trust pad to bene-
fcares where he reserved to hmsef an une ercsed power to revest n hmsef
tte to the trust property producng the ncome. Whether ths secton s to be
read as reevng the donor of the ncome ta where the power reserved s to
modfy the trust, e cept for hs own beneft, we do not now decde. If Congress,
n enactng t, undertook to defne the e tent to whch a reserved power of
contro over the dsposton of the ncome s equvaent to ownershp of t so as
to mark the ne between those cases on the one hand where the ncome s to
be ta ed to the donor and those on the other where, by reated sectons, the
ncome s to be ta ed to the trust or ts benefcares, we do not perceve that
the secton presents any queston so comparabe to that now before us as to
affect our decson. We are concerned here wth a queston to whch Congress
has gven no answer n the words of the statute, and t must be decded n
conformty to the course of |udca decson appcabe to a unfed scheme of
ta aton of gfts whether made nter vvos or at death. If Congress, for the
purpose of ta ng ncome, has defned precsey the amount of contro over the
See references to Congressona Record, footnote 1.
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Income whch It deems equvaent to ownershp of It, that defnton Is conrro
ng on the courts even though wthout It they mght reach a dfferent concuson,
and even though retenton of a esser degree of contro be deemed to render |
transfer ncompete for the purpose of ayng gft and death ta es.
The queston remans whether the constructon of the statute whch we oc-
cude s to be derved from ts anguage and hstory, shoud be modfed becatw
of the force of Treasury reguatons or admnstratve practce. rtce 1 d
Reguatons 67, under the 1924 ct (adopted wthout any change of pre-es:
sgnfcance n artce 3, Reguatons 79, under the 1932 ct) provdes that t-
creaton of a trust where the grantor retans the power to revest n hmsef nt
to the corpus of the trust does not consttute a gft sub|ect to the ta ar
decares that where the power retaned by the grantor to revest In hawu
tte to the corpus s not e ercsed, a ta abe transfer w be treated as taku
pace n the year n whch such power Is termnated. Pettoner urges that te
reguaton s In terms appcabe to the trust presenty Invoved because
was sub|ect to a power of revocaton In favor of the donor before the enactment
of the gft ta whch was ater renqushed. ut we thnk, as the court beknr
thought, that the reguaton was not drected to the case of the renqushm-::
of a reserved power to seect new benefcares other than the donor and t
not purport to ay down any rue for cases where there was a reserved power
dfferent from or n addton to the power to revest the tte n the domf.
t most the reguaton s ambguous and wthout persuasve force n determ
ng the true constructon of the statute. ( urnet v. Chcago Portrat Co, 2S
U. S., 1, 16, 20 Ct. D. 463, C. . I-1, 2 6 (1932) .) The amended reguar :
of 1936 under the 1932 ct (artce 3, Reguatons 79), removed the ambgar|
by decurng that the gft s compete and sub|ect to the ta when the donor
has so parted wth domnon and contro as to eave In hm no power to cans
the benefca tte to be revested ha hmsef. ut ths reguaton s by ts
terms appcabe ony to gfts made after une 6, 1932, and s of sgnfcM
here ony so far as t s decaratory of the correct constructon of the 1924 t
Pettoner aso Inssts that the constructon of the statute for whch he cot-
tends s sustaned by the admnstratve practce. That practce s not ds-
cosed by any pubshed Treasury rungs or decsons and our ony source of
nformaton on the sub|ect s a stpuaton appearng In the record. It states
that n the admnstraton of the gft ta under the 1924 and 1932 cts and
unt the decson n the essen case t was the unform practce of te
Commssoner of Interna Revenue In ad|ustng cases of the character of tnt
here nvoved to treat the ta abe transfer sub|ect to gft ta as occurrng wbet
the transferor renqushed a power to revest n hmsef tte to the property
consttutng the sub|ect of the transfer and that 300 cases of such char-
acter have been cosed or ad|usted n conformty to ths practce.
Ths defnton of the practce appears as a part of a stpuaton of facts s-
tng forth n some 126 prnted pages the orgna trust deed of December 2
1913, and 13 modfcatons of t between that date and the fna renqushne T
of the power of modfcaton on ugust 20, 1924. They revea a vared and
e tensve power of contro by the donor over the dsposton of the trust prop-
erty whch survved the renqushment, n 1919, of the power of revocaton for
hs own beneft, and wth whch he fnay parted after enactment of the gft ra .
The descrpton of the practce as that resorted to n ad|ustng cases of the
character of that here nvoved, presupposes some knowedge on our part of
what the sgners of the stpuaton regarded as the saent features of the pres-
ent case whch, athough not specfed by the stpuaton, were necessary
embraced n the practce. dmnstratve practce, to be accepted as gudng o:
controng |udca decson, must at east be defned wth suffcent certanty to
defne the scope of the decson. If renqushment of the power of revocaton
mentoned by the stpuaton was of controng sgnfcance n defnng the
practce, that crcumstance was not present n the essen case or n the
umphreys case. Whether n any of the 300 cases mentoned n the stpuaton
the renqushment of the power of revocaton was foowed by the renqush-
ment nter vvos of a power of changng the benefcares ke that n ths case,
does not appear.
Such a stpuated defnton of the practce Is too vague and ndefnte to
afford a proper bass for a |udca decson whch undertakes to state the con-
structon of the statute n terms of the practce. Moreover, f we regard the
stpuaton as agreeng merey that the ega questons nvoved n the present
case have unformy been setted admnstratvey n favor of the contenton now
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345
Rogs. 67(1924), rt. 1.
made by the pettoner, It Invoves concusons of aw of the stpuators, both
wth respect to the ega ssues n the present case and those resoved by the
practce. We are not bound to accept, as controng, stpuatons as to questons
of aw. (Swft t Co. v. ookng aey Raway Co., 243 U. S., 2 1, 2 9.)
Wthout attemptng to say what the admnstratve practce has actuay
been we may, for present purposes, make the assumpton most favorabe to
the ta payer n ths case that the practce was as stated by the Government n
ts bref n the umphreys case, vz, that unt the decson n the essen case
the ureau consstenty took the poston that the gft ta apped to a transfer
n trust where the grantor reserved the rght to modfy the trust but no rght to
vest tte n hmsef.
ut the record here shows that no such practce was recognzed as controng
n 1935 when the present case frst receved the attenton of the ureau. On
ebruary 21, 1935, the ssstant Genera Counse gave an opnon revewng
at ength the facts of the present case and the appcabe prncpes of aw, and
concuded on the reasonng and authorty of the Guggenhem and Porter cases
that the gft was not compete and ta abe unt the renqushment n ugust,
1924, of the power to modfy the trust by the seecton of new benefcares. In
pr, 1935, the matter was reconsdered and a new opnon was gven whch
was fnay adopted by the ssstant Secretary who had ntervened In the case
Ths opnon reversed the earer one on the authorty of the Guggenhem case.
It was at pans to pont out that In that case the Court had hed that the re-
nqushment of the power of revocaton was a ta abe gft but It made no
menton of the fact that there, unke the present case, there was no power of
modfcaton whch survved the renqushment of the power of revocaton,
whch was cruca n the Porter case. Nether opnon rested upon or made
any menton of any practce affectng cases where such a power of modfcaton
s reserved. fter the decson n the essen case the rung of the ureau
n ths case was agan reversed and notce of defcency sent to the ta payer.
rom ths record t Is apparent that there was no estabshed admnstratve
practce before the opnon of pr, 1935, and f the practce was adopted then
t was because of a mstaken departmenta rung of aw based on an obvous
msnterpretaton of the decsons n the Porter and Guggenhem cases.
dmnstratve practce may be of persuasve weght n determnng the con-
structon of a statute of doubtfu meanng where the practce does not con-
fct wth other provsons of the statute and s not so nconsstent wth ap-
pcabe decsons of the courts as to produce nconsstency and confuson n the
admnstraton of the aw. Such a choce, n practce, of one of two possbe
constructons of a statute by those who are e pert n the fed and specay
nformed as to admnstratve needs and convenence, tends to the wse nter-
pretaton and |ust admnstraton of the aws. Ths s the more so when re-
ance has been paced on the practce by those affected by t.
ut courts are not bound to accept the admnstratve constructon of a
statute regardess of consequences, even when dscosed In the form of rungs.
(See everng v. New York Trust Co., 292 U. S., 455, 46 Ct. D. 40, O. .
III-1, 1 (1934) .) ere the practce has not been reveaed by any pub-
shed rungs or acton of the Department on whch ta payers coud have
reed. The ta payers In the present cases are contendng for dfferent rungs.
In arret Rosenau (37 . T. .) (193 ), as In the umphreys case, the ta -
payer contended that the date when the power to change the benefcary
s renounced Is controng. The pettoner here, who contends that the date
of renqushment of the power of revocaton s controng, rather than the
date of surrender of power of modfcaton, set up hs trust and renqushed
the power of revocaton before the gft ta was enacted. The reenactment
of the gft ta statute by the 1932 ct can not be sad to be a egsatve
approva of the practce whch had not been dscosed by Treasury reguaton,
rung or decson, and whch does not appear to have been estabshed before
the adopton of the 1932 ct. (Cf. McCaughn v. crshey Chocoate Co., 2 3
U. S., 4 , 492 Ct. D. 345, C. . -, 444 (1931) Massachusetts Mutua Lfe
Ins. Co. v. Unted States, 2 U. S., 269, 273 everng v. New York Trust Co.,
292 U. S., 455, 46 .)
In the petton for certorar fed n November, 1037, n essen v. oey (No. 556), the
Government asserted that the 300 cases referred to In the stpuaton In ths case had been
decded so recenty that the tme for fng cams for refunds bad not e pred,
209106 40 12
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Regs. 67 (1924), rt. 1.
346
The very purpose sought to be accompshed by |udca acceptance of c
admnstratve practce woud be defeated If we were to regard the prese
practce as controng. If a practce Is to be accepted because of the super
knowedge of admnstratve offcers of the admnstratve needs and e
venence (see rewster v. Gage, 2 0 U. S., 327, 336 Ct. D. 14 , C. . -:
274 (1030) ), there Is no such reason for Its acceptance here. The Govercm
by takng no poston confesses that t Is unabe to say how admnstratm
need and convenence w best be served. If, as we have hed, we may re|M
an estabshed admnstratve practce when t confcts wth an earer w
and s not supported by vad reasons (see urnet v. Chcago Portrat Co, 2S
U. S., 1, 16), we shoud be equay free to re|ect the practce when It eanfr.
wth our own decsons. change of practce to conform to |udca ders:
such as has occurred snce the decson n the essen case, or to meet ads:
stratve e gences, w be accepted as controng when consstent wth
decsons. Morrssey v. Commssoner, 296 U. S., 344, 354 Ct- D. 1064, C I
-1, 264 (1936) .) ere we have an added, and we thnk concusve ms-z
for re|ectng the earer practce and acceptng the ater. The earer, becs
n sharp confct wth our own decsons, as we have aready ndcated, c
not be contnued wthout the perpetuaton of nconsstency and confcst
comparabe to that of whch the Government asks to be reeved by
decson.
ffrmed.
Mr. ustce utess took no part In the consderaton or decson of
case.
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347 Regs. 64 (193 ), rts. 21, 44, 45
C PIT L STOC T .
INT RN L R NU COD .
CTION 1202(e), DD D Y S CTION 301 O T R NU CT OP
1939. D CL R TION O LU OR C PIT L STOC T PURPOS S,
1939 ND 1940.
kgt|atons 64 (193 ), btce 21: Defntons. 1939-31-9941
rtce 44: Decared vaue. T. D. 4912
rtce 45yz: ( dded.)
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 137
SU C PT R , P RT 465. C PIT L STOC T .
Secton 301, Revenue ct of 1939.
rtces 21 (m) and 44 of Reguatons 64 (193 dton) amended.
rtce 45 added.
Washngton, D. C.
In order to conform Reguatons 64 (193 dton) (Part 137, Sub-
part , Tte 26, Code of edera Reguatons), as made appcabe to
the Interna Revenue Code (53 Stat.. Part 1) by Treasury Decson
(Part 465, Subpart , of such Tte 26), to secton 1202, Interna
Revenue Code, as amended by secton 301 of the Revenue ct of 1939
(Pubc, No. 155, Seventy-s th Congress, frst sesson), such regua-
tons are amended as foows:
1. rtce 21 (m) (secton 137.21 (m) of such Tte 26), as made
appcabe to the Interna Revenue Code, s amended to read as
foows:
(m) The term decaraton year means (1) the frst year of each 3-year
perod for whch a corporaton, whether domestc or foregn, Is sub|ect to the
ta , (2) the capta stock ta year begnnng wth or wthn an ncome-ta
ta abe year wthn whch bankruptcy or recevershp, due to nsovency, of a
domestc corporaton, s termnated, and (3) n the case of a domestc corpora-
ton, the capta stock ta year endng une 30, 1939, or une 30, 1940, or both, f
the corporaton eects under secton 1202(e) of the Interna Revenue Code, added
by secton 301, Revenue ct of 1939, to estabsh ether or both of such years as
an addtona decaraton year or years.
2. rtce 44 (secton 137.44 of such Tte 26), as made appcabe
to the Interna Revenue Code, s amended by changng the thrd para-
graph thereof to read as foows:
or any decaraton year (e cept for the mtaton as to an addtona decara-
ton year estabshed by an eecton under secton 1202(e) of the Interna
Revenue Code, added by secton 301, Revenue ct of 193 see artce 45
secton 137.45 , Tte 26, Code of edera Reguatons ), a corporaton may
e ercse unrestrcted |udgment and dscreton n determnng the vaue to be
decared for ts capta stock and n makng such decaraton, the corporaton s
not bound by any prevous decaraton of vaue.
3. Immedatey foowng artce 45 (secton 137.45 of such Tte
26) there are nserted a headng, a quotaton of secton 1202(e) of the
Interna Revenue Code, added by secton 301, Revenue ct of 1939,
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Regs. 64(193 ), rt. 21, 44, 45M-) 34
and a new artce desgnated artce 451 (secton 137.45 of sot
Tte 26), as foows:
Secton 1202(e) of the Interna Revenue Code, dded by Secton 301,
Revenue ct of 1930.
(e) ddtona decaraton years. In the case ot any domestc corpo-
raton, the year endng une 30, 1930, and the year endng une 30, 1940,
sha each, f not otherwse a decaraton year, consttute an addtona
decaraton year f wth respect to such year (1) the ta payer so eects
(whch eecton cannot be changed) n ts return fed before the e pra-
ton of the statutory fng perod or any authorzed e tenson thereof,
and (2) the vaue decared by the ta payer s n e cess of the ad|usted
decared vaue computed under paragraph (1) of subsecton (b). If,
under ths subsecton, the year endng une 30, 1939, s a decaraton
year, the computaton, under paragraph (1) of subsecton (b), of tn
ad|usted decared vaue for the year endng une 30, 1940, sha be made
on the bass of the vaue decared for the year endng une 30, 1939.
rt. 45 4 (Sec. 137.45 ). New decaraton of vaue by domestc corpora
pursuant to eecton under secton 1202(e) of Interna Revenue Code, at
secton SOI, Revenue ct of 19.19. Under secton 1202(e) of the Intent
Revenue Code, added by secton 301, Revenue ct of 1939, a domestc corporate
may, by compyng wth certan condtons, estabsh the year endng une 5.
1039, or une 30, 1940, or both, as an addtona decaraton year or yet--
The eecton appes ony to domestc corporatons requred to report an ad|ust :
vaue for ether or both of such years. The eecton can be e ercsed ony (f
by fng a return pror to the e praton of the fng perod, or any authors:
e tenson thereof, and (6) by decarng a vaue n such return In e cess of tt
ad|usted vaue correcty computed under secton 1202(b)(1) of the Inters
Revenue Code (same as secton 601(f) (3) and (4), Revenue ct of 193S).
In genera, the rues stated n artce 44 secton 137.44, Tte 26, Code d
edera Reguatons , whch reates to decared vaue, are equay appcabe
decaratons of vaue made for an addtona decaraton year estabshed by s
eecton under secton 1202(e), added by secton 301, Revenue ct of 1939, wfe
these mtatons: (a) the eecton f e ercsed may not be changed after us
cose of the fng perod, or any authorzed e tenson thereof, and (6) the vafe
decared must be n e cess of the ad|usted vaue for the year for whch the op
vaue s decared, correcty computed under secton 1202(b)(1) of the Intend
Revenue Code (same as secton 601(f) (3) and (4), Revenue ct of 193 ).
In the event the eecton s e ercsed, the return must Incude a computatfcs
of the ad|usted vaue as we as a statement of the new decared vaue,
change of eecton or of decared vaue, f desred, can be made ony by fng c
amended return before the e praton of the fng perod or authorzed e tend
thereof. Uness the ast return tmey fed shows a decared vaue e ceedng t
correct ad|usted vaue as determned by audt of the return, even though t s
more than the ad|usted vaue as computed on the return, the purported eectfe
of an addtona decaraton year s nugatory, and the correct ad|usted vata
contros.
If the year endng une 30, 1939, s estabshed as an addtona decartore
year, the vaue decared for that year w consttute the base for computng tu
ad|usted vaue for the year endng une 30, 1940.
(Ths Treasury decson s prescrbed pursuant to secton 1202(t
as added to the Interna Revenue Code by secton 301 of the Revenw
ct of 1939 (Pubc, No. 155, Seventy-s th Congress, frst sesson
and secton 3791 of the Interna Revenue Code (53 Stat., Part 1).)
arod N. Graves,
ctng Commssoner of Interna Reverent.
pproved uy 24,1939.
Stephen . Gbbons,
( ed wth the Dvson of the edera Regster uy 25, 1939, 3.03 p. m.)
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349 Regs. 64(193 ), rt. 45 /4.
Reguatons 64 (19 ), rtce 45 : New dec-
araton of vaue by domestc corporaton
pursuant to eecton under secton 1202(e)
of the Interna Revenue Code, added by sec-
ton 301, Revenue ct of 1939.
( so rtce 44.)
Where the capta stock ta return for the year ended une 30,
1939, was not fed unt after ugust 31, 1939, and no appcaton
for an e tenson of tme for fng such return was made, the eec-
tve decared vaue shown on the return may not be used In deter-
mnng the capta stock ta abty for that year.
Where the ad|usted decared vaue shown n the capta stock ta
return for the year ended une 30, 1939, s a mnus amount, such
mnus amount must be used as the base for computng the ad|usted
decared vaue for the ta abe year endng une 30, 1940.
dvce s requested (1) whether the eectve decared vaue shown
on the capta stock ta return of the Corporaton for the ta abe
year ended une 30, 1939, whch was fed after ugust 31, 1939, no
appcaton for an e tenson of tme for fng such return havng been
made to the coector but reasonabe cause for denquency havng
been estabshed, may be used n determnng the capta stock ta
abty of the corporaton for that year and (2) whether the mnus
amount shown as the ad|usted vaue of the capta stock of the Y
Corporaton for the ta abe year ended une 30,1939, must be used as
the base for computng the ad|usted vaue for the ta abe vear endng
une 30, 1940, no eectve decared vaue havng been estabshed n a
1939 return tmey fed, or must zero be used as such base.
Under secton 1202(e) of the Interna Revenue Code, added by sec-
ton 301 of the Revenue ct of 1939, a domestc corporaton may, by
compyng wth certan condtons, eect to estabsh the year ended
une 30, 1939, as an addtona decaraton year. The eecton appes
ony to domestc corporatons requred to report an ad|usted vaue for
that year and can be e ercsed ony (a) by fng a return pror to the
e praton of the fng perod or any authorzed e tenson thereof,
and ( ) by decarng a vaue n such return n e cess of the ad|usted
vaue for the year ended une 30,1939, correcty computed under sec-
ton 1202 (b) of the Interna Revenue Code. change of eecton
or of decared vaue, f desred, can be made ony by fng an amended
return before the e praton of the fng perod or authorzed
e tenson thereof.
Uness the ast return tmey fed shows a decared vaue e ceedng
the correct ad|usted vaue as determned by audt of the return, even
though t s more than the ad|usted vaue as computed on the return,
the purported eecton of an addtona decaraton year s nugatory,
and the correct ad|usted vaue contros.
In the case of the Corporaton, the return was not receved by
the coector unt September 6,1939. The return was, therefore, de-
nquent, as the statutory fng perod as e tended by the Comms-
soner n Treasury Decson 4911 page 351, ths uetn e pred
ugust 31, 1939. No appcaton for a further e tenson of tme was
submtted to the coector as provded n artce 36(6) of Reguatons
1939-47-10101
C. S. T. 10
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Regs. 64(193 ), rt. 45 -1 350
64 (193 ). The fact that the faure to fe the return on tme was
due to reasonabe cause and that no denquency penaty w be
asserted does not make the return a tmey return for the purpose of
makng an eectve decaraton of vaue, snce the return was not
fed Defore the e praton of the statutory fng perod or any
authorzed e tenson thereof, as prescrbed n secton 1202(e) of the
Snce the return fed by the Corporaton for the ta abe year
ended une 30, 1939, was not tmey fed, the eectve decared vaue
shown n such return may not be used n determnng the capta
stock ta abty of the corporaton for that year. The corporaton
may, however, eect to decare a new vaue for the ta abe year endng
une 30, 1940, provded the statutory requrements are met.
Wth respect to the second queston, t s hed that the mnus ad
|usted decared vaue of the capta stock of the Y Corporaton for
the ta abe year ended une 30, 1939, must be used as the base for
computng the ad|usted decared vaue of ts capta stock for the
ta abe year endng une 30, 1940. Secton 1202(b) of the Interna
Revenue Code provdes that, n computng the ad|usted decared
vaue of the capta stock of a corporaton for a year subsequent to
a decaraton year, The ad|ustments sha be made for
each ncome-ta ta abe year ncuded n the 3-year perod from the
date as of whch the vaue was decared n the return for the decara-
ton year to the cose of the ast ncome-ta ta abe year endng wth
or pror to the cose of the year for whch the ta s mposed b| ths
secton. Pursuant to ths provson of aw, the ne t to ast para-
graph of artce 46, Reguatons 64 (193 ), e pans the method of
computng the ad|usted decared vaue for the year ended une 30.
1939. oowng ths e panaton s the statement that Ths ad-
|usted vaue, to the e tent that t s true and correct, w consttute
the base for computng the ad|usted vaue for the ta abe year endng
une 30, 1940 . Therefore, n any case where the statutory
ad|ustments resut n an ad|usted vaue for the frst ad|ustment year
of a 3-year perod n an amount whch s ess than zero, that mnus
or defct vaue must be used as the base for the computaton of the
ad|usted vaue for the foowng ad|ustment year, f any, of the same
3-year perod otherwse, the statutory requrement that the ad|usted
vaue for a year subsequent to the decaraton year must be computed
by makng the ad|ustments u for each ncome-ta ta abe year n-
cuded n the 3-year perod woud not be met.
The foregong, however, does not appy to any corporaton whch,
n a return tmey fed for the year ended une 30, 1939, decared a
vaue n e cess of the correct ad|usted vaue, and does not n any
way deprve a corporaton of ts rght to estabsh the year endng
une 30,1940, as an addtona decaraton year under secton 1202(e)
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351
1203, 1205.
S CTIONS 1203 ND 1205.
1939-30-9927
T. D.4911
TITL 26 INT RN L R NU . C PT R I. SU C PT R C, P RT 137.
SU P RT C C PIT L STOC T .
Sectons 1203 and 1205, Interna Revenue Code. tenson of
tme for fng capta stock ta returns and payng ta .
Washngton, D. C.
Secton 137C.1. Genera e tenson. orms 707 and 70 for the
fng of returns of capta stock ta under Chapter 6 of the Interna
Revenue Code (53 Stat., Part 1) as amended, for the year ended
une 30, 1939, are requred to be fed and the ta pad on or before
uy 31, 1939, uness the tme for fng returns and payng the ta
s e tended under the provsons of sectons 1203 and 1205 of the
aforementoned chapter.
In accordance wth the provsons of these sectons, the perod
durng whch the returns of capta stock ta may be fed, and the
ta pad, s hereby e tended and coectors of nterna revenue are
authorzed to accept returns wthout asserton of penates for de-
nquency or of nterest f the returns are fed and the ta pad on
or before the dates ndcated n the ne t two paragraphs beow:
1. Returns of corporatons havng a prncpa pace of busness
wthn the contnenta Unted States must be fed wth coectors
of nterna revenue on or before ugust 31, 1939.
2. Returns of corporatons havng no prncpa pace of busness
wthn the contnenta Unted States must be fed wth coectors of
nterna revenue on or before September 29, 1939. (Sectons 1203,
1205, 3791, 53 Stat, Part 1.)
Sec. 137C.2. Speca e tensons. Corporatons wthn the frst
of the casses ndcated above may be granted further e tensons by
coectors of nterna revenue to a date not ater than September 29,
1939, under the provsons of artce 36( ) of Reguatons 64 (193
dton) (secton 137.36(b), Tte 26, Code of edera Reguatons),
as made appcabe to the Interna Revenue Code by Treasury De-
cson 4 5, approved ebruary 11, 1939 (Part 465, Subpart , of
such Tte 26 C. . 1939-1 (Part 1), 396 ), upon the condton
that nterest at the rate of 6 per cent per annum be pad from ugust
31,1939, to the date of payment. (Sectons 1203, 1205, 3791, 53 Stat.,
Part 1.)
arod N. Graves,
erbert . Gaston,
( ed wth the Dvson of the edera Regster uy 15, 1939,11.04 a. m.)
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Regs. 64(1934), rt. 43.
352
TITL . C PIT L STOC T S. (1931)
S CTION 701 f)( ).
Reguatons 64 (1934), rtce 43: d|usted 1939 4 -m
decared vaue. CtD.t
C PIT L STOC T R ND CT O 1934 D CISION OP COTO.
1. d|usted Decared aue: Deducton Dstrbuton n Lqu-
daton Dstrbuton fkom Pad-n Surpus Wheee No Stock
Canceed ob Redeemed.
dstrbuton by a corporaton to ts stockhoders of an amount
of pad-n surpus, where no stock was canceed or redeemed, does
not consttute a dstrbuton n qudaton, wthn the meanng of
sectons 115 (c) and () and 701(f) ( ) of the Revenue ct of 19 1
and artce 43(5) ( ) of Reguatons C4, and s not a proper deduc-
ton n f ng the ad|usted decared vaue of the stock n subsequent
years.
2. Decson ffrmed.
Decson of the Dstrct Court of the Unted States for the astern
Dstrct of Mssour (23 . Supp., 191), affrmed.
Unted States Crcut Court of ppeas fob the ghth Cntcrrr.
eatte Investment Co., appeant, v. Unted States of merca, appeM
101 . (2d), 50.
ppea from the Dstrct Court of the Unted States for te astern Dstrct of Mswd
March 9,1939.
OPINION.
Thomas, Crcut udge, devered the opnon of the court.
Ths s an appea by the ta payer from a |udgment denyng recovery of 50s::
nterest camed to have been erroneousy assessed and pad as capta art
ta es for the ta abe year ended une 30, 1935. The opnon of te dfct
court s reported n 23 . Supp., 191. |ury was waved and the case submt --
to the court upon a stpuaton of facts. oth partes fed motons for |udgnfc
The moton of appeant was overrued and that of appeee sustaned and up:
fndngs of fact and concusons of aw made by the court the |udgment appa-
from was entered.
The queston presented for determnaton s whether a dstrbuton by app
ant to ts stockhoders of 500,000 of pad-n surpus, where no stock was e
ceed or redeemed, consttutes a dstrbuton In qudaton wthn the meats-
of secton 701(f) ( ) of the Revenue ct of 1934 (ch. 277, 4 Stat, 6 0), and 1
proper deducton n f ng the ad|usted vaue of the stock In subsequent
The appeant, a Mssour corporaton, s engaged soey n ownng and ho a
nterest-bearng obgatons of the Unted States. of ts capta stocks
owned by the oatmen s Natona ank of St. Lous, Mo. On December SI
ts capta aggregated 2,000,000, consstng of 45,000 representng 450 shares
capta stock of the par vaue of 100 each and of 1,955,000 of pad-n surpus.
In ts frst return under the ct for the year endng une 30, 1934, the app-
ant decared 500,000 to be the vaue of ts capta stock. In ts return tor fc
year endng une 30, 1935, n arrvng at the ad|usted vaue of ts stock t n-
ducted the sum of 500,000 as a qudatng dstrbuton to ts soe st .
hoder durng the year. The Commssoner dsaowed the deducton and ass -
the addtona ta now the sub|ect of dspute.
The Revenue ct of 1934 mposes a ta of 1 for each 1,000 of the ad|ust
vaue of the capta stock of every domestc corporaton for carryng on or d
busness n the Unted States. corporaton s requred to decare the Tate
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353
Regs. 64(1934). rt. 43.
ts cnptn stock n ts frst return under the ct, whch decaraton of vaue can
not be amended. Secton 701(f) of the ct further provdes:
or any subsequent year endng une 30, the ad|usted decared vaue n the
case of a domestc corporaton sha be the orgna decared vaue pus (1) the
cash and far market vaue of property pad n for stock or shares, (2) pad n
surpus and contrbutons to capta, (3) ts net ncome, (4) the e cess of ts
ncome whoy e empt from the ta es mposed by Tte I over the amount ds-
aowed as a deducton by secton 24(a) (5) of such tte, and (5) the amount of
the dvdend deducton aowabe for ncome ta purposes, and mnus ( ) the
vaue of property dstrbuted n qudaton to sharehoders, ( ) dstrbutons of
earnngs or profts, and (C) the e cess of the deductons aowabe for ncome
ta purposes over ts gross ncome ad|ustment beng made for each ncome-ta
ta abe year ncuded n the perod from the date as of whch the orgna de-
cared vaue was decared to the cose of ts ast ncome-ta ta abe year endng
at or pror to the cose of the year for whch the ta s mposed by ths secton.
The amount of such ad|ustment for each such year sha be computed (on the
bnss of a separate return) accordng to the ncome ta aw appcabe to such
year.
The appeant contends that the camed deducton s aowabe under sub-
dvson ( ) of subsecton (f) of the statute as the vaue of property dstrbuted
n qudaton to sharehoders. The Commssoner of Interna Revenue n re|ect-
ng the cam for deducton on that bass drected attenton to the ast sentence
of that part of the statute quoted supra provdng that The amount of such
ad|ustment sha be computed accordng to the ncome ta
aw appcabe to such year. The provsons of the ncome ta aw camed to be
appcabe and n force on une 30, 1935, are subdvsons (c) and () of secton
115 of the Revenue ct of 1934 (26 U. S. C, 115) as foows:
(c) Dstrbutons n qudaton. - mounts dstrbuted n compete qudaton
of a corporaton sha be treated as n fu payment n e change for the stock,
and amounts dstrbuted n parta qudaton of a corporaton sha be treated as
n part or fu payment n e change for the stock.

() Defnton of parta qudaton. s used n ths secton the term
amounts dstrbuted n parta qudaton means a dstrbuton by a corporaton
n compete canceaton or redempton of a part of ts stock, or one of a seres
of dstrbutons In compete canceaton or redempton of a or a porton of ts
stock.
The ower court sustaned the nterpretaton of the statute adopted by the
Commssoner and hed that the dstrbuton was not deductbe as a qudaton
to sharehoders wthn the meanng of the statute because t was not n redemp-
ton of stock.
We have reached the concuson that the Commssoner and the court propery
construed and apped the aw. The contenton of the ta payer that such an
nterpretaton s not correct because t s unreasonabe and un|ust s not per-
suasve. It s argued that the rea capta of a corporaton s pro tanto qudated
by a dstrbuton to ts stockhoders of a part of ts pad-n surpus. Concedng
ths to be true when the word qudate s used n the popuar sense, t does
not ad the appeant here for the reason that the word s defned n the ct n
anguage cear and defnte and t s there restrcted n ts appcaton to dstr-
butons n compete canceaton or redempton of a or a porton of ts (the
corporaton s) stock. It s not camed that so construed the ct voates any
consttutona provson. The fact that t may be a seemng n|ustce n some
cases s therefore not a matter whch the courts have power to correct. Congress
aone can gve reef n such a case. (Magnano Co. v. amton, 292 U. S., 40 o
v. Standard O Co., 294 U. S., 7.) The court may nether enarge nor restrct
by constructon the appcaton of a statute whch s cear and unambguous.
There s nothng n such a statute to construe. (Lake County v. Rong, 130
U. S., 662 Thompson v. Unted States, 246 U. S., 547 Thompson v. Sratt, Cr.,
95 . (2d), 214.)
ppeant contends that n provdng that The amount of such ad|ustment for
each such (subsequent) year sha be computed accordng to the n-
come ta aw appcabe to such year Congress dd not n fact mean the amount
of such ad|ustment, but t meant the amount of net ncome or net oss of the
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Regs. 64(1934), rt. 43.)
354
corporaton. So construed secton 115 of the Revenue ct of 1934 woud appr|
ony to the addtons and the deductons other than dstrbutons In qukato
provded for In secton 701(f) of the ct Nothng n the statute tsef s pomrf
out to sustan ths nterpretaton and no authorty has been found to support t.
The anguage of the statute Is ncusve and the word amount embraces s
the tems enterng nto the ad|ustment.
rtce 43(5) ( ) of Treasury Reguatons 64 promugated under the Reran
ct of 1934 defnes the term qudaton as havng the same meanng as the
provsons of the appcabe ncome ta aw respectng dstrbuton by corpora-
tons. It Is argued that the reguaton s vod because Congress dd not confer
power upon the Commssoner to defne the terms of the statute. The qnestM
of whether or not the reguaton Is utra vres s Immatera snce t e press
what we hod to be the pan meanng of the statute tsef. The statute and tk
reguaton are entrey consstent and harmonous.
The meanng of the aw s cear. The Commssoner and the ower coon
correcty apped t to the facts. The udgment s
ffrmed.
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355 Regs. 44(1934), rt. 2.
M NU CTUR RS CIS T S.
INT RN L R NU COD .
S CTION 3452, S M ND D
Reguatons 44 (1934), rtce 2: ffectve 1939-34-9976
perod. T. D. 4921
TITL 26 INT RN L R NU C PT R I, SU C PT R C, P RT 309
Ta es on gasone, ubrcatng o, and matches. Subtte C of
rtce 2 of Reguatons 44 (revsed September, 1934), amended.
Washngton, D. C.
Secton 1 of the Revenue ct of 1939, approved une 29, 1939,
Sec. 1. Contnuaton of cse Ta es .
Sectons 3452 of the Interna Revenue Code are amended
by strkng out 1939 wherever appearng theren and nsertng In eu
thereof 1941.
In conformty wth the provson of aw quoted above, artce 2
of Reguatons 44 (revsed September, 1934), as amended (secton
309.2 of Tte 26, Code of edera Reguatons), but ony as
prescrbed and made appcabe to the Interna Revenue Code by
Treasury Decson 4 5, approved ebruary 11, 1939 C. . 1939-1
(Part 1), 396 (Part 465, Subpart of such Tte 26), under the
authorty contaned n secton 3450 of the Interna Revenue Code, s
further amended to read as foows:
bt. 2. ffectve perod. The ta s Imposed upon any sae or use pror
to uy 1, 1941, of gasone, ubrcatng o, or matches by the manufacturer
or other person abe for ta under the provsons of secton 3445 of the
Interna Revenue Code (same as secton 623 of the Revenue ct of 1932),
rrespectve of when the artce was manufactured, produced, or mported.
Ths Treasury decson s prescrbed pursuant to secton 3452
of the Interna Revenue Code (53 Stat., Part 1), as amended by
secton 1 of the Revenue ct of 1939 (Pubc, No. 155, Seventy-
S th Congress, frst sesson) and secton 3450 of the Interna
Revenue Code.)
Gut T. everng,
pproved ugust 14,1939.
ohn W. anes,
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Regs. 46(19323. rt. 1. 356
Reguatons 46(1932), rtce 1: ffectve 1939-35-99-
perod. T. D. 4925
SU C PT R . P RT 465. SU P RT .
cse ta es on saes by the manufacturer, Subtte C of the
rtce 1 of Reguatons 46, approved une 1 , 1932, amended.
Washngton, D. C.
Sectons 3452, of the Interna Revenue Code are amend
by strkng out 1939 wherever appearng theren and nsertng n eu thereof
1941.
Secton 2 of the Revenue ct of 1939, approved une 29, 1939.
reads as foows:
Sec. 2. Sportng rms and mmunton Ta .
Secton 3407 of the Interna Revenue Code (reatng to the ta on frearms,
shes, and cartrdges) Is amended by addng at the end thereof the foowng
new paragraph:
The provsons of secton 3452 (reatng to e praton of ta es) sha not
appy to the ta mposed by ths secton.
In conformty wth the provsons of aw quoted above, the second
paragraph of artce 1 of Reguatons 46, as amended (secton 303.1,
Tte 26, Code of edera Reguatons), but ony as prescrbed and
(Part 465, Subpart of such Tte 26), under authorty contaned n
secton 3450 of the Interna Revenue Code, s further amended to
read as foows:
No such sae, ease, or use after une 30, 1941 (or after uy 31, 1941, In the
case of artces ta abe under sectons 3400 and 3403 of the Interna Revenue
Code (same as sectons 602 and 606 of the Revenue ct of 1932, as amended),
reatng to the ta on tres and nner tubes and automobes, etc.), s ta abe
under the tte e cept that wth respect to frearms, shes, and cartrdges ta -
abe under secton 3407 of the Interna Revenue Code (same as secton 610 of
the Revenue ct of 1932), the mtaton does not appy.
(Ths Treasury decson s prescrbed pursuant to secton 3452 of
1 of the Revenue ct of 1939 (Pubc, No. 155, Seventy-s th Con-
gress, frst sesson) and secton 3450 of the Interna Revenue Code.)
Guy T. evertno,
ohn W. anes,
( ed wth the Dvson of the edera Regster ugust 23, 1939,11.13 a. m.)
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357
Regs. 46(1932)
S CTION 3401, M ND D Y S CTION 3 O T R NU CT O
1939. T ON TOIL T PR P R TIONS, TC.
Reguatons 46 (1932), Chapter III: Toet 1939-40-10O47
preparatons. T. D. 4947
SU C PT R , P RT 463. SU P RT . M NU CTUR RS CIS T
ON TOIL T PR P R TIONS.
Chapter III of Reguatons 46, approved une 1 , 1032, amended.
Washngton, D. C.
In conformty wth the provsons of secton 3 of the Revenue ct
of 1939, approved une 29, 1939 (Pubc, No. 155, Seventy-s th
Congress, frst sesson), whch amends secton 3401 of the Interna
Revenue Code (53 Stat., Part 1) (derved from secton 603 of the
Revenue ct of 1932), and under the authorty contaned n secton
3450 of the Interna Revenue Code, Chapter III of Reguatons 46, as
amended Subpart D, Part 303, Tte 26, Code of edera Regua-
tons , but ony as prescrbed and made appcabe to the Interna
1939 C. . 1939-7 (Part 1), 396 Part 465, Subpart of such
Tte 26 , s further amended to read as foows:
Chapter III.
TOIL T PR P R TIONS, TC.
Secton 3401 of the Interna Revenue Code.
There sha be Imposed upon the foowng artces, sod by the manu-
facturer, producer, or mporter, a ta equvaent to 10 per centum of the
prce for whch so sod: Perfumes, essences, e tracts, toet waters,
cosmetcs, petroeum |ees, har os, pomades, har dressngs, har
restoratves, har dyes, aromatc cachous, toet powders, and any sm-
ar substance, artce, or preparaton, by whatsoever name known or ds-
tngushed any of the above whch are used or apped or ntended to be
used or apped for toet purposes.
Revenue ct of 1939.
Sec. 3. Toet Preparatons Ta mendments.
(a) Secton 3401 of the Interna Revenue Code (reatng to the ta
on toet preparatons) s amended by nsertng at the end thereof
the foowng new paragraphs:
In the case of a sae by a manufacturer to a seng corpora-
ton of an artce to whch the ta under ths secton appes,
the transacton sha be prma face presumed to be otherwse than
at arm s ength f ether the manufacturer or the seng corpora-
ton owns more than 75 per centum of the outstandng stock of
the other, or f more than 75 per centum of the outstandng stock
of both corporatons s owned by the same persons n substantay
the same proportons. Saes by a manufacturer to a seng corpora-
ton sha n a other cases be prma face presumed to be at arm s
ength.
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Regs. 46(1932).
35
Notwthstandng secton 3441(a), In determnng, for the pur-
pose of ths secton, the prce for whch an artce Is sod, whether
at arm s ength or not, there sha be Incuded any charge for
coverngs and contaners of whatever nature, ony If furnshed by
the actua manufacturer of the artce, and any charge Incdent to
pacng the artce In condton packed ready for shpment ony
performed by the actua manufacturer of the artce, but there
sha be e cuded the amount of the ta Imposed by ths secton,
whether or not stated as a separate charge. Whether sod at arm s
ength or not, a transportaton, devery, Insurance, or other charts,
and the whoesaer s saesmen s commssons and costs and e -
penses of advertsng and seng (not requred by the foregong
sentence to be ncuded), sha be e cuded from the prce ony f
the amount thereof Is estabshed t6 the satsfacton of the Com-
mssoner, n accordance wth the reguatons.
(b) The amendments made by subsecton (a) sha be effectve ony
wth respect to saes made after the date of the enactment of ths ct
bt. 22(a) Secton 303.22(a) , Scope of far. The ta attaches to fe
sae by the manufacturer of the artces enumerated In secton 3401 of tte
Interna Revenue Code (derved from secton 603 of the Revenue ct of 1M
and smar artces commony or commercay known as toet artces, nM
are used or apped, or ntended to be used or apped, for toet purps
ny artce advertsed or hed out to be sutabe for toet purposes, or for any
purposes for whch the artces enumerated n the secton are customary twr.
w be sub|ect to the ta , regardess of the name by whch t may be
or dstngushed. The ta attaches to the sae by the manufacturer of sc|
preparaton whch s used or apped or Intended to be used or apped fa
toet purposes or used n connecton wth the bath or care of the body.
apped to the cothng as a perfume or to the body as a toet artce. The fan
that any partcuar product, preparaton, or substance comng wthn the W
of the ct may have, or be hed out to have, a medcna, stmuatng, remeda
or curatve vaue does not e empt It from the ta , f It Is used as an ad|unct
to the toet or for toet purposes.
The ta w not attach to an artce whch Is not a fnshed product or Is wt
susceptbe of use for toet purposes but s ony sutabe for use In the manu-
facture of artces sub|ect to ta .
Shampoo os and quds contanng 5 per cent or ess of saponaceous mattet
are ta abe as toet preparatons.
rt. 22(6) Secton 303.22(6) . Rate of fa . The ta Is payabe by rfc
manufacturer at the rate of 10 per cent of the sae prce as determned hd m
artce 22(c), or 10 per cent of the far market prce as estabshed under artce
22(d), whchever s appcabe.
rt. 22(c) Secton 303.22(c) . Sae prce. Sub|ect to the quafcatons m
addtona e cusons specfed In ths artce wth respect to saes made after
une 29, 1939, the sae prce for purposes of the ta on a saes other thM
saes comng wthn the purvew of secton 3441(b) of the Interna Reven
Code (same as secton 619(b) of the Revenue ct of 1932) sha be determne
n accordance wth the provsons of secton 3441(a) of the Interna Revenue
Code (derved from secton 619(a) of the Revenue ct of 1932) and artcess
to 14, ncusve, of these reguatons sectons 303. to 303.14, Incusve, Tte a
Code of edera Reguatons .
In determnng the sae prce for purposes of the ta on saes made after une
29, 1939
(1) any charge for coverngs and contaners of whatever nature sha be
Incuded In the prce ony f furnshed by the actua manufacturer of te
artce ,
() any charge ncdent to pacng the artce n condton packed new
for shpment sha be ncuded n the prce ony If perfonned by the actua
manufacturer of the artce and
() the whoesaer s saesmen s commssons and costs and eP D :
of advertsng and seng sha be e cuded from the prce ony u 111
amount thereof Is estabshed to the satsfacton of the Conunfew
n accordance wth these reguatons (see artce 69) secton
Tte 26, Code of edera Reguatons ,
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359
Regs. 46(1932), rt. 67.
bt. 22(d) Secton 303.22(d) . ar market prce Sub|ect to the qua-
fcatons and addtona e cusons specfed n ths artce wth respect to
saes made after une 29, 1939, the sae prce for purposes of the ta on
artces sod (1) at reta, (2) on consgnment, or (3) otherwse than through
an arm s ength transacton and at ess than the far market prce, sha be
the prce for whch such artces are sod n the ordnary course of trade, by
manufacturers or producers thereof, as determned by the Commssoner n
accordance wth the provsons of secton 3441 (b) of the Interna Revenue Code
(derved from secton 619(b) of the Revenue ct of 1932) and artce 15
of these reguatons secton 303.15, Tte 26, Code of edera Reguatons .
In determnng the far market prce under secton 3441(b) of the Interna
Revenue Code as the bass for ta wth respect to saes made after une
29, 1939
() any charge for coverngs and contaners of whatever nature sha
be ncuded n the prce ony f furnshed by the actua manufacturer of
the artce
() any charge ncdent to pacng the artce n condton packed
ready for shpment sha be ncuded n the prce ony f performed by
the actua manufacturer of the artce and
() the whoesaer s saesmen s commssons and costs and e penses
of advertsng and seng sha be e cuded from the prce ony f the
amount thereof s estabshed to the satsfacton of the Commssoner, n
accordance wth these reguatons (see artce 69 secton 303.69, Tte 26,
Code of edera Reguatons ).
bt. 22(e) Secton 303.22(e) . Soe otherwse than through an arm s-
ength transacton The determnaton whether a sae was made otherwse
than through an arm s-ength transacton depends necessary upon the par-
tcuar facts of each case. (See artce 15 secton 303.15, Tte 26, Code
of edera Reguatons .)
Wth respect to saes by a manufacturer to a seng corporaton made after
une 29, 1939, the transacton sha be presumed prma face to be otherwse
than at arm s ength, f ether the manufacturer or the seng corporaton
owns more than 75 per cent of the outstandng stock of the other, or f more
than 75 per cent of the outstandng stock of both corporatons s owned by
the same persons n substantay the same proportons. In a other cases,
saes by a manufacturer to a seng corporaton made after une 29, 1939,
sha be presumed prma face to be at arm s ength uness the facts of the
partcuar case estabsh a concuson to the contrary.
the Interna evenue Code (53 Stat., Part 1), as amended by secton
gress, frst sesson) and secton 3450 of the Interna Revenue Code.)
Guy T. evertng,
ohn W. anes,
( ed wth the Dvson of the edera Regster September 26, 1939,11.56 a. m.)
TITL 2 INT RN L R NU . C IT R 29, SU C PT R . M NU C-
TUR RS CIS T ON TOIL T PR P R TIONS, TC.
Returns of ta for une and uy, 1939, Imposed under secton
3401 of the Interna Revenue Code, as amended by secton 3 of the
Revenue ct of 1939.
Reguatons 40(1932). rtce 67: Returns.
rtce 6 : Payment of ta .
1939-32-9952
T. D.4916
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Regs. 42, rt. 40.
360
Washngton, D. ff.
or the purposes of artces 67 and 6 of Reguatons 46 (1932) as
amended (sectons 303.67 and 303.6 of Tte 26, Code of edera
Reguatons), but ony as prescrbed and made appcabe to the
Interna Revenue Code by Treasury Decson 4 5, approved ebru-
ary 11, 1939 C. . 1939-1 (Part 1), 396 (Part 465, Subpart .
Tte 26, Code of edera Reguatons), returns for the perod une 1
to une 29,1939, ncusve, and for the perod une 30 to uy 31,1939,
ncusve, w be accepted under the authorty contaned n secton
344 of the Interna Revenue Code, as beng returns for the months of
une and uy, 1939, respectvey, from persons abe for the tu
on toet preparatons mposed under the provsons of secton 3M
of the Interna Revenue Code, as amended by secton 3 of the
Revenue ct of 1939.
return for the perod ended une 29, 1939, must be fed wth
the coector of nterna revenue on or before uy 31, 1939, and a
return for the perod endng uy 31,1939, must be fed wth the co
ector on or before ugust 31, 1939.
gress, frst sesson) and sectons 344 and 3450 of the Interna Revenue
Code (53 Stat., Part 1).)
arod N. Graves,
ctng Commssoner of Interna Revenue
ohn W. anes,
L CTRIC L N RGY T .
S CTION 3411. T ON L CTRIC L N RGY OR DOM STIC OR
COMM RCI L CONSUMPTION.
Reguatons 42, rtce 40: Scope of ta . 1939-43-1003
S.T. SS
Ta abty of eectrca energy sod for consumpton n varous
actvtes.
dvce s requested whether eectrca energy sod for the uses here-
nafter ndcated s sub|ect to ta under secton 3411 of the Interna
Revenue Code as eectrca energy sod for commerca consumpton.
Secton 3411 provdes n part as foows:
(a) There sha be mposed upon eectrca energy sod for domestc or com-
merca consumpton and not for resae a ta equvaent to 3 per centum of t
prce for whch so sod, to be pad by the vendor under such rues and reg
tons as the Commssoner, wth the approva of the Secretary, sha prescrbe-
The sae of eectrca energy to an owner or essee of a budng, who purcha
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361
Regs. 42, rt. 40.
such eectrca energy for resae to the tenants theren, sha for the purposes of
ths secton be consdered as a sae for consumpton and not for resae, but the
resae to the tenant sha not be consdered a sae for consumpton.
rtce 40 of Reguatons 42 (1932), as amended by Treasury Dec-
son 4393 (C. . II-2, 322 (1933)), provdes n part:
The ta s Imposed upon eectrca energy sod for domestc or
commerca consumpton and not for resae, e cept as provded herenafter.
The term eectrca energy sod for domestc or commerca consumpton
does not ncude (1) eectrca energy sod for Industra consumpton, e. g.,
for use In manufacturng, processng, mnng, refnng, shpbudng, budng
constructon, rrgaton, etc., or (2) that sod for other uses whch kewse can
not be cassed as domestc or commerca, such as the eectrca energy used by
pubc uttes, waterworks, teegraph, teephone, and rado communcaton
companes, raroads, other common carrers, educatona nsttutons not oper-
ated for proft, churches, and chartabe nsttutons. owever, eectrca
energy s sub|ect to ta f sod for use n the commerca phases of Industra
or other busnesses, such as n offce budngs, saes and dspay rooms, reta
stores, etc.
Where eectrca energy s sod to a snge consumer for two or more purposes,
through separate meters, the specfc use for whch the energy s sod through
each meter, . e., whether for domestc or commerca consumpton, or for other
use, sha determne Its ta abe status. Where the consumer has a the eec-
trca energy used at a gven ocaton furnshed through one meter, the pre-
domnant character of the busness carred on at such ocaton sha determne
the cassfcaton of consumpton for the purposes of ths ta .
The ta does not appy to eectrca energy sod for resae, e cept where the
eectrca energy s sod to an owner or essee of a budng who purchases such
eectrca energy for resae to the tenants theren. The sae of eectrca energy
to an owner or essee of a budng who purchases such eectrca energy for
resae to the tenants theren, sha for the purposes of ths ta be consdered
as a sae for consumpton and not for resae, but the resae to the tenants
sha not be consdered a sae for consumpton.
The foowng typca cases are presented:
1. The M Company s the owner of a budng whch s eased to
varous manufacturers of women s cothng. The cothng s made,
dspayed, and sod at whoesae on the premses. The eectrca
energy consumed n the budng s metered through a master meter
and s submetered by the M Company to the tenants for consumpton
n ther manufacturng operatons. The M Company s bed for the
energy.
2. The N Company s the owner of a budng whch s eased to
prntng estabshments and manufacturers of Chrstmas novetes.
The N Company has a contract wth the O Company whereby the
O Company, as agent for the N Company, furnshes the meters for
measurng the energy used on the premses by the tenants. The pro-
ducer of the energy bs the N Company, n care of the O Company,
for the energy consumed n the budng. The O Company takes the
meter readngs for a the tenants, bs each tenant for the energy
consumed, makes a coectons, and pays the producng company
for such energy.
3. The P Company s engaged n the busness of reparng wrecked
automobes, radator reparng, and genera wedng. The eectrca
energy furnshed the company s used for ghtng the premses, wed-
ng, drng, and other operatons ncdenta to reparng wrecked
automobes. The customers of the company are automobe repar
shops and ndvdua car owners. Substantay a of the busness
of the company s repar work.
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Regs. 44, rt. 2 .
362
4. The Company s engaged n the busness of reparng steam
pumps, boers, and reated equpment. Incdenta to, and for use n.
makng such repars, repacement parts, such as shafts, casngs, ps-
tons, etc., are manufactured on the premses. Repacement work
s, however, a very mnor actvty, substantay a of the company
actvtes beng repar work. The eectrca energy s used for ght-
ng and power requrements. The customers of the company are
argey deaers n steam pumps and boers.
5. operates a hand aundry. The eectrca energy s consumed
for ghtng the premses.
6. operates a taor shop. s actvtes consst of pressng and
reparng cothng, and occasonay makng garments to order for
ndvduas. The eectrca energy s used for heatng, ghtng,
and power purposes.
7. C s a practcng physcan. The eectrca energy s consumed
n ghtng hs offce and n the operaton of the medca equpment
theren. of the actvtes carred on at the premses are of
professona nature.
The queston nvoved n each of the foregong cases s whether
the eectrca energy was sod for commerca or ndustra con-
sumpton wthn the meanng of the aw and reguatons.
ased upon the facts presented n these cases, t s hed that the
eectrca energy n cases 1 and 2 consumed n manufacturng opera-
tons was sod for ndustra consumpton and s not sub|ect to tat
and that the eectrca energy n cases 3 to 7, ncusve, was sod for
commerca consumpton and s sub|ect to ta .
TITL I . M NU CTUR RS CIS T S. (1932)
S CTION 630 O T R NU CT O 1932, S DD D Y S CTION 5
O T CT O UN 16, 1933 (4 ST T., 254), ND S M ND D Y
S CTION 705 O T R NU CT O 193 . MPTION ROM
T O C RT IN SUPPLI S OR SS LS.
Reguatons 44, rtce 2 : empton of 1939-2 -9911
certan suppes for certan vesses. S. T. SS3
( so rtce 76y2, Reguatons 46.)
The e empton provded In secton 630 of the Revenue ct of 1932,
as amended, appes to artces sod for use as fue suppes, shps
stores, sea stores, or egtmate equpment on cv arcraft regs-
tered n ermuda.
S. T. 79 (C. . 1939-1 (Part 1), 354) modfed.
dvce s requested whether ermuda aows substantay recp-
roca prveges wth respect to the e empton from e cse ta pro-
vded n secton 630 of the Revenue ct of 1932, as added by secton
5 of the ct of une 16,1933 (4 Stat., 254), and as amended by secton
705 of the Revenue ct of 193 , on artces sod for use as fue sup-
pes, shps stores, sea stores, or egtmate equpment on cv arcraft.
In accordance wth the requrements prescrbed n secton 630 of
the Revenue ct of 1932, as amended, the Secretary of Commerce has
advsed the Secretary of the Treasury that ermuda aows prveges
whch are substantay recproca to those specfed n secton 630 of
the Revenue ct of 1932, as amended, wth respect to ta e empton
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363 Regs. 42(1932), rte. 1, , 25, 39.
on artces sod for use as fue suppes, shps stores, sea stores, or
egtmate equpment on cv arcraft. ccordngy, e empton under
secton 630, as amended, w be aowed n respect of arcraft regs-
tered n ermuda so ong as ermuda contnues to aow such prv-
eges, but ony upon compance wth the provsons of artce 2 of
Reguatons 44 (1934), as amended by Treasury Decson 4604 (C. .
I -2, 376 (1935)) and Treasury Decson 4 33 (C. . 193 -2, 379),
and artce 76 of Reguatons 46 (1932)), as added by Treasury
Decson 43 7 (C. . II-2, 347 (1933)) and as amended by Treasury
Decson 4605 (C. . D7-2, 3 (1935)) and Treasury Decson 4 53
(C- . 193 -2, 3 3).
S. T. 79 (C. . 1939-1 (Part 1), 354) s modfed to ncude
ermuda n the st of foregn countres whch aow prveges whch
are substantay recproca to those specfed n secton 630 of the
Revenue ct of 1932, as amended.
teegraph, teephone. rado, and cabe factes, etc.
Reguatons 42(1932), rtces 1, , 25, 39. 1939-34-9977
T. D.4922
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 130:
SU C PT R , P RT 4G5, SU P RT .
Ta on teegraph, teephone, rado, and cabe factes trans-
portaton of o by ppe ne, and eectrca energy Subtte C of
rtces 1, , 25, and 39 of Reguatons 42, approved October
22, 1932, amended.
Washngton, D. C.
Sectons 3452, 3460(a), 3465, of the Interna Revenue
Code are amended by strkng out 1939 wherever appearng theren and In-
sertng n eu thereof 1941.
In conformty wth the provson of aw quoted above, artces 1,
, 25, and 39 of Reguatons 42 (revsed October, 1932), as amended
(sectons 130.1, 130. , 130.25, and 130.39 of Tte 26, Code of edera
Reguatons), but ony as prescrbed and made appcabe to the In-
terna Revenue Code by Treasury Decson 4 5, approved ebruary
11, 1939 C. . 1939-1 (Part 1), 396 (Part 465, Subpart of
such Tte 26), under the authorty contaned n sectons 3431 and 3472
of the Interna Revenue Code, are further amended to read as foows:
rtce 1. ffectve perod. The ta s mposed upon payments for the trans-
msson by teegraph, teephone, cabe, or rado of dspatches, messages, and
conversatons orgnatng n the Unted States pror to uy 1, 1941, regardess
of the date of payment.
kt. . ffectve perod. The ta mposed under secton 3465(b) attaches
to the amount pad for any eased wre or takng crcut speca servce fur-
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Regs. 42(1932), rt. 10.
364
nshed pror to uy 1, 1941. If the rendton of the servce occurs pror
uy 1, 1941, the ta attaches thereto notwthstandng the date of payment.
rt. 25. ffectve perod. The ta mposed under secton 3460 appes to
transportaton of crude petroeum and qud products thereof by ppe
where the movement begns pror to uy 1, 1941. In the case of any rt
transportaton by ppe ne where the movement orgnates pror to nk L
1941, and ends on or after that date, the ta attaches to the entre tmr.
charged for the transportaton, athough pad on or after uy 1, 1W1
ut. : 9. ffectve perod. The ta appes to eectrca energy sod pror:
uy 1, 1941.
(Ths Treasury decson s prescrbed pursuant to sectons S.
3400(a) and 3465 of the Interna Revenue Code (53 Stat., Part I).
amended by secton 1 of the Revenue ct of 1939 (Pubc. No. 151
Seventy-s th Congress, frst sesson) and sectons 3431 and 3472 o:
the Interna Revenue Code.)
Guy T. everng,
Commssoner of Interna Revenue
ohn W. anes,
ctng/ Secretary of the Treasury.
( ed wth the Dvson of the edera Regster ugust 1C, 1939, 1.12 p. t
S CTION 3465, S M ND D Y S CTION 1 O T R NU CT O
1939. IMPOSITION ND R T O T .
Reguatons 42 (1932), rtce 10: Leased wre 1939-43-10 S
speca servce. S.T. 9
( so rtces 12,13,14, and 15.)
mounts pad for eased wres used n the transmsson of mes-
sages or sgnas are not sub|ect to ta under secton 3465(b) of
the Interna Revenue Code, as amended, where a of the termnas
of such wres are ocated wthn an area served by a oca teephone
e change not chargng tos upon messages transmtted between
ponts wthn such area.
S. T. 594 (C. 15. I-2, 519 (1932)) revoked.
dvce s requested whether amounts pad to a teegraph or tee-
phone company for eased wres used for the transmsson of m
sages or sgnas other than teephone conversatons are sub|ect t
ta under secton 3405(b) of the Interna Revenue Code, as amend :
by secton 1 of the Revenue ct of 1939, where a of the termnas are
ocated wthn an area served by a oca teephone e change not
chargng tos upon messages transmtted between ponts wthn
such area.
Secton 3405, as amended, provdes n part as foows:
There sha be mposed

(b) a ta equvaent to 5 per centum of the amount pad to any tee 1
or teephone company for any eased wre or takng crcut speca servce v
nshed before uy 1, 1941. Ths subsecton sha not appy to the amoont pan
for so much of such servce as s utzed n the conduct, by a common carr 1
or teephone or teegraph company or rado broadcastng staton or net
of ts busness as such.
smar ta was mposed by the Revenue cts of 191 and |-
rtce 19 of Reguatons 57 (approved uy 24, 1920) and art
1 of Reguatons 57 (approved ebruary 15,1922) provde:
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365
Regs. 42(1932), rt. 26.
or admnstratve purposes t s hed that where the area covered by a eased
wre speca servce Is served by a oca teephone e change, tos not beng
charged upon messages transmtted between ponts wthn such area, such
speca servce does not come wthn the provsons of the ct.
In construng the provsons of secton 500(g) of the Revenue ct
of 191 , mposng the ta under that ct, t was hed n S. T. 1-21-120
(Saes Ta Rungs, Cumuatve uetn anuary- une, 1921, page
I7),that -
Where eased wre or takng crcut speca servce s strcty oca, t s not
sub|ect to ta under paragraph (g), secton 500, such e empt servce beng
requred n paragraph 3 of artce 19, Reguatons 57 (revsed), to be wthn
an area actuay served by a oca teephone e change wthout to charges upon
messages transmtted between ponts wthn such area. Such speca servce as
tckers wth messages reayed mechancay or otherwse s not sub|ect to ta
f the termnas of the speca servce are wthn an area actuay served by a
oca teephone e change wthout to charges upon messages transmtted between
ponts wthn such area.
In S. T. 594 (C. . I-2, 519 (1932)), t was hed that where wres
and nstruments were eased to a person who had the e cusve use
thereof the amount pad therefor was ta abe under secton 701 (a)2
of the Revenue ct of 1932 as a eased wre or takng crcut speca
servce, even though the factes were confned to the budng n
whch the essee s offce was ocated.
The anguage of secton 500(g) of the Revenue ct of 191 and
secton 3465(b) of the Interna Revenue Code s substantay the
same. The rue stated n S. T. 1-21-120 s consdered a correct nter-
pretaton of secton 500(g) of the Revenue ct of 191 . Snce secton
3465(b) s substantay the same as secton 500(g) of the Revenue
ct of 191 , the rue set forth n S. T. 1-21-120 s appcabe under
secton 3465(b). or ta purposes, there s no dstncton between
eased wres used for teephonc communcaton and such wres used
for other types of communcaton.
In vew of the foregong, t s hed that amounts pad for eased
wres, whch are used n the transmsson of messages or sgnas and
a of the termnas of whch are ocated wthn the same oca area,
are not sub|ect to ta under secton 3465(b) of the Interna Revenue
Code, as amended.
S. T. 594 (C. . I-2, 519 (1932)) s revoked.
TITL . MISC LL N OUS T S. (1932)
S CTION 731. TR NSPORT TION O OIL Y PIP LIN .
Reguatons 42 (1932), rtce 26: ass of ta . 1939-2 -9914
Ct. D. 1407
msceaneous ta es revenue act of 1932 decson op court.
Ta on Transportaton op O by Ppe Lne Crude Petroeum
Casng-head Gasone.
Casng-head or natura gasone Is a product of crude petroeum,
and ts transportaton by ppe ne Is therefore ta abe under the
provsons of secton 731 of the Revenue ct of 1932.
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Regs. 42(1932), rt. 26. 366
Dstrct Court of the Unted States for the Southern Dstrct of Cautos|oa.
Centra Dvson.
Genera Petroeum Corporaton of Caforna, a Corporaton, pantff, v. Untt
States of merca, defendant.
24 . Supp., 2 5.
uy 30, 193a
OPINION.
Yankwch, Dstrct u ge: y ths acton, Genera Petroeum Corporaton d
Caforna, a corporaton, seeks to recover the sum of 6,194.4 pad by ts
predecessor, Genera Ppe Lne Co. of Caforna, between une 21, 1932, sz
December 31, 1934, as a ta on casng-head or natura gasone transported bf
ppe ne.
The payment was made under the Revenue ct of 1932, whch mposed a tu
upon a transportaton of crude petroeum and qud products thereof by ppp
ne orgnatng on and after the ffteenth day after the date of the euactnM:
of ths ct and before uy 1, 1930. (Secton 731(a), Revenue ct of 19C
16 U. S. C. ., note foowng secton 14 1.)
The queston we are to decde s whether casng-head or natura gasott
Is a product of crude petroeum.
Words used In egsatve enactments are to be gven ther natura sgnfcance.
The sense to be attrbuted to them s that of the everyday speech of men. 11
words refer to artces of trade, they are to be nterpreted n the sense n whf
they are understood by those n the trade. (See: Two undred Cheats of Tet,
Smth Camant (1 24), 9 Wheat., 430 Maard v. Lawrence (1 53), 16 ow.
251, 261 mercan et t Twne Co. v. Worthngton (1 91), 141 U. S., 46
Robnson v. Saomon (1 9), 130 U. S., 413 urke v. Southern Pacfc R. R.
(1914), 234 U. S., 669 Ozawa v. Unted States (1922), 260 U. S., 17 , 1 M
Unted States v. Thnd (1923), 261 U. S., 204, 209 Lncon v. Rckctts (1936),
297 U. S., 373, 376.)
These prncpes are a recognton of the democratc orgn of anguage. Words
do not become a part of anguage uness they get themseves accepted as a part
of the everyday speech of man. Technca words, of course, are gven te
technca sgnfcance whch ther acceptance by a partcuar craft or group has
conferred upon them.
The dffcuty whch confronts us here s traceabe to the absence of agreement
as to the meanng of the words crude petroeum and as to the dervaton of
casng-head gasone.
Petroeum s a mnera consstng essentay of a compe m ture of hydro-
carbons urke v. Southern Pacfc Co., supra Webster s New Internatona
Dctonary, 1937 . Casng-head or natura gasone s gasone e tracted from
wet gas taken from an o we, at the casng head, n a separator or trap, as
the gas eaves the we. The dfferent knds of gasone contan the same hydro-
carbons n varous proportons. ut whe there s agreement as to the method
of e tracton, the e perts dsagree as to the source of the partces of gasone
found n casng-head or wet gas. Some assert that t Is a product of the gas.
Others assert that even when e tracted from a gas we, t orgnates n contact
toth crude o n some subterranean stratum. We quote from the testmony o
. . Cannon, a consutng engneer wth ong e perence In the o ndustry,
who testfed for the Government:
The Court. Suppose you had a gas we but no qud vsbe, at a. so far a
you dr t. What woud you consder the gasone that came from that oa
to bet
The Wtness. petroeum product because, n my opnon, that gas has bctn
n contact wth a body of qud petroeum somewhere.
The Court. You don t know where that gas came n contact wth the body
of qud petroeum
The Wtness. That s rght.
14 The Court. In other words, the presence of the partces of these varous
thngs whch consttute gasone whch are found n gas and e tracted from t
by separaton, (are ) show ceary a petroeum product
The Wtness. That s rght. Itacs added.
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367 Reff. 42(1932), rt. 26.
On the bass of testmony before hm, udge Wams In Twn s Gasone
Co. v. radford OU Co. (D. C. Oka., 1919) (264 ed., 440, 441) arrved at a
smar concuson:
that wet gas e sts ony wth o. Therefore, casng-head gas s a component
of o.
Ordnary, n nstruments deang wth the products of o, gas s used n
|u taposton wth o. So we speak ordnary of gas, a and other hydro-
carbon substances. Much of the egsaton concernng o and havng the
am to conserve o uses ths termnoogy. (See, O and Gas Conservaton Law
of Caforna, ct 4916, Gen. Laws of Ca. (1937), page 2069 Laws of Te as,
artces 6014, 6023, 6029 Comped Okahoma Statutes, sectons 7954-7963.) The
words petroeum and o are, techncay, synonymous.
s the e perts are n dsagreement as to the reatonshp between gasone,
especay casng-head gasone, and petroeum, so are the courts. Some hod
that gasone and casng-head gasone are a part of crude o or petroeum.
(See: ngs County re Ins. Co. v. Swgert (1 2), 11 111. pp., 590, 59
Poe v. umbe OU Refnng Co. (Te . Cv. pp.) (1926), 2 S. W., 264
Obreath v. States O Corporaton (CC . 5, 1925), 4 ed. (2d), 232 Con-
neee v. Magnoa Petroeum Co. (Te . Cv. pp., 1926), 279 S. W., 597 Locke
v. Russe (W. a., 1915), 75 W. a., 602, 4 S. ., 94 Wempe v. Producers
O Co. (1919), 145 La., 1031, 3 So., 232 Lvngston OU Corporaton v. Wag-
goner (1925), 273 S. W., 903.) Others hod that they are nether o nor gas.
Cymore Producton Co. v. Thompson (1936) (D. C. Te .), 13 ed. Sup., 4C9
ammett v. ypsy O Co. (1921), 95 Oka., 235, 21 P., 501 Ludey v. Pure O
Co. (1932), 157 Oka., 1, 11 P. (2d), 102 roswood OU Co. v. Sand Sprngs
ome (1936), 17 Oka., 550, 62 P. (2d), 1004 opkns v. Te as Co. (C. C.
. 10, 1933), 62 ed. (2d), 691 appyng Okahoma decsons Lone Star Oas
Co. v. arrs (Te . Cv. pp., 1932), 45 S. W. (2d), 664.)
Wth ths dvergence n the opnon of e perts and of courts, the meanng
of the words s to be determned n the ght of the crcumstances attendng
ther use n the partcuar egsaton. What mtates n favor of construng
casng-head gasone as a product of crude o or petroeum s the fact that the
wet gas from whch t s e tracted s never found e cept wth o. The cou-
png of the words crude and petroeum s, from a strcty scentfc
standpont, tautoogca. or the word petroeum conveys a the meanng
whch the words crude petroeum do. Yet we fnd that the phrase has been
used n ega nstruments and n egsaton and has receved |udca defnton.
In ngs County re Insurance Co. v. Swgert ( 1 111. pp. 590, 59 ), It s de-
fned as foows: b. -
Crude petroeum conssts of a number of dfferent os, a more or ess
voate, whch are separated from each other by a process of dstaton and
of these gasone, beng the most voate, and consequenty the most e posve,
s the one drven off at the owest temperature. (See 4 Corpus urs, 1953.)
When they occur, as they often do, n varous tarff acts, the words are gven
a broad nterpretaton. (See: Unted States v. Downng d Co., C. C. . 2,
1906,146 ed., 56 Unted States v. Swan d nch Co., C. C. . 2, 1909, 169 ed.,
10 Unted States v. . . Marsy Co., C. C. . 1, 190 , 165 ed., 1 6.)
The egsatve hstory of the secton under consderaton shows that the
ob|ect sought to be attaned by the 1932 enactment was the ta aton of gasone
transported by ppe ne. The Revenue cts of 1917 and 191 ta ed the trans-
portaton of o by ppe ne. rtce 91 of Reguatons 49, promugated
under the 191 ct, defned the word o as crude petroeum and such of ts
products as may be transported by ppe ne. The ta on ppe ne transporta-
ton was repeaed n 1921. It was the ob|ect of the 1932 ct to restore t.
The ct as t reached the Senate nance Commttee retaned the word o.
It was changed n commttee to the present wordng. The commttee, n ts
report, stated the ob|ect of the change to be as foows:
P RT I . T ON TR NSPORT TION O OIL Y PIP LIN .
The rate under secton 731 on transportaton of o by ppe ne has been
reduced from to 3 per cent. The word o has been changed to crude pe-
troeum and qud products thereof. Ths wtt make transportaton of gaso-
ne as we as crude o ta abe.
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Regs. 42(1932), rt. 26. 36
mendments have been mnde to Impose the ta on the ppe ne rather tb:
the person payng for the transportaton. Itacs added.
The conference report on the b stated the ob|ect of the amendment:
foows:
Secton 731(a). Ta on transportaton of o by ppe ne. metdn
No. 232: Ths amendment addton of words crude petroeum and ftp
products thereof foowng transportaton of n the frst ne nakts
ta under the ouse b on transportaton by ppe ne appcabe
crude petroeum and ts qud products, nstead of to o ony. The
recedes. Itacs added.
The deberate substtuton of the words crude petroeum for of
cates an ntenton to avod the possbe effect of decsons whch had decfo-.
to consder gasone as a dervatve of o. The use of the phrase ntta
to o ony n the report, shows pany that the new termnoogy vss:
reach more products than the od one. If, as contended by the pantff, t-
words crude petroeum mean nothng more than crude o, then the eta
was a useess gesture. Yet the conference commttee says that they sot:
words of a broader meanng because they amed to reach, by the change, pr
ucts not reached by the od aw. It s a pecuarty of the egsatve mn:
the ngsh speakng word, as t s of ts ega mnd, to retan phrases wt-
through ong usage, have acqured a defnte meanng. Ths s especay t
when a phrase has been the sub|ect of |udca nterpretaton.
When words e stng n a pror enactment whch t s sought to revTe
changed, the nference s that the od words proved nadequate to cover
matters whch the egsaton sought to reach. When added to that s the fa
e pressed specfcay by the egsatve body, that the substtuton of worn
amed to acheve a certan resut, there s no room for specuaton. nd
the am s obvous, the tera or even scentfc meanng of a word must
dsregarded n order to acheve t (See: Ozatca v. Unted States (19 . -
U. S., 17 , 194.) It s conceded by the pantff that the ta apped to str
run gasone, 1. e., gasone e tracted by varous processes drecty from the -
The ob|ect of the Congress beng to ta gasone n genera, wthout any s :
desgnaton of knd, no reason appears for decnng to Incude casn -
gasone. Casng-head gasone s gasone. s the wtness Cannon testfW
. Is there any chemca dfference between the severa commodtes rc
taned n the gaseous vapor In the separator and n the ot
. No. None, at a.
. Can you produce from crude petroeum or crude o a gasone whW
w have appro matey the same characterstcs as casng-head gasone
. Yes.
. Can such a product be utzed for the same purpose as casng-h
gasone s utzed
. Yes.
. Is there a defnte dvdng ne between casng-head gas and ere
petroeum at the separator
. No. There s not a dstnct ne of demarcaton between those t
products.
. Does the petroeum ndustry recognze that fact
. Oh, yes.
. Is there a defnte dvdng ne between casng-head gasone a
straght-run gasone
. No, there s no defnte dstnct ne of demarcaton there.
. Does the petroeum ndustry aso recognze that fact
. Yes. Itacs added.
In vew of the state of the aw at the tme of the enactment and ts a
purpose, I am of opnon that the Congress ntended to desgnate by the
crude petroeum a the hydrocarbon substances whether n qud, so 1
gaseous form comng out of an o we and that they ntended to n 101
not ony the gasone whch s mnged wth the qud substance so as to req, m
e tracton through varous methods but aso the natura or casng-head 0
one contaned n the gas comng out at the same tme as the o and wt -
can be captured at the casng head through separaton. ,
There s evdence n the record that the word petroeum s undersbw
In the trade to ncude a the hydrocarbon substances comng out of te
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369
Regs. 42(1932), rt. 26.
and to ncude specfcay casng-bead gas. We quote the foowng from the
wtness Cannon:
. Dd you ever hear n the ndustry the use of the word 4 crude petroeum
. I thnk that s a word that s very rarey used.
. In the ndustry, what s the common understandng as to the meanng
of the term crude o I am not askng you the technca meanng, but gve
us the understandng of the term crude o and the way t s understood n
the ndustry
. Crude o, I thnk, s consdered to be any of that product anywhere from
the separator through the dehydratng pant, f any, nto the storage tanks,
through the ppe nes, nto the refnng and storage and cear nto the fna
sae. It s a consdered crude o a the way through.
. That s n the Industry
. Yes, n the ndustry t s a consdered crude o, a the way through.
. In the ndustry, what s the understandng of the term petroeum
products f
. ny product that s derved from petroeum.
. nd what s petroeum f
. We, I have pretty we covered that when I went down to the bottom
of the reservor.
The Coubt. We, go down farther.
. ust repeat t, brefy.
. I don t know as I have checked the actua defnton of the word. My
understandng has been that t s any substance that s produced from an o
we, or s mned as asphat s mned.

. / beeve that you stated, n answer to a queston asked by the court,
that casng-head gasone s n the ensng-head gas after the gas s separated
at the we. Is casng-head gas a product of petroeumt
. bsoutey.

The Cottbt. We, t woud be on ths wtness s statement obvousy In
common parance, however, n the Industry. In the ndustry, there has grown
up, n the ast few years, a certan generc term for petroeum products, and,
n the nomencature, where they speak of qud o as o and gas and they
throw In for good measure the term and other hydrocarbon substances n
ther eases and royaty agreements
The Wtness. That s true.
The Coubt. nd a the nstruments that are wrtten reatng to varous
products of a we are wrtten wth that termnoogy
The Wtness. That s rght.
The Court. ut, n the scentfc vew, and the genera vew, they are a
one and the same thng and are desgnated, as you say, as petroeum and
merey dvded nto the varous components after they eave the reservor.
Is that correct
The Wtness. Tes, sr. Itacs added.
e ander . Morrs, petroeum engneer of the Department of Interna
Revenue, who testfed for the Government, states:
. ( y Mr. Mtche) : Is there any defnte or sharp dvdng ne between
casng-head gas and casng-head gasone and crude o
. There s no defnte, cear-cut ne where one can be separated from an-
other. The ony dstncton that can be made Is where t e sts at no set
equbrum pont. ou mght say, for ustraton, that you have a bow of
bean soup. In that bow of soup you mght have 3 navy beans, 5 ma beans,
and 300 of other knds of beans. It w st be bean soup, however. nd
these are st portons of crude petroeum regardess of how many compound
component parts there be n t
. Is casng-head gasone a product of crude petroeum
. Yes. I can unhestatngy state that casng-head gasone s a product
of crude petroeum.
. Is casng-head gasone a product of crude oT
. It may be. Not necessary. It depends on the system.
. Is casng-head gasone a product of crude petroeum
. It s. Itacs added.
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Regs. 42(1932), rt. 26.
370
These statements end force to e announced concuson, derved from the
egsatve hstory of the enactment.
Ta aws are nterpreted beray n favor of the ta payer. Doubts arsy
n ther nterpretaton or appcaton must be resoved aganst the ta ng bodv,
(Unted States v. Isham (1 73), 17 Wa., 496, 504 Crooks v. arrcUon (1 |9 ,
2 2 U. S., 55, 61 (Ct. D. 271, C. . -, 469 (1931)) Mer v. Standard SsS
Margarne Co. (1932), 2 4 U. S., 49 , 50 (Ct. D. 457, C. . I-1, 370 (1932)).
ut the doubts must be rea and must sprng from uncertantes apparent on tfce
face of the ta ng aw. owever, where, as here, the egsatve hstory of the
enactment and e pert testmony n the record show the meanng ntended.
woud be strvng for Imagnary doubts, f we faed to appy t.
We concude that casng-head gasone transported by ppe ne, was ta abe
under the Revenue ct of 1932 and that the ta es pad by the pantffs prefc-
cessor are not recoverabe.
udgment w be for the Government. ndngs and |udgment under tue
44. cepton to the pantff.
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371 Regs. 43(1932), rt. ,
DMISSIONS T .
INT RN L R NU COD .
S CTION 1700, S M ND D Y S CTION 1 O T R NU CT
O 1939. T .
Reguatons 43 (1932), rtce 1: ass, rate, 1939-32-9949
and computaton ot ta . S. T. 5
( so Secton 1701 and rtce 14.)
mounts pad for admsson to dances hed by members of the
Cvan Conservaton Corps at the camps of the corps are sub|ect
to the admssons ta mposed by secton 1700 of the Interna Reve-
nue Code, as amended by secton 1 of the Revenue ct of 1939,
provded such amounts are 41 cents or more.
dvce s requested whether the amounts pad for admsson to
dances hed by members of the Cvan Conservaton Corps at camps
of the corps are sub|ect to ta under secton 1700 of the Interna Reve-
nue Code, as amended by secton 1 of the Revenue ct of 1939.
Secton 1700 of the Interna Revenue Code, as amended, mposes a
ta of 1 cent for each 10 cents or fracton thereof pad for admsson
to any pace, ncudng admsson by season tcket or subscrpton, f
the amount pad s 41 cents or more. Secton 1701 e empts from ta
any admssons a of the proceeds of whch nure e cusvey to the
beneft of regous, educatona, or chartabe nsttutons, socetes, or
organzatons, f no part of tre net earnngs thereof nures to the
beneft of any prvate stockhoder or ndvdua.
The members of the Cvan Conservaton Corps from tme to tme
hod dances at the camps of the corps under the authorty of the Cv-
an Conservaton Corps reguatons. Members of the corps and others
are admtted. The proceeds from the admssons are deposted n the
funds of the partcuar company sponsorng the dance. The Cvan
Conservaton Corps was estabshed for the purpose of provdng
empoyment as we as vocatona tranng. t east 10 hours each
week may be devoted to genera educatona and vocatona tranng.
( ct of une 2 ,1 37, 50 Stat. 319 16 U. S. C. Sup., 5 4.) The ques-
ton presented s whether the Cvan Conservaton Corps may prop-
ery be cassed as an educatona or chartabe organzaton for the
purpose of determnng abty to the ta on admssons pad by ts
members and others.
rtce 14 of Reguatons 43 (1932) provdes n part that for an
organzaton to be consdered an educatona or chartabe organza-
ton wthn the meanng of the aw the purpose of the organzaton as
put nto practce must be educatona or chartabe and ts funds must
be used soey n furtherance of such purpose, none of them beng pad
or otherwse dstrbuted to any of ts members e cept as charty or as
reasonabe compensaton for servces actuay rendered.
Whe the vocatona tranng afforded those enroed n the Cvan
Conservaton Corps s an mportant educatona actvty, the furnsh-
ng of empoyment on a saary bass to such persons s one of the pr-
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Regs. 43(1932), rt. 57.
372
mary purposes of the corps. That actvty can not propery be sad to
be e cusvey educatona or chartabe.
It s hed that the Cvan Conservaton Corps does not quafy as
educatona or chartabe organzaton wthn the meanng of secton
1701, supra, and that the amounts pad for admsson to the danct-
at the camps of the corps are sub|ect to the ta mposed by secton II
of the Interna Revenue Code, provded such amounts are 41 cents
more. Where the admsson charges to members of the corps are ess
than the amounts charged to other persons for admsson to the daM .
t s hed that such charges are not reduced-rate admssons wthn r
meanng of the aw snce the members of the corps are not admm
under the same crcumstances under whch such other persons ar
admtted. In such cases, the amount pad by a member s sub|ect to
ta ony when the amount s 41 cents or more.
Reguatons 43 (1932), btce 57: ffectve 1939-34- v
date of change n e empton. T. D.#
TITL 2 INT RN L R NU . C PT R L SU C PT R C, P RT 109
Ta on admssons, Chapter 10, Subchapter , of the Interna
Revenue Code.
rtce 57 of Reguatons 43, approved une 14, 1932, amended.
Washngton, D. C.
Secton 1 of the Revenue ct of 1939, approved une 29, 19 .
Sectons 1700(a)(1) of the Interna Revenue Code are amends
by strkng out 1939 wherever appearng theren and nsertng n en tered
1941.
In conformty wth the provson of aw quoted above, artce 57
of Reguatons 43 (revsed une, 1932), as amended (secton 100.57o
Tte 26, Code of edera Reguatons), but ony as prescrbed_an|
(Part 465, Subpart of such Tte 26), under the authorty contaned
n secton 3791 of the Interna Revenue Code, s further amended to
read as foows:
rt. 57. ffectve date of change n e empton. The sums pad for adms 5
whch are not sub|ect to ta under secton 1700(a) (1) of the Interna eveate
Code (same as secton 500(a) (1), as amended, of the Revenue ct of 1926) |r|
those whch are ess than 41 cents. ffectve uy 1, 1941, any sum
3.00 or ess pad for admsson w not be ta abe. The tme of pa|nW
and not the tme of admsson w govern n determnng whch e empton
appcabe. Consequenty, f a person shoud purchase a tcket of admsson to
an amount n e cess of 40 cents where the payment was made before u
1941, for an admsson to take pace after that date, the payment so made ww
be sub|ect to ta .
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373 Regs. 43(1932), rt. 57.
(Ths Treasury decson s prescrbed pursuant to secton 1700
(a) (1) of the Interna Revenue Code (53 Stat., Part 1), as amended
by secton 1 of the Revenue ct of 1939 (Pubc, No. 153, Seventy-
s th Congress, frst sesson) and secton 3791 of the Interna Reve-
nue Code.)
Gut T. evernq,
ohn W. anes,
( ed wth te Dvson of the edera Regster ugust 16, 1939, 1.12 p. m.)
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Regs. 71 (1932), rt. 2. 374
ST MP T S.
INT RN L R NU COD .
Reguatons 71(1932), rtce 2: ffectve 1939-33-9965
perod. T.D.4
TITL 20 INT RN L R NU . C PT R I. SU C PT R C, P RT 111 S -
Stamp ta es on ssues and transfers of stocks and bonds, passage
tckets, foregn nsurance poces, and deeds of conveyance.
rtce 2 of Reguatons 71, approved uy 16, 1932, amended.
Washngton, D. C.
Secton 1 of the Revenue ct of 1939, approved une 29, 19
(Pubc, No. 155, Seventy-s th Congress, frst sesson), provdes:
Sectons , 1 01, 1S02, 34 1(b), and 34 2 of the Interna
Revenue Code are amended by strkng out 1939 wherever appearng theren
and nsertng n eu thereof 1941.
Pursuant to the above amendment. Reguatons 71, approved uy
16, 1932, as amended (Part 111 of Tte 26, Code of edera Regua-
tons), but ony as prescrbed and made appcabe to the Interna
Revenue Code by Treasury Decson 4 5, approved ebruary 11.
1939 C. . 1939-1 (Part 1), 396 (Part 465, Subpart , of Tte
26, Code of edera Reguatons), under the authorty contaned n
secton 3791 of the Interna Revenue Code are amended as foows:
rtce 2, as amended by Treasury Decson 4 24 C. . 193S-2,
405 (secton 111.2 of such Tte 26), s amended to read as foows:
rt. 2. ffectve perod. The stamp ta provsons of the Interna Revenue
Code, as amended by the Revenue ct of 1939, are n fu force and effect. Te
rates of ta mposed by sectons 1 01, 1 02(a), and 1 02(b) of the Interna
Revenue Code, whch woud have been reduced on uy 1, 1939, and the stamp
ta es mposed by sectons 34 1 and 34 2 of the Interna Revenue Code, wh
woud have been repeaed as of that date, w reman effectve to and neuda
une 30, 1941.
(Ths Treasury decson s prescrbed pursuant to sectons 1 0L
1 02(a), 1 02(b), 34 1, and 34 2 of the Interna Revenue Code (53
Stat., Part 1), as amended by secton 1 of the Revenue ct of 1935
(Pubc, No. 155, Seventy-s th Congress, frst sesson) and secton
3791 of the Interna Revenue Code.
arod N. Graves,
ohn W. anes,
( ed wth the Dvson of the edera Regster ugust 12. 1939, 1L01 a.
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375
Regs. 71, rt. 2 .
S CTION 1 02, S M ND D Y S CTION 1 O T R NU CT O
1939. C PIT L STOC ( ND SIMIL R INT R STS).
The orgna ssue of certfcates of membershp by the M Rura
ectrc Cooperatve ssocaton, Inc. ( ansas), and the orgna
ssue of capta stock by the N Rura ectrc Cooperatve sso-
caton, Inc. (Coorado), are sub|ect to stamp ta .
dvce s requested whether certfcates of membershp ssued by
the M Rura ectrc Cooperatve ssocaton, Inc. (herenafter re-
ferred to as the M ssocaton), a ansas corporaton, and capta
stock ssued by the N Rura ectrc Cooperatve ssocaton, Inc.
(herenafter referred to as the N ssocaton), a Coorado corpora-
ton, are sub|ect to stamp ta under secton 1 02(a) of the Interna
Revenue Code, as amended by secton 1 of the Revenue ct of 1939.
Secton 1 02(a), as amended, mposes a stamp ta on each orgna
ssue of shares or certfcates of stock, or of profts, or of nterest n
property or accumuatons, by any corporaton.
The artces of ncorporaton of the M ssocaton provde for the
ssuance of capta stock n the amount of 10a doars dvded nto 2
shares havng, a par vaue of 5 doars each. The shares are referred
to n the by-aws of the assocaton as certfcates of membershp
and were ssued as such. The by-aws provde that the termnaton
of membershp n any manner sha operate as a reease of a rght,
tte and nterest of the member n the property and assets of the
assocaton.
The N ssocaton ssued capta stock n the amount of 20as doars
consstng of 10a shares havng a par vaue of 2 doars each.
It s contended that the ssue of the certfcates of membershp and
the ssue of the capta stock here nvoved are e empt from stamp
ta (1) on the ground that the assocatons are agences of the States
of ansas and Coorado, respectvey, or (2) under the provsons of
the Rura ectrfcaton ct of 193C (49 Stat., 1363-1367 7 U. S. C,
Sup. I , 901-914).
The certfcates of membershp ssued by the M ssocaton are
ceary certfcates of nterest n property wthn the meanng of
secton 1 02(a), as amended. Under the aws of ansas, organza-
tons such as the M ssocaton are treated as a specazed cass of
prvate corporatons and not as agences of the State. (Genera
Statutes of ansas, 1935, artce 15, chapter 17.)
The aws of Coorado under whch the N ssocaton was ncor-
porated do not contempate an agency reatonshp between organza-
tons ncorporated thereunder and the State. (1935 Coorado Stat-
utes nnotated, chapter 41. sectons 210-226.) Such aws merey
confer on such corporatons features whch may be dstngushed from
the features of ordnary busness corporatons. ( ohnson Omsted
Reaty Go. v. Cty and County of Denver et ce., 9 Coo., 250, 1 P.
(2d), 92 .) The assocaton, accordng to ts artces of ncorpora-
ton, was organzed for the purpose of furnshng rura power cooper-
atvey. It nas no ncdents whch woud |ustfy ts cassfcaton as
an agency of the State.
There s no provson n the Rura ectrfcaton ct of 1936
e emptng from edera ta es the ssuance of certfcates of member-
Reguatons 71, rtce 2 : Issues sub|ect
to ta .
1939-35-99 4
S. T. 91
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Regs. 71, rt. 34.
37G
shp and capta stock by assocatons or corporatons comng wthn
the scope of that ct.
In vew of the foregong, t s hed that the orgna ssue of certf-
cates of membershp by the M Rura ectrc Cooperatve ssoca-
ton, Inc., and the orgna ssue of capta stock by the N Rura
ectrc Cooperatve ssocaton, Inc., are sub|ect to stamp ta unde
secton 1 02(a) of the Interna Revenue Code, as amended.
Reguatons 71, rtce 34: Saes or transfers 1939-34-9974
sub|ect to ta . S. T. 9
Where corporate stock was bequeathed to for fe and to C at
s death, the transfer of the stock upon s death from the Dame
of , the fe tenant, to C, the remanderman, does not resut
whoy by operaton of aw and s sub|ect to stamp ta .
dvce s requested whether the transfer of corporate stock frc
the name of , a deceased fe tenant, to the name of C, the remander
man, pursuant to the provsons of a w s sub|ect to the stamp tt
mposed by secton 1 02(b) of the Interna Revenue Code, as amends
by secton 1 of the Revenue ct of 1939.
The aw mposes a stamp ta on a saes or transfers of ega
tte to any shares or certfcates of corporate stock, wth certan
e ceptons not here appcabe.
Under the w of , corporate stock was bequeathed to for te
and upon s death to C. Upon the death of , the fe tenant, ft
stock was transferred to C, the remanderman. The queston s pre-
sented whether the transfer of the stock to C s sub|ect to stamp ta
Transfers of stock n pursuance of a gft or bequest are sub|ect to
stamp ta . ( rtce 34( ) of Reguatons 71.) Transfers of stock
whch resut whoy by operaton of aw are not sub|ect to stamp ta
Transfers of ths character are those whch the aw tsef w effect
wthout any vountary act of the partes, such as transfer of stock
from decedent to e ecutor. ( rtce 35(r) of Reguatons 71.)
When , the fe tenant, ded, C, the remanderman, had the rfht
to have the stock transferred to hm. Such a transfer s not one
resutng whoy by operaton of aw, but one pursuant to a Deques
under the w of . The w was the generatng source of the tra-
er and desgnated the person who was to receve the stock at the
death of . ccordngy, t s hed that the transfer of the stock
here nvoved from the name of , the fe tenant, to the name of C.
the remanderman, s sub|ect to stamp ta under secton 1 02 of tat
Interna Revenue Code, as amended.
Rec|uatons 71, rtce 34: Saes or trans- 1939-46-W
fers sub|ect to ta . S- T.
Transfers of corporate stock made n furtherance of ntegra-
ton pans adopted by pubc utty companes, pursuant to Ue
Pubc Utty ct of 1 )35 and the orders of the Securtes and
change Commsson approvng such pans, are sub|ect to stamp
ta under secton 1 02(b) of the Interna Reveuue Code, as
amended.
dvce s requested whether transfers of corporate stock made m
the furtherance of ntegraton pans adopted by pubc utty com-
panes, pursuant to the Pubc Utty ct of 1935 and the orders of
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377
Regs. 71. rt. 34.
he Securtes and change Commsson approvng such pans, are
ransfers resutng whoy by operaton of aw and, therefore, not
sub|ect to stamp ta under secton 1 02(b) of the Interna Revenue
ode, as amended by secton 1 of the Revenue ct of 1939.
Secton 1 02(b), as amended, mposes a stamp ta on a saes,
or agreements to se, or memoranda of saes or deveres of, or
transfers of ega tte to any shares or certfcates of corporate stock,
wth certan e ceptons not here appcabe.
Secton 11 of the Pubc Utty ct of 1935 (49 Stat., 03, 20)
provdes n part as foows:
(a) It sha be the duty of the Commsson to e amne the corporate struc-
ture of every regstered hodng company and subsdary company thereof, the
reatonshps among the companes n the hodng company system of every
such company and the character of the nterests thereof and the pro|)ertes
owned or controed thereby to determne the e tent to whch the corporate
structure of such hodng-company system and the companes theren may be
smpfed, unnecessary compe tes theren emnated, votng power f ry
and equtaby dstrbuted among the hoders of securtes thereof, and the
propertes and busness thereof confned to those necessary or approprate to
the operatons of an ntegrated pubc-utty system.
(b) It sha be the duty of the Commsson, as soon as practcabe after
anuary 1, 193 :
(1) To requre by order, after notce and opportunty for hearng, that each
regstered hodng company, and each subsdary company thereof, sha take
such acton as the Commsson sha fnd necessary to mt the operatons of
the hodng-company system of whch such company s a part to a snge Inte-
grated pubc-utty system, and to such other busnesses as are reasonaby
Incdenta, or economcay necessary or approprate to the operatons of such
Integrated pubc-utty system:

(2) To requre by order, after notce and opportunty for hearng, that each
regstered hodng company, and each subsdary company thereof, sha take
such steps as the Commsson sha fnd necessary to ensure that the corporate
structure or contnued e stence of any company n the hodng-company
system does not unduy or unnecessary compcate the structure, or unfary
or nequtaby dstrbute votng power among securty hoders, of such hodng-
rnmpamy system. In carryng out the provsons of ths paragraph the Com-
msson sha requre each regstered hodng company (and any company n
the same hodng-company system wth such hodng company) to take such
acton as the Commsson sha fnd necessary n order that such hodng com-
pany sha cease to be a hodng company wth respect to each of ts subsdary
companes whch tsef has a subsdary company whch s a hodng company.
cept for the purpose of fary and equtaby dstrbutng votng power among
the securty hoders of such company, nothng n ths paragraph sha authorze
the Commsson to requre any change In the corporate structure or e stence of
any company whch Is not a hodng company, or of any company whose
prncpa busness s that of a pubc-utty company.

(e) In accordance wth such rues and reguatons or order as the Comms-
son may deem necessary or approprate n the pubc nterest or for the protec-
ton of nvestors or consumers, any regstered hodng company or any
subsdary company of a regstered hodng company may, at any tme after
anuary 1, 1936, submt a pan to the Commsson for the dvestment of contro,
securtes, or other assets, or for other acton by such company or any
subsdary company thereof for the purpose of enabng such company or any
subsdary company thereof to compy wth the provsons of subsecton
(b).
rtce 35 of Reguatons 71 (1932) reads n part:
(r) Transfers of shares or certfcates of stock whch resut whoy by operaton
of aw are not sub|ect to the ta . Transfers of ths character are those whch the
aw tsef w effect wthout any vountary act of the partes, such as transfer
of stock from decedent to e ecutor.
20 196 40 13
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Regs. 71, rt. 35.
37
The transfers covered by the above-quoted provsons of artce
of Reguatons 71 are mted to those transfers whch resut w o
by operaton of aw. Whe the transfers made n carryng out thf
ntegraton pans adopted pursuant to the Pubc Utty ct of 19
are made pursuant to aw, such transfers are not effected whoy h
operaton of aw. urthermore, secton 371 of the Interna Rever
Code provdes that no gan or oss sha be recognzed for nccs
ta purposes wth respect to certan e changes and dstrbutons nu
n obedence to orders of the Securtes and change Commsson,
but no e empton from stamp ta has been provded for sacs
transfers.
In vew of the foregong, t s hed that transfers of corpors
stock made n the furtherance of ntegraton pans adopted pursuar
to the Pubc Utty ct of 1935 and the orders of the Securt
and change Commsson approvng such pans are sub|ect tc
stamp ta under secton 1 02(b) of the Interna Revenue Code,
amended by secton 1 of the Revenue ct of 1939.
Reguatons 71, rtce 35: Saes or transfers 1939-33-9
not sub|ect to ta . S-T. s
The transfer of corporate stock from the name of a guardan to
the name of a ward n the State of Mnnesota s not sub|ect to
stamp ta .
dvce s requested whether the transfer of corporate stock fro
the name of a guardan to the name of a ward, both beng resdent
of the State of Mnnesota, s sub|ect to the stamp ta mposed by
secton 1 02(b) of the Interna Revenue Code, as amended by secton
1 of the Revenue ct of 1939.
Secton 1 02(b) of the Interna Revenue Code, as amended, mpose
a stamp ta on a saes or transfers of ega tte to any shares or
certfcates of corporate stock, wth certan e ceptons not here app-
cabe. The ta abty of the transfer of corporate stock from the
name of a guardan to the name of a ward depends upon whether,
under the haws of the |ursdcton, ega tte remans n the ward
or vests n the guardan at the tme of hs appontment. (MS. 4
C. . I -1. 33 (1925).)
Secton 4107f, voume 3 of Dunne s Dgest of Mnnesota Lar. .
second edton, reads as foows:
guardan has no tte or persona Interest n the property of hs ward. t
ony a naked authorty not couped wth an nterest The ega as we as te
benefca tte to both rea and persona property remans n the ward. Tta
guardan has a rght to the possesson of both forms of property, but ony f
the purposes of hs trust and for the use and beneft of the ward. s p
sesson s the possesson of the ward. e hods the possesson merey as Uu
offcer of the court appontng hm and sub|ect to ts orders n reaton thereta
It s cear from the above-quoted provson of the aws of Mn-
nesota that a guardan n that State does not acqure ega tte to
corporate stock beongng to hs ward. Consequenty, a transfer of
ega tte s not nvoved n the transfer of corporate stock from tbt
name of a guardan to the name of the ward n that State, and such
transfer s not sub|ect to stamp ta .
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379
Regs. 71(1932), rt. 35.
Uegttato s 71 (1932), rtce 35: Saes or 1939-41-10059
transfers not sub|ect to ta . T. D. 4950
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 111 SU -
Reguatons 71, as amended, reatng to stamp ta es, as made
appcabe to the Interna Revenue Code by Treasury Decson
4 5 C. . 1939-1 (Part 1), 39(5 , amended.
Washngton, D. C.
Reguatons 71, approved uy 16, 1932, as amended (Part 111,
Tte 26, Code of edera Reguatons), but ony as made appcabe
to the Interna Revenue Code by Treasury Decson 4 5, approved
ebruary 11, 1939 C. . 1939-1 (Part 1), 396 (Part 465, Sub-
part , of such Tte 26), are amended as foows:
rtce 35 (secton 111.35 of such Tte 26) s amended by emnat-
ng therefrom e ampe (b) effectve on the day foowng the ap-
prova of ths Treasury decson.
secton 1 02 of the Interna Revenue Code (53 Stat.. Part 1) as
amended by secton 1 of the Revenue ct of 1939 (Pubc, No. 155,
Seventy-s th Congress, frst sesson) and secton 3791(b) of the
Interna Revenue Code.)
Guy T. everno,
pproved October 4, 1939.
ohn . anfs,
( ed wth the Dvson of the edera Regster October 5, 1939, 4.03 p. m.)
Reguatons 71(1932), rtce 35: Saes or trans- 1939-36--9995
fers not sub|ect to ta . T. D. 4930
SU C PT R , P RT 465. SU P RT .
Stamp ta es on Issues and transfers of stocks and bonds, passage
tckets, foregn nsurance poces, and deeds of conveyance.
rtce 35 Reguatons 71, approved uy 16, 1932, amended.
Washngton, D. C.
To Coectors of Interned Revenue and Others Concerned:
Secton 402 of the Revenue ct of 1939, approved une 29, 1939
CPubc, No. 155, Seventy-s th Congress, frst sesson), provdes:
Sec. 402. Ta on Transfers op Worthess Securtes by f.cctor, etc.
Secton 1 02(b) of the Interna Revenue Code (reatng to the ta on
transfers of capta stock and smar Interests) Is amended by Insertng
at the end thereof the foowng new paragraph:
The ta mposed by ths subsecton sha not be Imposed upon any
devery or transfer by an e ecutor or admnstrator to a egatee, her,
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Regs. 71, rt. 4.
3 0
or dstrbutee of shares or certfcates of stock f t Is shown to the sats-
facton of the Commssoner that the vaue of such shares or certfcata
s not greater than the amount of the ta that woud otherwse be
mposed on such devery or transfer.
Pursuant to the above amendment, Reguatons 71, approved :b
16, 1932, as amended (Part 111 of Tte 26, Code of edera egd
tons), but ony as prescrbed and made appcabe to the Intern
Revenue Code by Treasury Decson 4 5, approved ebruary 1L
1939 C. . 1939-1 (Part 1), 396 (Part 4G5, Subpart , of T
26, Code of edera Reguatons), under the authorty contaned:
secton 3791 of the Interna Revenue Code, are amended as foow
rtce 35 (secton 111.35 of such Tte 26), as amended bv Treaf
ury Decson 4 , approved March 9, 1939 LC. . 1939-1 (Part
357 , s further amended by addng the foowng new subpr
graph at the end thereof:
(w) Devery or transfer by an e ecutor or admnstrator after 10 n
eastern standard tme, une 29, 1939, to a egatee, her, or dstrbutee of ste
or certfcates of stock f t s shown to the satsfacton of the Commsscr
that the vaue of such shares or certfcates s not greater than the aro
of the ta that woud otherwse be mposed on such devery or traosfer.
(Ths Treasury decson s prescrbed pursuant to secton 1 02(b
of the Interna Revenue Code (53 Stat., Part 1), as amended h
secton 402 of the Revenue ct of 1939 (Pubc, No. 155, Seventy-
s th Congress, frst sesson) and secton 3791 of the Interna Re
nue Code.)
Guy T. evehno.
Commssoner of Interna Rereme.
ohn W. anes,
( ed wth the Dvson of the edera Regster ugust 31, 1939,10.41 a. n
S CTION 34 2, S M ND D Y S CTION 1 O T R NU CT O
1939. CON Y NC S.
Reguatons 71, rtce 4: What consttutes 1939-33-955
rea property determnabe by aw of State S.T.SS
where ocated.
O and gas eases for an ndefnte perod coverng ands n Iowa
and Mssour consttute conveyances of reaty sub|ect to stamp tat
dvce s requested whether o and gas eases (herenafter
scrbed) coverng ands n Iowa and Mssour consttute conveyance
of reaty sub|ect to stamp ta under secton 34 2 of the Intend
Secton 34 2, as amended, mposes a stamp ta on any Deed
strument, or wrtng whereby any ands, tenements,.
other reaty sod sha be granted, assgned, transferred, or others-
conveyed to, or vested n, the purchaser or purchasers ,
when the consderaton or vaue of the nterest or property convey1
e cusve of the vaue of any en or encumbrance remanng thwf-s
at the tme of sae, e ceeds 100 . What consttutes
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3 1
Regs. 71, rt. 4.
: ands, tenements, or other reaty s determnabe by the aw of
he State n whch the property s stuated. ( rtce 4, Regua-
ons 71.)
Under the terms of the eases here n queston, the essor granted,
emsed, eased and et unto the essee, hs hers, e ecutors, admn-
strators, successors, and assgns certan ands n Iowa and Mssour,
for the e cusve purpose of mnng, e porng, and operatng for
he producng of o and gas, wth rghts of way and easements for
ppe nes, teephone and teegraph nes, roads, tanks, and other
necessary structures. The eases are to reman n force for 10 years
and as ong thereafter as o or gas s produced from the eased ands
or drng operatons are contnued. The eases provde for the
payment of a specfed royaty to the essor by the essee, and for
the termnaton of the ease f no we s commenced wthn 12 months,
uness the essee sha pay to the essor a specfed sum per acre, wth
the prvege of deferrng drng operatons for smar perods
upon the payment of a ke sum per acre for each such perod.
The courts of Iowa and Mssour have not had occason to decde
whether the nterest conveyed by a ease contanng such provsons s
a freehod nterest or a mere chatte nterest. Under the genera
rues of rea property, an nterest n and whch may ast ndefntey
s a freehod nterest and s consdered rea property. Snce the
eases n queston are for a term of 10 years and as ong thereafter
as o or gas s produced from the eased ands, the essee s nterest
may ast ndefntey. Under the genera rue above stated, the
nterest conveyed by such eases s a freehod nterest.
In vew of the foregong, t s hed that the eases n queston con-
sttute conveyances of reaty sub|ect to stamp ta under secton 34 2
of the Interna Revenue Code, as amended.
rea property determnabe by aw of State S. T. 90
where ocated.
n Instrument desgnated Sae of o and gas royaty, whch
conveys an nterest n the royaty payabe under an e stng o and
gas ease coverng and n Mssour, and aso an undvded nter-
est n and to n of the o and gas n and under such ands, consttutes
a conveyance of reaty sub|ect to stamp ta .
dvce s requested whether an nstrument desgnated Sae of
o and gas royaty, whch conveys an nterest n the royaty payabe
under an e stng o and gas ease coverng and n Mssour, and aso
an undvded nterest n and to a of the o and gas n and under
such andS| consttutes a conveyance of reaty sub|ect to stamp ta
under secton 34 2 of the Interna Revenue Code, as amended by
secton 1 of the Revenue ct of 1939.
The aw mposes a stamp ta on any Deed, nstrument, or wrt-
ng whereby any ands, tenements, or other reaty sod
sha be granted, assgned, transferred, or otherwse conveyed to, or
vested n, the purchaser or purchasers when the consdera-
ton or vaue of the nterest or property conveyed, e cusfe of the
vaue of any en or encumbrance remanng thereon at the tme of
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Regs. 71, rt. 4.
3 2
sae, e ceeds 100 What consttutes ands, tenemer-
or other reaty s determnabe by the aw of the State n whch d
property s stuated. ( rtce 4, Reguatons 71.)
Under the nstrument nvoved, the grantor conveyed to the gratfc
an nterest n the royaty payabe under an e stng o and gas ew
coverng and n Mssour, and aso granted, sod, conveyed,assgn:-,
and devered to the grantee an undvded nterest n and to a:
the o and gas n and under such and, together wth the rght d
ngress and egress for the purpose of drng and e porng the k
for o and gas. It s aso provded that a specfed porton of fe
rentas payabe under the e stng ease sha be pad to the granc
and that n the event of the canceaton or forfeture of the es
ease an undvded nterest n the ease nterests and future rents--
and bonuses sha be owned by the grantee. The foregong nters
are conveyed by the grantor to the grantee, hs hers and assgn
forever.
The nstrument conveys to the grantee not ony an nterest n ts
royaty payabe under an e stng ease but aso an undvded ntern
n the o and gas n fee. Though the Supreme Court of Mssocr
has not as yet consdered ths type of nstrument, t s we settk
n that State that mneras n pace are reaty, may be convera
as such, and when so conveyed consttute a separate and dstn-
nhertance. (Warde v. Watson, 93 Mo., 107, 5 S. W., 605 Goda
v. Mon, 24 Mo., 155, 154 S. W., 99.) The above cases have:
cted and foowed many tmes by the courts of Mssour and of ok
States. dscusson of ths type of nstrument s found n 3 Sm-
mers, O and Gas (2d ed., 193 ), secton 606:
In the better forms of such royaty deeds, If a grantor Intends to oo f
for e ampe, one-haf of the rents and royates under an e stng ease,
gether wth a proportonate nterest n the mnera fee, the deed frst cam
a one-haf nterest n and to a the o, gas and other mneras n and ns :
the and, wth prveges of enterng upon the and to produce them. Mf
of the grant s desgned to and does convey the ee nterest tcftc w
present or reversonary, dependng upon the theory n the partcuar ursdc-
ton as to the nature of the Interests created by an o and gas ease. T:
second cause rectes the e stng ease and states that t Is the Intent of
grantor to ncude In the conveyance one-haf of the rents, royates, de .
rentas and other ncome accrung to the grantor under the e stng u
nd fnay, such deeds have an e panatory cause whch states that a
event the e stng ease e pres, the grantor and grantee, or ther success
n Interest, sha each have or own one-haf Interest n the mneras n pto1
Ths ast cause may be unnecessary, for Its offce Is to e pan the operat
effect of the frst part of the grant, but where the meanng of the frst ctf
Is not ceary apparent, the e panatory cause serves a very usefu purpose.

There s tte danger that a court w construe such a deed s|
merey conveyng rents and royates under an e stng ease, as has
done where the deed merey conveys rents and royates. Nor s there daor
that royates under future eases w be decared vod for voaton t
rue aganst perpetutes, for under a deed of ths type the grantee takes u
nterest n the mneras n pace, or In the rght to produce them, conW5
upon the e praton of the e stng ease. Itacs supped.
In vew of the foregong, t s hed that the nstrument here n-
voved consttutes a conveyance of reaty sub|ect to stamp ta db
secton 34 2 of the Interna Revenue Code, as amended.
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Regs. 71. rt. 4.
rea property determnabe by aw of State G. C. M. 21702
where ocated.
n o and gas ease, coverng ands n Okahoma, for a specfed
term and as ong thereafter as o or gas s produced from the
eased ands docs not consttute a conveyance of reaty sub|ect to
stamp ta .
n opnon s requested whether an o and gas ease, coverng
ands n Okahoma, for a specfed term and as ong thereafter as
o or gas s produced from the, eased ands consttutes a conveyance
of reaty sub|ect to stamp ta under secton 34 2 of the Interna
Secton 34 2, as amended, mposes a stamp ta on any Deed, n-
strument, or wrtng whereby any ands, tenements, or
other reaty sod sha be granted, assgned, transferred, or otherwse
conveyed to, or vested n, the purchaser or purchasers,
when the consderaton or vaue of the nterest or property conveyed,
e cusve of the vaue of any en or encumbrance remanng thereon
at the tme of sae, e ceeds 100 . What consttutes ands,
tenements, or other reaty s determnabe by the aw of the State
n whch the property s stuated. ( rtce 4. Reguatons 71.)
The Supreme Court of Okahoma n State of Okahoma v. rnest
Sfambn (90 P. (2d), 1053) hed that the nterest of a essee
n a nonproducng o and gas ease s not sub|ect to ad vaorem
ta aton as rea property under the aws of Okahoma snce the
defnton of rea property for ad vaorem ta aton purposes does not
ncude the essee s nterest n such a ease. The court sad n part:
It has been consstenty hed by ths court that an o and gas mnng ease
s not rea property nor a freehod or corporea nterest theren, and that the
e ecuton of such a ease does not consttute a conveyance of ands, tenements
or other reaty, or of a freehod or corporea nterest theren. Ths s true of
eases havng f ed terms, and t s equay true of eases havng f ed terms
foowed by and as ong thereafter as o or gas s found or by any smar
provson t beng the vew and hodng of ths court that the ega character
of an o and gas ease n Okahoma s as above stated regardess of the term
of the ease, whether f ed or ndetermnate. It has aso been repeatedy and
consstenty hed that such o and gas mnng eases are chattes rea and are
therefore persona property. ( uachty v. Onbrenth, 26 Oka., 772, 110 P.. 902,
3 L. R. .. N. S., 451 Tupeker v. Deaner, 46 Oka., 32 , 14 P.. 53 ey v.
arrs, 62 Oka., 230, 162 P., 219 Whe v. Mc ey, 10S Oka., 19, 31 P. (2d),
50, 94 . L. R.. 656 Papoose O Co. v. Scnder, 95 Oka., 264, 221 P., 506
Sanond Crude O Purchasng Co. v. u ey. 1 5 Oka., , 90 P. (2d), 76.)
( eng persona property, such o and gas mnng eases n Okahoma are not
ta abe as rea property or as conveyances of ands, tenements or other rea
estate or of a freehod or corporea nterest theren.)
In vew of the foregong decson of the Supreme Court of Oka-
homa, t s hed that an o and gas ease, coverng ands n Okahoma,
for a specfed term and as ong thereafter as o or gas s produced
from the eased ands does not consttute a conveyance of reaty and
s, therefore, not sub|ect to stamp ta under secton 34 2 of the
Interna Revenue Code, as amended.
. P. Wenche,
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Regs. 71(1932), rt. 27. 3 4
TITL III. ST MP T S. (1926)
SC DUL -2 O TITL III O T R NU CT O 1926 S
M ND D Y S CTION 722 O T R NU CT O 1932.
Reguatons 71(1932), rtce 27: Computaton 1939-44-1
of ta . O.D. IS
ST MP T R NU CTS O 1926 ND 1932 D CISION O COURT.
Investment Trust Certfcates Instament Payments Pab o
ace aue Interpretaton of Statute.
Investment trust certfcates Issued and sod n consderaton of
ether a snge payment of 1,200 or a parta payment of 10 and
the baance n 119 monthy payments had a par or face vaue of
1,200, wthn the meanng of secton 00, Schedue -2, of the
Revenue ct of 1926 as amended by secton 722 of the Revenue
ct of 1932, and were sub|ect to ta based upon a par vaue equa
to the sum of the nstaments rather than upon the actua vaue
of each monthy payment. The words certfcates of nterest n
property are to be nterpreted as beng equvaent to certfcates
of present or future nterest In property.
Unted States Crcut Court of ppeas for the Second Crcut.
mpre Trust Go., as Trustee, appeee, v. ames . ncy, Coector of httw
Revenue for the Second Dstrct of Sew York, appeant.
103 . (2d), 430.
pr 17, 1939.
opnon.
ppea from a |udgment for the pantff of the Dstrct Court for the Southed
Dstrct of New York, n an acton to recover ta es unawfuy coected.
L. and, Crcut udge: The defendant, a coector of nterna revenue, apprt-
from a udgment aganst hm for e cse ta es, coected by hm on uy 31,
under coor of secton 00, Schedue -2, of the Revenue ct of 1926 w
secton mposed a ta for and n respect of the severa documf
descrbed n Schedue and Schedue mposed a ta of 10 cents
on each orgna ssue of certfcates of nf-
est n property by any nvestment trust on each fW
par or face vaue of the certfcates : Provded, That wbfrp
such certfcates are ssued wthout par or face vaue, the ta
be 10 cents per share uness the actua vaue s ess than 100
share, n whch case the ta sha be 2 cents on each 20 of actua vaue
fracton thereof. The queston s whether certan certfcates, ssued by
the pantff, had a par or face vaue. The pantff bought and affe
stamps upon a certfcates whch t Issued at ther actua vaue t asserts
that they had no par or face vaue. The defendant coected the dfferecce
between the ta , 2 cents, so assessed upon ther actua vaue, and (120:
ectbe upon a par vaue of 1,200 and the |udgment aganst hm was(,r
that amount
The pantff was the successor of the Independent und of North men
under a deed e ecuted on uy 1, 1931, between the fund and the ack
merca Natona ssocaton. s provded n ths deed, the fund sod to
customers certfcates n consderaton, ether of a snge payment n fu
the tme of devery, or of a parta payment of 10, and a promse to n
119 future monthy payments. The fund turned over the money to the to1
whch used t, and the future payments as made, to buy cumuatve trust
shares for the customer, whch t hed In trust for hm. Cumuatve tr.f-
shares were themseves ony certfcates of ownershp n an nvestment tnf-
so that t resuted that the customer became cestu que trust of the ban w
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Regs. 71(1932), rt. 27.
was Itsef cestu que trust of another trustee who hed the ony res a Mock of
common shares n varous corporatons. ach cumuatve trust share was
for one ffty-thousandth of 1 of these bocks.
The nstament certfcates sod to customers under ths pan were n the
foowng form. They decared that n consderaton of the undertakng and
agreement of M or N, to make one hundred and twenty (120)
e ua monthy payments, the recept of the frst one of whch, totang ten
doars, s hereby acknowedged, the hank agrees to purchase
cumuatve trust shares at the prevang prce thereof at the tme of recept by
the trustee of each of sad payments and to hod such trust shares
n trust for the benefcary. If the customer kept up hs payments unt
maturty, (1) he mght requre the bank to se the shares, whch It was hodng
for hm, and pay hm the proceeds or (2) he mght demand the shares them-
seves or (3) he mght eave them wth the bank. e aso had the frst two
of those optons at any tme before competon of hs payments. arge number
of these certfcates were ssued, and a smaer number of those n whch the
whoe prce was pad down on devery. The Commssoner of Interna Revenue
frst rued that the nstament certfcates had no par or face vaue, and he
therefore f ed the ta at 2 cents, measured by the amount pad at ssue, 10.
Later, he changed ths rung, hed that they had a par vaue equa to the
sum of the payments, and ta ed them at 1.20, 10 cents for each 100. The
coector s answer has gone even further, and, as a parta defense, now
aeges that each monthy payment of 10 by a customer was n effect a new
ssue of the certfcates upon whch a ta of 2 cents was mposed, thus makng
2.40 due upon each certfcate.
Ths ast poston Is very ceary untenabe. The ta s mposed on each
orgna ssue, and a certfcate s ssued ony once. Whatever ta s due, s
due at that tme for t s an e cse upon the act of ssuance. ther the certf-
cate has a par or face vaue of 1,2110, or the Commssoner s frst rung was
rght. These certfcates are ke common shares n that they represent an
nterest n property not measured n doars and they may have a par vaue,
ust as a common share usuay has. Such certany were those certfcates for
whch the customer pad n fu at ssuance he got an equtabe nterest n
cumuatve trust shares, measured, then at east, by the amount whch he
pad, whch was spread upon the face of the certfcates. That was very cose
to what one gets who buys a common share n a company ndeed, unt compara-
tvey modern tmes t was generay sad that a cestu que trust had no more
nterest n the res than a sharehoder he had ony a chose n acton. The fact
that the statute casses together shares and certfcates n nvestment trusts,
eaves no room for doubt about ths.
The Instament certfcates were ke those fuy pad as to the frst nsta-
ment pad down, but as to the future ones, they were merey contracts to make
monthy payments to the bank whch t shoud turn nto shares and hod n
trust. ence when ssued, the certfcates were not for any present nterest n
property, e cept to the e tent of 10. Nevertheess, no new certfcates were
to be ssued as the payments succeeded each other, and those outstandng came
progressvey to represent arger and arger Interests. The ta , however, was
to be mposed ony once, as we have seen, and f t was not ntended to be upon
a the nterests whch the certfcate woud eventuay represent, the customer
who pad n one nstament woud pay tweve tmes as much as he who pad
n nstaments. It seems to us that we can avod ths obvous mscarrage of
the ntent of the ct, by readng the phrase certfcates of nterest
n property, as beng equvaent to certfcates of present or future nterest
n property. That does not contradct a syabe of the te t, and fufs what
muse have been ts purpose. It was the document that was ta ed, not the
property whch t descrbed a that was necessary was that t shoud state n
doars the amount pad for that property when t frst came to represent t
subsdary pont s ths. Out of the sum receved by the bank t pad a
percentage to the fund as compensaton for ts servces. In the case of those cer-
tfcates whch were pad n one nstament, the queston s whether the ta
shoud he cacuated upon the amount pad by the customer, or upon the baance
nvested by the bank. The par s what appears on the face of the certfcates.
There s no more reason to deduct the fund s compensaton than there woud
be to deduct an underwrtng commsson taken out of the proceeds of a sae of
corporate shares.
udgment reversed compant dsmssed.
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Regs. 71, rt. 35.
336
SC DUL -3 O TITL III O T R NU CT O 1956. S
M ND D Y S CTION 723(a) O T R NU CT O 1932, T
CT O UN 29, 1936 (49 ST T, 2029), ND S CTION 711(a) O T
R NU CT O 193 .
Reguatons 71, rtce 35: Saes or trans- 1939-2 - ,
fers not sub|ect to ta . .T.
The transfer of corporate stock from the name of a guardan to
the name of a ward n the State of South Carona s not sub|ect to
stamp ta .
dvce s requested whether the transfer of corporate stock fra
the name of a guardan to the name of a ward, both beng resde:
of the State of South Carona, s sub|ect to the stamp ta mposed Ik
Schedue -3 of Tte III of the Revenue ct of 1926, as amend
The ct mposes a stamp ta on a saes or transfers of ega tte
to any shares or certfcates of corporate stock, wth certan e cepton
not here appcabe. The ta abty of the transfer of stock from t
name of a guardan to the name of the ward depends upon whetk.
under the aws of the |ursdcton, ega tte remans n the ward or
vests n the guardan at the tme of hs appontment. (MS. 42, C.
I -1, 33 (1925).)
The aws of South Carona do not n specfc terms provde that
guardan acqures ega tte to the persona property of hs wr
In Moore v. ood (30 S. C. q., 311 70 mer. Dec, 210) a court of
that State hed that ega tte to the ward s estate s not vested n te
guardan. Other decsons of the courts of that State to the same effect
are cted n 2 C. ., 112 . Snce the guardan does not acqure ega
tte to corporate stock n that State, such tte remanng n the wn
durng the perod of the guardanshp, the transfer of the stock froa
the name of the guardan to the name of the ward s not sub|ect to
stamp ta .
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3 7
3024.
ITUMINOUS CO L.
INT RN L R NU COD .
S CTION 3524. OT R L WS M D PPLIC L .
1939-32-9950
S. T. 6
Saes of btumnous coa by the producer thereof for use aa
bunker coa on the vesses descrbed n secton 3451 of the Interna
Revenue Code are not sub|ect to the ta es mposed upon the sae
of btumnous coa.
dvce s requested whether the e empton provded n secton 3451
of the Interna Revenue Code wth respect to artces sod for use
as fue suppes, shps stores, sea stores, or egtmate equpment on
certan vesses s appcabe to btumnous coa sod for use as bunker
coa.
Secton 3451 of the Interna Revenue Code provdes n part as
foows:
Under reguatons prescrbed by the Commssoner, wth the approva of the
Secretary, no ta under ths chapter sha be mposed upon any artce sod
for use as fue suppes on vesses of war of the Unted States or
of any foregn naton, vesses empoyed n the fsheres or n the whang
busness, or actuay engaged In foregn trade or trade between the tantc and
Pacfc ports of the Unted States or between the Unted States and any of
ts p-ossessons.
Secton 3524 of the Interna Revenue Code makes the foregong
provsons of secton 3451 appcabe to the ta es mposed upon the
sae of btumnous coa by the producer thereof.
It s hed that the e empton provded n secton 3451 of the In-
terna Revenue Code s appcabe to the sae of btumnous coa by
the producer thereof for use as bunker coa (fue suppes) on
vesses of war of the Unted States or of any foregn naton, vesses
empoyed n the fsheres or n the whang busness, or actuay
engaged n foregn trade or trade between the tantc and Pacfc
port s of the Unted States or between the Unted Sates and any of
ts possessons. It s mmatera whether the vesses are mercan or
foregn vesses. To be ta free, the sae must be made by the pro-
ducer drect for the prescrbed use. The e empton does not appy
to bunker coa sod for use on vesses engaged n trade between do-
mestc ports on the Pacfc Ocean, or between domestc ports on the
tantc Ocean and the Guf of Me co, or engaged n trade on the
nand waterways of the Unted States. If a vesse s actuay
engaged n a voyage from a port n the Unted States to a foregn
port or to a port n one of the possessons of the Unted States,
or between tantc and Pacfc ports of the Unted States, the e -
empton s not affected by the fact that the vesse may stop at an
ntermedate port of ca n the Unted States as a part of the voyage
to ts utmate destnaton.
The producer s requred to meet certan requrements n estabsh-
ng the rght to the foregong e empton. Producers compvng wth
the pertnent provsons of artce 2 of Refatons 44 (934), as
amended by Treasury Decson 4G04 (C. . I -2, 376 (1935)), w
be consdered as havng met the necessary requrements.
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5 601.
3
PROC SSING T S.
TITL I . PORT, C RIT L , TC., R UNDS ND
LOOR STOC S D USTM NT UND R GRICULTUR L
D USTM NT CT. (1930)
S CTION 601. R UNDS UND R GRICULTUR L D USTM NT CT
ON PORTS, D LI RI S OR C RIT L DISTRI UTION 0
US , TC
1939-46-10
CtD.t:
PROC SSING T R NU CT O 19.16 GRICULTUR L D USTM NT n
S M ND D D CISION O COURT.
Sut Recovfry of Ta Ta Payment Warrants Labty ot
Coector.
processor of rce who satsfed ts processng ta abty by sur-
render of ta payment warrants provded for by secton of the
amended grcutura d|ustment ct, and subsequenty e ported
a part of the rce upon whch the ta had been so pad, can not
recover n a sut aganst the coector the amount of ta camed
to have been pad. The acton, based upon secton 17(a) of
the grcutura d|ustment ct as reenacted by secton 601 of the
Revenue ct of 1936, was n reaty for a subsdy promsed by the
Unted States to e porters of rce, and not for money egay
e acted by the coector. Sut aganst the coector s statutory
aud must be predcated upon some eement of persona responsbty.
Dstbct Cotet of the Unted States for the Western Dstrct or Tsu
San ntono Dvson.
tundard Rce Co., Inc., pantff, v. rank Scofed, Coector of Intend
Revenue, defendant.
27 . Supp., S54.
May 20, 1939.
M MOR NDUM opnon.
Robert . McMan, Dstrct udge: In ths case, pantff, a processor
rce, pad the coector the processng ta es camed to be due wth ta P
ment warrants provded for by secton of the amended grcutura d|n
ment ct sma amount of the ta was pad n cash but to what e tent t
consttuted payment upon rce whch was afterwards e ported Is not dsposed
by the evdence.
Pantff, after these payments to the coector, e ported a part of the rf
covered by these processng ta es. It now brngs sut aganst the coector
recover the amount of ta camed to have been pad, basng ts acton op 1
secton 17(a) of the grcutura d|ustment ct as reenacted by secton M
of the Revenue ct of 19:6. The coector, assertng that ths s not a
n whch any persona abty coud possby e st aganst hm, contends tM
the sut s mpropery brought. e further asserts that under subdvson Ib
of secton 601, supra, pantff, beng a processor or other person who pad
was abe for the ta , s not entted to a refund.
It s the court s opnon that the frst contenton s we founded. The pn
tff here was furnshed by the Government wth ta payment warrauts as
ndrect way n whch to e empt t from the payment of processng tare
rce. These warrants were to be accepted by the coector n eu of money.
urthermore, by vrtue of secton 17(a), t was gven a bonus or subsd| a
the e tent of the ta supposed to have been pad on such rce as was ep rh .
t the tme t gave to the coector these ta payment warrants no cause
acton n ts favor e sted ether aganst the coector or the Unted StaW
Its cause of acton, f such t has, arose by vrtue of the subsequent e porta .M
of the rce. ccordngy, the coector has coected no money from the p
tff, e cept about 52 whch the evdence fas to satsfactory connect w
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3 9
601.
e e ported rce. e has been guty of no msfeasance or Iega or wrongfu
oecton so far as the pantff s concerned. ccordngy, t s perfecty
bvous that there s no ground e stng for persona acton aganst the coector
a case of ths knd. Under the decsons as they now stand, a sut aganst
he coector n a proper case s, of course, statutory rather than at common
w. owever, t must be predcated upon some eement of persona respons-
ty, otherwse one coector coud be sued for the acts of another. That
oud be necessary true f the coector was smpy the condut through whch
ny sut nvovng nterna revenue matters mght be brought aganst the
nted States.
The pont about the matter s that pantff s reay sung here not for
aoney egay e acted by the coector, but for a bonus or subsdy or drawback
romsed by the Unted States to e porters of rce. I am aware that n such
uses as Moore Ice Cream Co. v. Rose (2 9 U. S., 373 Ct. D. 676, C. . II-1,
41 (1933) ), the courts have hed that where the coector has Iegay e acted
ayment and covered the money nto the Treasury and a certfcate of probabe
ause has been ssued, the sut s one n effect aganst the Unted States. ow-
ver, I do not understand that t s the effect of those opnons that the coector
an be sued n any case where the Unted States s abe because some phase
f the matter as been handed by the coector s offce. s sad by the court n
he Moore-Rose case, supra, sut aganst a coector s an anomaous rec of
ygone modes of thought, but the fact st remans that a sut aganst hm s
ersona n ts nature. See Lowe ros. Co. v. Unted States (304 U. S., 302
Ct. D. 1347, C. . 193 -1, 327 ), where the court, dscussng the matter of
|ursdcton n one of these nterna revenue cases, says:
Snce the sut aowed aganst the coector before the amendment was based
n ts persona abty (Sage v. Unted States, 250 U. S., 33 Smctanka v.
ndana Stee Co., supra Ct. D. 17, C . 5, 251 (1921) ), no such sut w e
ness he has coected the ta .
The amendment referred to was one aowng drect sut aganst the Govern-
nent where the amount was over 10,000 and the coector makng the coecton
vas dead or out of offce.
gan n the same opnon, the court says:
It s true that under the statutes of the Unted States the coector Is
eeved from persona abty e cept n the case where the dstrct court s
f opnon that he acted wthout probabe cause (Sage v. Unted States, supra,
57), and that such suts aganst the coector are commony but a means of
. oectng the overpayment from the Unted States. (Moore Ice Cream Co.
f. Rose, 2 9 U. S., 373, 3 2.) ut no statute has enarged the coector s common
aw abty to sut .
It w be noted that n ths atest e presson by the Supreme Court reference
s made to the Sage case, where t s sad:
ut no one coud contend that techncay a udgment of a dstrct court n
sut aganst a coector was a |udgment aganst or n favor of the Unted
States. The sut s persona and ts ncdents, such as the nature of
the defenses open and the aowance of nterest, are dfferent.
nd to the Smctanka case (257 U. S., 1), where t s agan sad:
To show that the acton st s persona, as ad down n Sage v. Unted
States (250 U. S., 33, 37), t woud seem to be enough to observe that when the
sut s begun t can not be known wth certanty that the |udgment w be pad
out of the Treasury. That depends upon the certfcate of the court n the case.
It s not to be supposed that a stranger to an unwarranted transacton s made
answerabe for t yet that mght be the resut of the sut f t coud be brought
aganst a successor to the coectorshp. persona e ecuton s dened ony
when the certfcate s gven.
If an eement of persona abty on the part of the coector Is not essenta
to the mantenance of a sut aganst hm, despte the fact that he may be subse-
quenty reeved by a certfcate of probabe cause, then these e pressons by
the Supreme Court are meanngess.
It s obvous that ths s not one of the character of cases where the sut
aganst the coector Is equvaent to a sut aganst the Unted States, for
pantff s acton here s based upon the Government s promse to pay and not
upon any ega or erroneous coecton made by the coector. When the pan-
tff pad the coector ts processng ta es wth these ta payment warrants, t
had no cam aganst hm or the Government. In fact t dd not know t
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Regs. 96, rt. 201.
390
woud ever have a cam for that was contngent on the e portaton of t st
Such cam as t acqured fe wth the grcutura d|ustment ct and n
ony revved as aganst the Government by the reenactment of secton 17(
Uness the authortes have progressed to the pont where t s now to be hs
that the Government can be sued n any knd of nterna revenue case thror
ts coector, ths sut s not mantanabe The coector has done not aa
here save to accept, under a vod statute, some worthess warrants wku
cost the pantff nothng.
Ths vew of the matter makes t unnecessary to consder the coector s t-
tenton that the case of Cudahy ros. Co. v. La udde (92 ed. (2d), WT s
ncorrecty decded. The queston decded here was not rased n the Cwsr
case. There the court states at the outset that the sut was fed pror to
Supreme Court s decson hodng the grcutura d|ustment ct nvad ssc
n a form admtted by the coector to have been correct at the tme the sc
was begun. The court states that the soe queston before t was whether
remedy provded by Tte II of the Revenue ct of 1936 was e cusve, b
asuuch as the coector admtted that the sut bad been propery brought,
court obvousy dd not consder the queston of partes, nor was the mare
before the Supreme Court when t passed on the appcaton for a wrt t
w be noted, however, that n the Cudahy case the coecton made b| tu
coector was made n cash and not n ta payment warrants.
In so far as t mght be contended that regardess of the matter of ep
taton, the 52 cash was egay coected because the grcutura d|ustec
ct was vod, the ta payer s reegated now to Tte II of the Revenue
of 1936, where provson s made for the refund of such payments. (4n
Manufacturng Co. v. Davs, Coector of Interna Revenue, 301 U. S., 337 ft
D. 1234, C. . 1937-1, 4 5 .) Such a cam woud, of course, not be based
17(a), whch consttuted the Government s promse to refund ta es on esportf
rce.
The case w be dsmssed at pantffs cost
TITL II. R UNDS O MOUNTS COLL CT D UND R
T GRICULTUR L D USTM NT CT.
S CTION 903. ILING O CL IMS.
Reguatons 96, rtce 201: Cams orm and 1939-42-10W
where to fe. G.C.M. 1MS
R NO CT O 1936.
The M Company s not entted to a refund wth respect to
amounts aeged to have been pad to ts vendor as processng ta es
on the processng of hogs, snce t was not the frst domestc
processor of hogs and dd not pay the processng ta es wth respect
thereto to the Unted States.
n opnon s requested whether the M Company s entted tot
refund of amounts aeged to have been pad as processng ta es under
the crcumstances heren set forth.
The M Company was a packer of pork products. It operated no
kng pant but purchased ve hogs and empoyed the N Comp
to do the kng. The carcasses were then cut up and prepared fo|
market at the M Company s pant. The M Company aso purch
a number of hams from other processors for resae, the number tW
acqured consttutng between 10 and 20 per cent of a hams so
The processng ta es here n queston were pad to the Unted States
by the N Company.
Secton 902 of the Revenue ct of 1936 provdes n part as foo 5
No refund sha be made or aowed, of any amount p W If
coected from any camant as ta under the grcutura d|ustment
uness the camant estabshes .
(a) That he bore the burden of such amount Itacs
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391
Regs. 96, rt. 201.
Secton 903 of the Revenue ct of 1936 provdes n part as foows:
No refund sha be made or aowed of any amount pad hy or coected
from any person as ta under the grcutura d|ustment ct uness,
a cam for refund has been fed by such person . Itacs supped.
Sectons 902 and 903, supra, show ceary the ntent of Congress that
refunds sha be made ony to persons who pad amounts as ta under
the grcutura d|ustment ct to the Unted States Government.
Such s the poston taken by the Unted States Processng Ta oard
of Revew and the Unted States Crcut Court of ppeas for the
Seventh Crcut. The Processng Ta oard of Revew has hed that,
the proper camant s the person who was abe for and pad the
processng ta to the Unted States. (See . . Laboratores, Inc.,
v. Commssoner, P. T. . R. Docket No. 52, order dated October 11,
193 Grandma akng Co., Inc., v. Commssoner, P. T. . R. Docket
No. 64, order dated October 13,193 Superor Portand Cement, Inc.,
v. Commssoner, P. T. . R. Docket No. 29, order dated October 15,
193 orence Stove Co. v. Commssoner, P. T. . R. Docket No. 65,
order dated October 1 ,193 and Unted States Sugar Corporaton v.
Commssoner, P. T. . R. Docket No. 6, order dated pr 14,1939.)
In . cf . La oratores, Inc., v. Commssoner (104 . (2d), 5G3,
Ct. D. 141 , page 396, ths uetn) the Crcut Court of ppeas for
the Seventh Crcut affrmed the decson of the Unted States Process-
ng Ta oard of Revew. The anguage used by the court wth respect
to the constructon of sectons 902 and 903 of the Revenue ct of 1936,
snpra, s pertnent to the ssue here nvoved. The court stated n
part:
The queston presented s whether the Uned States Processng Ta oard
of Revew erred n dsmssng the petton for want of |ursdcton. The souton
of ths queston s dependent upon whether or not pettoner s wthn the terms
of the ct so as to be entted to the refund. Pettoner admts that the ta
was pad to the Unted States Government by the oy Sugar Corporaton, but
contends the ta was passed on to t and havng not passed t on to ts customers,
t, as the one who bore the burden, s the rea party n nterest and, therefore,
entted to the refund. Respondent dsputes ths contenton and cams that
nasmuch as pettoner dd not pay the processng ta drecty to the Govern-
ment, t was not entted to a refund.

The ct must be construed n the ght of the crcumstances e stng at the
tme of ts enactment. Ceary, ts pnrpse was to make provson for a refund
of processng ta egay coected by reason of the unconsttutona grcu-
tura d|ustment ct. The ta had been e acted from the processor aone,
and had Congress ntended to make provson for a refund of such ta to a
person oer than the one from whom t had been coected, t woud have so
e pressed tsef. The vendee of the processor, such as the pettoner here, was
not abe to the Government for the ta mposed n fact, t was a tota
stranger n the matter.
The anguage pad by or coected from any person as ta tnder the gr-
cutura d|ustment ct must be construed to read and mean: Pad to the
coector of nterna revenue by such person as ta . or coected by the coector
of nterna revenue from such person as ta . Pettoner s not ncuded n
ether cassfcaton. Many of the provsons of Tte II are nconsstent wth
the dea that a refund to one other than the ta payer was ntended. Secton
02 provdes that no refund sha be made of any amount pad by or coected
from any camant as ta uness he estabsh the facts requred by subsecton
(a) or (b). part of the proof requred by subsecton (a) s that the camant
has not shfted the burden of the ta through ncuson of the amount thereof
n the prce of any artce wth respect to whch a ta was mposed, or n the
prce of any artce processed from any commodty wth respect to whch a
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Regs. 96. rt. 202.
392
ta wns mposed. Ths requrement ceary reates to proof to be made t
the ta payer.
The provsons of secton 007 reatng to presumptons and proof dea -.
the margn of processed commodtes sub|ect to the processng ta . Ths
ton aso ceary reates to proof by a processor who has pad the processng ta
and not to a vendee to whom the burden was shfted.
The foowng cause s sgnfcant:
The ta perod sha mean the perod wth respect to whch the cam-
actuay pad the processng ta to a coector of nterna revenue am sha .
on the date wth respect to whch the ast payment was made.
Ths anguage seems whoy nconsstent wth the theory that a refund m -
tended for a camant other than one who had actuay pad the proees
ta . It seems unnecessary to refer to other anguage found n e ct w c-
sstent wth the constructon sought by pettoner.
urthermore, n the present case t can not be sad that the N 0
pany was merey a go-between and pad the ta to the Goren
ment as agent for the M Company. The N Company saughtered m
hogs and t, and not the M Company, became abe for the ta
the processng of hogs. The ta was mposed under the grcutnn
d|ustment ct on the frst domestc processng of hogs. Sect
9(a) of the grcutura d|ustment ct (4 Stat., 31, 35) provde:
n part as foows:
The processng ta sha be eved, assessed, and coected upra
frst domestc processng of the commodty, whether of domestc producton
mported, and sha be pad by the processor. tacs supped.
The frst domestc processng of hogs was defned frst as t
saughterng of hogs for market. (T. D. 4406, C. . II-2, IS
(1933).) Ths defnton was subsequenty e panded to ncude re-
seng, cuttng, trmmng, etc., by any person engaged n the bus-
ness of reseng, cuttng, trmmng, etc., and to whom the carcass
or hog products to be so processed are sod or gven n e change h|
a producer or feeder. (T. D. 451 , C. . I -1, 450 (1935).) s
prevousy stated, the M Company purchased ve hogs and had them
saughtered by the N Company ana aso purchased a number of ha
from other producers for resae. ence, t appears that the M Com
pany performed no actvty whch coud be descrbed as the fr--
domestc processng.
In vew of the foregong, t s the opnon of ths offce that ts
M Company s not entted to refund of the amounts aeged to ha
been pad as processng ta es under the crcumstances heren set
forth.
. P. Wenche,
Chef Counse, ureau of Interna Revenue
Reguatons 96, rtce 202: acts and ev- 1939-39-10
dence n support of cam. G. C. M. S15W
R NU CT O 1936.
Where a processor coected amounts equang the processng ta
from the M Company (vendee), aegedy as requred by secton IS
of the grcutura d|ustment ct, by addng the amount of the
ta to nvoces for four devered under contracts e stng pror
to the effectve date of the ta , some of the contracts provdng for
such addton and some not so provdng, the M Company s not
entted to the refund of such amounts thus coected from ( w
no ta was assessed aganst the M Company and 110 ta was pad
bs the M Company to the Unted States.
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393
Regs. 96, rt. 202.
n opnon s requested as to the rght of the M Company to a
refund of processng ta es stated to have heen coected from t under
the crcumstances heren set forth.
The M Company s a corporaton engaged n the busness of manu-
facturng certan food products, the prncpa ngredent of whch s
four. It purchased wheat four from mers (processors) on con-
tracts entered nto pror to the effectve date of the processng ta
( uy 9, 1933). Devery of the four was made after uy 9, 1933,
the amount of the processng ta beng added to the contract prce on
the varous nvoces. It s aeged that processng ta es were thus
coected from the M Company by the vendor as provded n secton
1 of the grcutura d|ustment ct. Some of the contracts n-
voved stpuated that the processng ta shoud be added to the
prce f ed theren and shoud be pad by the buyer to the seer and
some dd not so stpuate.
It w be noted that the amounts camed to have been pad as
ta es were added to the contract prce and were pad to the M Com-
pany s vendor not to the Unted States. Ths reay consttuted an
ncrease n the purchase prce of the wheat four.
The Processng Ta oard of Revew dsmssed for want of |urs-
dcton the cases of . oengsberger v. Commssoner (P. T. . R.
Docket No. 6 , order dated pr 14,1939) and Znsmaster akng Co.
v. Commssoner (P. T. . R. Docket No. 7 , order dated pr 14,
1939). oth cases nvoved vendees who aeged that they had pad
processng ta to ther vendors under the provsons of secton 1 (a)
of the grcutura d|ustment ct, as amended, on contracts e st-
ng pror to the effectve date of the ta , and, therefore, camed
refunds under Tte II of the Revenue ct of 1936.
In the . oengsberger case, supra, the oard stated that t ap-
peared from the petton
that the dsaowance by respondent sought to be revewed heren was
of a cam for refund of an amount pad by pettoner, as vendee, to Its vendors
under bona fde contracts made pror to the date the ta was frst mposed upon
cotton under Tte I of the grcutura d|ustment ct, as amended, whch
cotton was to be devered on or after such date, and that such contracts dd
not permt the addton of sad ta so that pettoner was compeed to pay
such ta to ts vendors under the provsons of secton 1 of the grcutura
d|ustment ct, as amended and t further appearng that the amount so pad
by pettoner s not denomnated a processng ta under the grcutura
d|ustment ct, whch denomnaton s essenta to vest ths oard wth |urs-
dcton n accordance wth the provsons of sectons 906 and 913(b) of Tte
II of the Revenue ct of 1936 .
In the Znsmaster akng Co. case, supra, the oard stated that t
appeared from the petton
that the dsaowance of the respondent sought to be revewed was
of a cam for refund of amounts aegedy pad to thrd partes pursuant to
purchase contracts whch dd not permt the addton of the ta to the prce
thereunder, as provded n secton 1 of the grcutura d|ustment ct,
aso under contracts whch dd so permt, and that such thrd partes were
the soe frst domestc processors and that no amount wag pad by or co-
ected from the pettoner as processng ta under sad ct as defned n
Tte II of the Revenue ct of 1936
s the . oengsberger case, supra, nvoved e stng contracts
whch dd not permt the addton of the ta , and the Znsmaster
akng Co. case, supra, nvoved e stng contracts whch dd not
permt the addton of the ta as we as contracts whch dd so
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Regs. 96, rt. 202.
394
permt, t woud appear that the oard consdered vendees under
such e stng contracts as havng no more rght to refunds that
vendees under contracts entered nto after the mposton of the tu
The Crcut Court of ppeas for the Seventh Crcut affrm
the decson of the oard n the case of . . Laboratores,
Commssoner (104 ed. (2d), 563). In that case the pettoner
was engaged n the busness of manufacturng and seng cou
ozenges. It contended that durng the perod n whch the proces
ng ta was payabe, the purchase prce of a beet sugar whch n
bought from ts vendor, the oy Sugar Corporaton, ncuded
amount of the processng ta thereon, and a nvoces receved from
the sad vendor ncuded the amount of such processng ta etk
as a separate tem descrbed as such, or as part of the nvoce pr
charged to the pettoner. s the . . Laboratores, Inc., d:
not pass the ta on to ts customers, t took the poston that t re
the rea party n nterest and therefore entted to the refund. N
cam was made by the oy Sugar Corporaton. The foowng
quoted from the opnon of the court:
Pettoner, n support of ts poston, ponts out that the ct n queston
descrbng who may recover under ts provsons, refers to the camm
rather than the ta payer, and t s argued from ths that t was the ntet-
I on of Congress to provde a refund for the one who bore the burden of to
processng ta rrespectve of whether t was the processor who pad the
drecty to the Government or whether t was the vendee of the processor Tbt
pad an ncreased prce for the processed commodty, and n ths manner sus-
taned the burden of the ta . Stress s ad upon the anguage of secton
reatng to the fng of cams, whch states that no refund sha be nf
or aowed of any amount pad by or coected from any person as a ta and
the grcutura d|ustment ct. It s argued that the use of th
word or dstngushes ta es pad by persons and those coected from
persons. Thus t s contended two casses of camants were ntended-
words pad by beng empoyed to desgnate a camant such as pettnw
who pad the ta es not drecty to the Government, but ndrecty u the n-
creased prce whch was pad for the processed commodty, whe the wn
coected from were ntended to desgnate as camant the processor
pad the ta drecty to the Government. We are of the opnon that the ct
not susceptbe of such a constructon.

The ct must be construed n the ght of the crcumstances e stng at
tme of ts enactment. Ceary, ts purpose was to make provson for a refot
of processng ta egay coected by reason of the unconsttntoua srrf
tura d|ustment ct. The ta had been e acted from the processor aone, aw
had Congress ntended to make provson for a refund of such ta to a pf
other than the one from whom t had been coected, t woud have so e|pres
tsef. The vendee of the processor, such as the pettoner here, was not a
o the Government for the ta mposed n fact, t was a tota stranger n
matter.
The anguage pad by or coected from any person as ta under the
cutura d|ustment ct must he construed to read and mean: Pad to
coector of nterna revenue by such person as ta , or coected by the co|ep
of nterna revenue from such person as ta . Pettoner s not ncuded
ether cassfcaton.

The ta perod sha mean the perod wth respect to whch the csto
actuay pad the processng ta to a coector of nterna revenue and S a
end on the date wth respect to whch the ast payment was made.
Ths anguage seems whoy nconsstent wth the theory that a refund
ntended for a camant other than one who had actuay pad the pnw
ng ta .
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395 Regs. 96, rt. 203.
In the nstant case the amounts nvoved were pad to processors
under contracts e stng pror to the effectve date of the ta . The
ta was added to the contract prce on a of the nvoces, even
though some of the contracts dd not permt the addton of the ta .
s no ta was assessed aganst the M Company and no ta was pad
by t to the Unted States, t s the opnon of ths offce that the
M Company s not entted to the refund of such amounts.
. P. Wenche,
S CTION 903 O T R NU CT O 1936, S M ND D Y S CTION
405 O T R NU CT O 1939. ILING O CL IMS.
Reguatons 96, rtce 203: Perod of mta- 1939-31-9942
tons for fng cams. T. D. 4913
mendng artce 203 of Reguatons 96, Reatng to perod of
mtatons for fng cams for refund of ta es pad under the gr-
cutura d|ustment ct, as amended.
Washngton, D. C.
Reguatons 96, approved October 15, 1936 (Part 456 of Tte 26,
Code of edera Reguatons), are amended as foows:
Immedatey after the quotaton of secton 903 of the Revenue ct
of 1936 whch precedes artce 201 (secton 456.201 of Tte 26, Code of
edera Reguatons) the foowng subtte and quotaton of secton
405 of the Revenue ct of 1939 are nserted:
Secton 405 of the Revenue ct of 1939.
Secton 903 of the Revenue ct of 1936 (reatng to e praton of tme
for fng cams for refund of amounts pad under the grcutura
d|ustment ct) Is amended by strkng out uy 1, 1937, and Insert-
ng In eu thereof anuary 1, 19-10.
rtce 203 (secton 456.203 of Tte 26, Code of edera Regua-
tons) s amended to read as foows:
bt. 203. Perod of mtatons for fng cams. No refund sha be made or
aowed of any amount pad as ta uness a cam for such refund s fed by the
person entted thereto, or hs duy authorzed agent or representatve, subse-
quent to une 22, 1936, and pror to anuary 1, 1940.
(Ths Treasury decson s ssued pursuant to secton 903 of the
Revenue ct of 1936 (49 Stat, 1747 7 U. S. C, Sup. I , 645) as
amended by secton 405 of the Revenue ct of 1939 (Pubc, No. 155,
Seventy-s th Congress), and secton 916 of the Revenue ct of 1936
(49 Stat., 1755 7 U. S. C, Sup. I , 65 ).)
aroo N. Graves,
Stephen . Gbbons,
( ed wth the Dvson of the edera Regster uy 26, 1939, 3.03 p. m.)
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egs. 90, rt. 204.
396
Reguatons 96, rtce 204: Condtons as to 1939-40-OW
ta burden wth respect to amounts of refund CtD.
aowabe.
processng ta revenue act op 193 decson of court.
1. ecoveby of Processng Ta endee of Processor ubsmc-
ton of Processng Ta oabo of evew.
The Unted States Processng Ta oard of evew dd not err n
dsmssng, for want of |ursdcton, a petton whch aeged that
the processng ta was pad by the processor whch passed on the
burden of such ta to pettoner. Tte II of the evenue ct of
1936 authorzes refund of processng ta coected under the grcu-
tura d|ustment ct ony to those persons who pad the ta to
the Government. The ta was e acted from the processor aone,
and had Congress ntended to make provson for a refund of such
ta to a person other than the one from whom t had been coected,
t woud have so e pressed tsef.
2. Decson ffrmed.
Decson of the Unted States Processng Ta oard of evew
(P. T. . . Docket No. 52) affrmed.
Unted States Crcut Court or ppeas for the Seventh Crcut.
. dc . Laboratores, Inc., pettoner, v. Commssoner of Interna Revenue,
respondent.
104 ed. (2d), 563.
Petton for revew of decson of the Unted States Processng Ta oard of R e .
efore vans, Ma|or, and erneb, Crcut udges.
May 25, 1939.
OPINION.
Ma|or, Crcut udge: Ths Is a petton to revew a decson of the Unted
States Processng Ta oard of evew n accordance wth provsons of Tte
II of the evenue ct of 1936 (7 U. S. C. ., secton 64 ). The nvoved matte
s a cam for refund of the sum of 11,235 aeged to have been pad as a pr-
essng ta on beet sugar, under the grcutura d|ustment ct of 1933 0
6 C. ., secton 601), for the perod commencng ugust , 1934, and endnf
December 31, 1935. The cam was re|ected by the Commssoner of Intern
evenue and was submtted to the oard of evew upon the CtonnussoDers
moton to dsmss. The moton was granted and the petton dsmssed by
order entered October 11, 193 . or the purposes of the moton to dsmss, a
facts peaded n the petton before the oard must be accepted as admtted.
The pettoner, an Inos corporaton, s, at the present tme, and was, durng
the perod from ugust 1, 1934, to December 31, 1935, engaged n the busness
of manufacturng and seng cough ozenges. In the manufacture of tt
product t used and consumed arge quanttes of beet sugar, purchased by t
from the oy Sugar Corporaton of Coorado Sprngs, Coo. Durng the abo
perod, a processng ta mposed pursuant to secton 9(a) of the grcutura
d|ustment ct was n effect wth respect to the frst domestc processng w
sugar boets. Wth respect to such processng ta , the petton before the oard
of evew aeges:
That athough the sad oy Sugar Corporaton pad to the Treasury De-
partment of the Unted States of merca the processng ta es payabe undff
the grcutura d|ustment ct of the Unted States of merca on the maw-
facture of the aforementoned beet sugar purchased by the pettoner from the
oy Sugar Corporaton, nevertheess, the sad oy Sugar Corporaton passa
on the burden of sad ta to the pettoner and pettoner bore the burde
thereof.
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397
Regs. 96, rt. 204.
That durng the perod n whch the processng ta es were payabe under
sad grcutura d|ustment ct, the purchase prce of a beet sugar pur-
chased by the pettoner from sad oy Sugar Corporaton ncuded the amount
of the processng ta thereon, and a nvoces receved by the pettoner from
the oy Sugar Corporaton, and pad by pettoner, ncuded the amount of
such processng ta ether as a separate tem descrbed as such, or as a part
of the nvoce prce charged to the pettoner.
That pettoner has not receved any refund n any amount whatsoever
from sad oy Sugar Corporaton of any part of the processng ta es pad by
the pettoner to the oy Sugar Corporaton as above mentoned the oy
Sugar Corporaton has dened a abty to the pettoner for the refund of
processng ta es pad by the pettoner to the oy Sugar Corporaton or any
part thereof and sad oy Sugar Corporaton has not entered nto any
agreement whatsoever to refund to the pettoner such processng ta es pad by
the pettoner or any part thereof.
That durng the perod commencng ugust 1, 1934, and endng December
31, 1935, the pettoner pad to the oy Sugar Corporaton by way of process-
ng ta es passed on to the pettoner by the oy Sugar Corporaton, the sum
of eeven thousand two hundred and thrty-fve doars ( 11,2.(5), and the pet-
toner bore the fu burden of sad amount and dd not pass on to ts vendees
any part thereof.
No cam for refund was made by the oy Sugar Corporaton.
The grcutura d|ustment ct was hed unconsttutona by the Supreme
Court n Unted States v. uter (297 U. S., 1 Ct. D. 1070, C. . -1, 421
(1930) ), decded anuary 6,193G, and thereafter, there was enacted the Revenue
ct of 1936 entted Tte II Refunds of mounts Coected Under the
grcutura d|ustment ct Pettoner rees upon ths ct as gvng t the
rght to a refund as asserted and aso as gvng the Unted States Processng
Ta oard of Revew |ursdcton to entertan ts petton for refund. Sec-
ton 902 of the ct provdes that no refund sha be made or aowed In pur-
suance of court decson or otherwse of any amount pad by or coected
from any camant as ta under the grcutura d|ustment ct uness the
camant estabshes to the satsfacton of the Commssoner that he bore the
burden of such amount and has not been reeved thereof, or rembursed there-
for, or shfted such burden to others. Secton 903 reates to the rng of
cams and nasmuch as the ssue presented depends argey upon the construc-
ton to be gven ths secton, we set t forth.1
Subsecton (b) of secton 906 provdes that the oard of Revew sha have
|ursdcton n proceedngs under ths secton to revew the aowance or dsaow-
ance of the Commssoner of a cam for refund, and to determne the amount of
refund due any camant wth respect to such cam. Other provsons of the
ct do not seem matera e cept as they may afford ght upon the constructon to
be adopted, and for that purpose, w hereafter be referred to.
The queston presented Is whether the Unted States Processng Ta oard of
Revew erred n dsmssng the petton for want of |ursdcton. The souton of
ths queston s dependent upon whether or not pettoner s wthn the terms of
the ct so as to be entted to the refund. Pettoner admts that the ta was pad
to the Unted States Government by the oy Sugar Corporaton, but contends
the ta was passed on to t and havng not passed t on to ts customers, t, as
the one who bore the burden, s the rea party n nterest and, therefore, entted
to the refund. Respondent dsputes ths contenton and cams that nasmuch as
pettoner dd not pay the processng ta drecty to the Government, t was not
entted to a refund.
Pettoner, n support of ts poston, ponts out that the ct n queston, In
descrbng who may recover under ts provsons, refers to the camant rather
than the ta payer, and t Is argued from ths that It was the ntenton of
Congress to provde a refund for the one who bore the burden of the processng
1 No refund sha he made or aowed of any amount pad by or coected from any
person as ta under the grcutura d|ustment ct uness, after the enactment of ths
ct, and pror to uy 1, 1937, a cam for refund has been fed by such person In
accordance wth reguatons prescrbed by the Commssoner wth the approva of the
Secretary. evdence reed upon n support of uch cam sha be ceary set forth
under oath. The Commssoner Is authorzed to prescrbe by reguatons, wth the
approva of the Secretary, the number of cams whch may be fed by any person wth
n spect to the tota amount pad by or coected from such person as ta under the
grcutura d|ustment ct. and such reguatons may requre that cams for refund
of processng ta es wth respect to any commodty or group of commodtes sha cover
the entre perod durng whch such person pad such processng ta es.
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Regs. 96, rt. 204.
39
tn rrespectve of whether t was the processor who pad the ta drecty ts
Government or whether t was the vendee of the processor who pad an acrar.
prce for the processed commodty, and n ths manner sustaned the bura
the ta . Stress s ad upon the anguage of secton 903 reatng to UenTa
cams, whch states that no refund sha be made or aowed of any amount |t
by or coected from any person as a ta under the grcutura d|ustment
It s argued that the use of the word or dstngushes ta es .
by persons and those coected from persons. Thus It s contended twocbw
of camants were ntended the words pad by beng empoyed to desst -,
a camant such as pettoner who pad the ta es not drecty to the Govenws
but ndrecty n the ncreased prce whch was pad for the processed comma
whe the words coected from were ntended to desgnate as cama -
processor who pad the ta drecty to the Government. We are of the opuM
that the ct s not susceptbe of such a constructon. The precse questons ::
as we are aware, has not been determned n a case where t was dect. a
ssue. In nnston Mfg. Co. v. Davs (301 U. S., 337, 350 Ct D. 1234, C. .19 U
4 3 ), however, the court sad:
The crcumstance that under Tte II, here Invoved, there s no pror--
for makng a refund to partcuar persons, to whom the burden of the nt.
e acton may he found to have been shfted, presents no sound dstncton
as the camant s concerned.
It Is sad ths statement of the court Is obter dctum. ven f t be sod --
opnon dscoses that the court was consderng the varous sectons of the
and the statement carres weght.
The ct must be construed n the ght of the crcumstances e stng at the 6
of ts enactment. Ceary, ts purpose was to make provson for a refund
processng ta egay coected by reason of the unconsttutona grconr
d|ustment ct. The ta had been e acted from the processor aone, and Us
Congress ntended to make provson for a refund of such ta to a person -
than the one from whom t had been coected, t woud have so e pressed t-- -
The vendee of the processor, such as the pettoner here, was not abe tu tw
Government for the ta mposed n fact, t was a tota stranger n the matttr
The anguage pad by or coected from such person as ta under the f
cutura d|ustment ct must be construed to read and mean: Pad to
coector of nterna revenue by such person as ta , or coected by twwh |
of nterna revenue from such person as ta . Pettoner Is not ncuded n etfc
cassfcaton. Many of the provsons of Tte II are nconsstent w
dea that a refund to one other than the ta payer was ntended. Secton |-
provdes that no refund sha be made of any amount pad by or coected fns
any camant as ta uness he estabsh the facts requred by subsecton
or (b). part of the proof requred by subsecton (a) s that the caw
has not shfted the burden of the ta through Incuson of the amount tfcw-
n the prce of any artce wth respect to whch a ta was mposed, or t14
prce of any artce processed from any commodty wth respect to whch a I-1
was mposed. Ths requrement ceary reates to proof to be made b|
ta payer.
The provsons of secton 907 reatng to presumptons and proof dea
the margn of processed commodtes sub|ect to the processng ta . Ths set1
aso ceary reates to proof by a processor who has pad the processng t
not to a vendee to whom the burden was shfted.
The ta perod sha mean the perod wth respect to whch the canaM
actuay pad the processng ta to a coector of nterna revenue and sud
on the date wth respect to whch the ast payment was made. s
Ths anguage seems whoy nconsstent wth the theory that a refund
ntended for a camant other than one who had actuay pad the psw
ta . It seems unnecessary to refer to other anguage found n the cta
sstent wth the constructon sought by pettoner.
:
Pettoner rees strongy upon Unted Staes v. efferson ettrc Mo
turm| Co. (291 U. S., 3 0 Ct. D. 03, C. . III-1, 393 (1934) ), n surf
Its poston. There the court was consderng an ct of Congress, nnt
vson for a refund of ta es egay e acted, and hed, n effect, that te n -
of refund mght be mted to the one who had not shfted the ta to ts
but had tsef borne the burden. That s precsey, n our opnon, whatt w
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399
gress Intended to do by the ct nnder consderaton. It does not foow from
ths, however, that some other person, even though the burden was shfted to
hm, s entted to a refund where he was under no obgaton to pay the ta (o
the Government and, as a matter of fact, dd not do so.
The case of Standard O Co. v. onger (337 111., 353), aso reed upon by
pettoner, s dstngushabe for a smar reason. There the Standard O Co.,
as a dstrbutor of motor fue, after the aw mposng a ta on such fue had
been hed unconsttutona, sought to recover from the Sate the ta vountary
pad. Recovery was dened nasmuch as the ta had been coected from ts
customers. In other words, the burden had not been borne by the ta payer.
The pronouncement of the court recognzed the same prncpe as that recog-
nzed by Congress n the ct n queston, n that, provson was made for a
refund to the ta payer who had not shfted the burden.
Nether s there any mert n the argument that the processor was actng n
the capacty of agent n coectng the ta from the pettoner and payng t to
the Government. Whatever reaton mght have e sted between the pettoner
and the oy Sugar Corporaton, wth rghts created thereby, Is here of no
consequence. The thng of controng mportance s that no processng ta was
pad by the pettoner to the Government or coected by the Government from
the pettoner and that by the terms of the ct n queston, no cam for refund
was provded.
Pettoner argues that f the term camant does not ncude a purchaser
who bore the ta burden, as we as the processor who bore the burden, t vo-
ates the ffth amendment to the Consttuton. It s urged that there s no df-
ference between a processor who bore the ta burden and a vendee of the proc-
essor who bore the burden. We are aware of no authorty whch supports ths
contenton. We see no reason why Congress must provde for a refund to one
who was not obgated to pay the ta and who, as a matter of fact, dd not do
bo n order to provde a refund for the one upon whom the ta was assessed
and from whom t was coected.
We concude that the acton of the Processng Ta oard of Revew n ds-
mssng the petton for ack of |ursdcton was proper and ts decson s
affrmed.
TITL S I ND II O T R NU CT O 1936.
S M ND D.
1939-47-10097
Mm. 4977
Procedure reatve to certan cams fed under the provsons
of Ttes I and II of the Revenue ct of 193G, as amended.
Washngton, D. C, November 6, 1939.
and Others Concerned.
1. The fna date for the fng of cams under secton 602 of Tte
I of the Revenue ct of 1936 has been e tended from December 31,
1936, to December 31, 1939, by an amendment of secton 602(d) of
the Revenue ct of 1936 made by secton 911 of the Soca Securty
ct mendments of 1939.
The fna date for the fng of cams under Tte II of the
Revenue ct of 1936 has been e tended from une 30, 1937, to De-
cember 31, 1939, by an amendment of secton 903 of the Revenue
ct of 1936 made by secton 405 of the Revenue ct of 1939.
2. Pror to the e tenson of these fng perods a arge number of
both types of cams were re|ected because not fed wthn the orgna
perod of mtatons.
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400
The cams re|ected for the reason that they were not tmey fW
w be reopened by ths offce and consdered on ther merts. It w
not be necessary for the camants nvoved to fe new cams.
Correspondence n regard to ths mmeograph shoud refer to the
number thereof and the symbos MT:PT.
Guy T. TIeverng.
Commssoner.
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401
GRICULTUR L D USTM NT CT.
INT RN L R NU COD .
1939-39-10033
T. D. 4942
mendng artce 6 of Treasury Decson 4072 O. . -2, 42
(1936) reatng to perod of mtatons for fng cams for pay-
ment under secton C02 of the Revenue ct of 1936.
Tbeasurt Department,
Washngton, D. C.
Treasury Decson 4G72, approved uy 27, 1936 C. . -2,
42 (1936) , s amended as foows:
t the end of paragraph the foowng s nserted:
Secton 911 of the Soca Securty ct mendments of 1939, approved ugust
10, 1939 (Pubc, No. 379, Seventy-s th Congress, frst sesson) provdes:
Subsecton (d) of secton 602 of the Revenue ct of 1936, as amended (re-
atng to foor stocks ad|ustment), s amended by strkng out anuary 1,
1937, and nsertng n eu thereof anuary 1, 1940.
rtce 6 s amended to read as foows:
bt. 6. Lmtaton as to tme for fng cam. No payment sha be made
uness cam therefor s fed by the person entted thereto pror to anuary 1,
1940.
(Ths Treasury decson s ssued pursuant to secton 602(d) of
the Revenue ct of 1936 (49 Stat,, 1740 7 U. S. C, Sup. I ,
642(d)) as amended by secton 911 of the Soca Securty ct mend-
ments of 1939 (Pubc, No. 379, Seventy-s th Congress, frst ses-
son).)
Guy T. everng,
ohn W. anes,
( ed wth the Dvson of the edera Regster September 22, 1939. 12.52 p. m.).
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402
N D COTTON CT O 1934 S M ND D, RR
TO CCO CT S M ND D, ND POT TO CT O
1935.
1939-39-10m
T. D. 4 S
TITL 26 INT RN L R NU . C rT R I. SU C PT R , P RT 1
mendng artce 3 of Treasury Decson 4 50 C. . 19 -2,
47t reatng to perod of mtatons for fng cams for refund
of tu es pad under the ankhead Cotton ct of 1SI34, as amended,
the err Tobacco ct, as amended, and the Potato ct of 1935.
Washngton D. 0.
Treasury Decson 4 50 C. . 193 -2, 47G Part 461 of Tte 26.
Code of edera Reguatons s amended as foows:
t the end of paragraph the foowng s nserted:
The Thrd Defcency ppropraton ct, fsca year 1939 (Pubc, No. 93.
Seventy-s th Congress, approved ugust 9, 1939), provdes n part:
The date appearng n the frst provso of the second paragraph of t
appropraton Refunds and payments of processng and reated ta es. ureau f
Interna Revenue, 1939, contaned n the Second Defcency ppropraton rt.
fsca year 193 , s hereby changed from 1 uy 1, 1939, to uy 1, 1940.
rtce 3 secton 461.3 of Tte 26, Code of edera Reguatons
bt. 3. Perod durng whch cams must he pcd. No refvnd sha be ma.t
or aowed of nny amount pad by or coected from any person as ta under
the ankhead Cotton ct of 1934, as amended, the err Tobacco ct.
amended, or the Potato ct of 1935, uness, subsequent to une 25 .193 , asd
pror to uy 1. 1940, a cam for refund s fed by the person entted thereto,
or hs duy authorzed agent or representatve. In accordance wth the requre-
ments of the above-quoted provson of aw cams fed on or before une 25,
193 . my not receve favorabe consderaton by the Commssoner, r persnc
who has fed, on or before nne 25. 193 , a cam for refund of an|: snch ta
penaty, or nterest, must, nevertheess, to secure refund, fe o new cam oe
the prescrbed form subsequent to une 25. 193S. and pror to uy 1, 1940.
(Ths Treasury decson s ssued pursuant to the second para-
graph of the appropraton Refunds and payments of processng
and reated ta es. ureau of Interna Revenue, 1939. contaned n
the Second Defcency ppropraton ct, fsca Tear 193 . 52 Stat,
1150.)
Gut T. eyer g.
ohn W. anes,
ctng Secretary of the Trcasvry.
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D R L IR RMS CT. (193 )
1939 0-1004
T. D.4946
TITL 26 INT RN L R NU . C PT R I, P RT 315.
Treasury Decson 4 6 C. . 1939-1 (Part 1), 364 , reguatons
reatng to the censng under the edera rearms ct of
manufacturers of, and deaers n, frearms or ammunton, amended.
Offce of Commssoner oy nerna Revenue,
Washngton, D Ot) September 23,1939.
(1) In order to gve effect to the provsons of the ct approved
ugust 6,1939 (Pubc, No. 29 , Seventy-s th Congress, frst sesson),
amendng the edera rearms ct (52 Stat., 1250 15 U. S. C, Sup.
I , 901-909), Treasury Decson 4 9 , approved May 1, 1939 C. .
1939-1 (Part 1), 364 , Part 315 of Tte 26, Code of edera Regu-
atons, s amended as foows:
Immedatey pror to the word provdes n secton 315.0, there
s nserted the foowng: as amended by the ct approved ugust
6, 19 9 (Pubc, No. 29 , Seventy-s th Congress, frst sesson).
The quotaton n secton 315.0 of secton 1( ) of the edera re-
arms ct s amended to read as foows:
( ) The term ammunton sha ncude ony psto or revover ammunton.
It sha not ncude shotgun shes, metac ammunton sutabe for use ony n
rfes, or any .22 caber rmfre ammunton.
Secton 315.1(c) s amended to read as foows:
The term ammunton means ony psto and revover ammunton. It does
not ncude shotgun shes, metac ammunton sutabe for use ony In rfes,
or any .22 caber rmfre ammunton.
(2) Secton 315.10(a) s amended by substtutng for the matter
endng wth the word ncude, foowed by a coon, the foowng:
ach censed manufacturer sha mantan compete and adequate records of
a frearms and ammunton dsposed of In the course of hs busness, whether
manufactured by hmsef or acqured from other manufacturers or deaers,
ncudng frearms n an unassembed condton, but not Incudng parts of fre-
arms. The records sha show and Incude:
(3) Secton 315.10(6) s amended by substtutng for the matter
endng wth the word ncude, foowed by a coon, the foowng:
ach censed deaer sha mantan compete and adequate records of a
frearms (not ncudng parts of frearms but ncudng frearms n an un-
assembed condton) acqured or dsposed of n the course of hs busness. The
records sha show and ncude:
secton 7 of the edera rearms ct (52 Stat, 1252 15 U. S. C,
Sup. I , 907), as amended by the ct approved ugust 6, 1939
(Pubc, No. 29 , Seventy-s th Congress, frst sesson).)
ohn W. anes,
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MISC LL N OUS RULINGS.
S CTION 3 O T INSON CT (4 ST T 503). S
M ND D Y T CT O UN 25,1936 (49 ST T 1926).
ND Y T CT O PRIL 3, 1939 (PU LIC, NO. IS,
S NTY-SI T CONGR SS).
1939-33- /
ppcabty of I. T. 32 9 (C. . 1939-1 (Part 1), 409), reatng
to obsoescence of speca equpment n connecton wth Navy con-
tracts, to rmy contracts made sub|ect to the nson ct by the
amendment of pr 3, 1939.
I. T. 32 9 (C. . 1939-1 (Part 1), 409), reatng to the procefe
wth respect to determnng the aowance for obsoescence of speck
factes as part of the cost of performng a Navy contract or s
contract sub|ect to the provsons of secton 3 of the nson ct o
March 27,1934 (4 Stat., 503), as amended by the ct of une 25, W.
(49 Stat., 1926), and as further amended by the ct of pr 3,1
(Pubc, No. 1 , Seventy-s th Congress), s equay appcabe to spe-
ca equpment and factes necessary acqured prmary for tfe
performance of an rmy contract or subcontract under secton 14 of
the ct of pr 3, 1939, supra. (See secton 16. (c) (5) (D) of the
reguatons, T. D. 4909, page 422, ths uetn, reatng to rmy con-
tracts and subcontracts, whch s the same as secton 17.9(c) (5)(D
of the reguatons, T. D. 4906, beow, reatng to Navy contracts nd
subcontracts.
1939-27-3
T.D.4906
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 11-
C SS PRO ITS ON N Y CONTR CTS.
Reguatons for ncome-ta abe years endng after pr S, 1939.1
Offce of the Secretary of the Treasury,
Washngton, D. C.
Navy Department,
Offce of the Secretary of the Navy,
Washngton, D. C.
To Offcers and mpoyees of the Treasury Department, the N )
Department, and Others Concerned:
Tabe of Contents.
Secton.
17.0. Introductory.
17.1. Defntons.
17.2. Scope of these reguatons.
17.3. Contracts and subcontracts under whch e cess proft abty ttf
ncurred.
17.4. Contracts or subcontracts for scentfc equpment.
17.5. Competon of contract defned.
Sectons 17.0 to 17.20 ssued under the authorty contaned In sectons 650, h f
3701 of the Interna Revenue Code and secton 3 of the ct of March 27, 1934 ( |
505: 34 U. S. C. 49 ), as amended by the ct of une 25, 103G (49 Sat.. U-
U S. C Sup. I , 4110), and an further amended by the ct of pr 3, 1939 ( ro -
No. 1 , Seventy-s th Congress, frst sesson).
(404)
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tacton.
17.6. Manner of determnng abty wth respect to contracts or subcontracts
for compete nava vesses or portons thereof.
17.7. Manner of determnng abty wth respect to contracts or subcontracts
for compete nava arcraft or portons thereof.
17. . Tota contract prce.
17.9. Cost of performng a contract or subcontract.
17.10. Credts for net oss and defcency n proft n computng e cess proft
17.11. Credt for edera ncome ta es.
17.12 aure of contractor to requre agreement by subcontractor.
17.13. vason of e cess proft
17.14. ooks of account and records.
17.15. Report to Secretary of the Navy.
17.16. nnua reports for ncome-ta abe years.
17.17. Payment of e cess proft abty.
17.1 . Labty of surety.
17.19. Determnaton of abty for e cess proft, nterest and penates assess-
ment, coecton, payment, refunds.
17.20. ppcabty of Treasury Decson 4723, as amended C. . 1937-1, 519 .
Secton 17.0. Introductory. (a) Secton 3 of the ct entted n
ct to estabsh the composton of the Unted States Navy wth
respect to the categores of vesses mted by the treates sgned at
Washngton, ebruary 6, 1922, and at London, pr 22, 1930, at the
mts prescrbed by those treates to authorze the constructon of
certan nava vesses and for other purposes, approved March 27,
1934 (4 Stat., 505 34 U. S. C, 496), as amended by the ct of une
25, 1936 (49 Stat., 1926 34 U. S. C, Sup. I , 496), reads as foows:
Sec. 3. The Secretary of the Navy Is hereby drected to submt annuay to
the ureau of the udget estmates for the constructon of the foregong vesses
and arcraft and there s hereby authorzed to be approprated such sums as
may be necessary to carry nto effect the provsons of ths ct: Provded, That
no contract sha be made by the Secretary of the Navy for the constructon
and/or manufacture of any compete nava vesse or arcraft, or any porton
thereof, heren, heretofore, or hereafter authorzed uness the contractor agrees
(a) To make a report, as herenafter descrbed, under oath, to the Secretary
of the Navy upon the competon of the contract
(b) To pay nto the Treasury proft, as herenafter provded sha be deter-
mned by the Treasury Department, n e cess of 10 per centum of the tota
contract prces, of such contracts wthn the scope of ths secton as are com-
peted by the partcuar contractng party wthn the ncome-ta abe year,
such amount to become the property of the Unted States, but the surety
under such contracts sha not be abe for the payment of such e cess proft:
Provded, That f there s a net oss on a such contracts or subcontracts
competed by the partcuar contractor or subcontractor wthn any ncome
ta abe year, such net oss sha be aowed as a credt n determnng the
e cess proft f any, for the ne t succeedng ncome ta abe year: Provded
further, That f such amount s not vountary pad the Secretary of the
Treasury sha coect the same under the usua methods empoyed under the
nterna-revenue aws to coect edera ncome ta es: Provded further,
That a provsons of aw (Incudng penates) appcabe wth respect to the
ta es mposed by Tte I of the Revenue ct of 1934, and not nconsstent wth
ths secton, sha be appcabe wth respect to the assessment, coecton, or
payment of e cess profts to the Treasury as provded by ths secton, and to
refunds by the Treasury of overpayments of e cess profts nto the Treasury:
nd provded further, That ths secton sha not appy to contracts or subcon-
tracts for scentfc equpment used for communcaton, target detecton, navga-
ton, and fre contro as may be so desgnated by the Secretary of the Navy,
and the Secretary of the Navy sha report annuay to the Congress the names
of such contractors and subcontractors affected by ths provson, together
wth the appcabe contracts and the amounts thereof: nd provded further,
That the ncome-ta abe years sha be such ta abe years begnnng after
December 31, 1935, e cept that the above provson reatng to the assessment
coecton, payment, or refundng of e cess proft to or by the Treasury sha
be retroactve to March 27, 1934.
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406
(c) To make no subdvsons of any contract or subcontract for the same
artce or artces for the purpose of evadng the provsons of ths ct, but
any subdvson of any contract or subcontract nvovng an amount n e -
of 10,000 sha be sub|ect to the condtons heren prescrbed.
(d) That the manufacturng spaces and books of ts own pant, affates, ar-d
subdvsons sha at n tmes be sub|ect to nspecton and audt by any pervn
desgnated by the Secretary of the Navy, the Secretary of the Treasury, and/or
by a duy authorzed Commttee of Congress.
(e) To make no subcontract uness the subcontractor agrees to the foregoL
condtons.
The report sha be n form prescrbed by the Secretary of te Navy rd
sha state the tota contract prce, the cost of performng the contract, te
net ncome, and the per centum such net ncome bears to the contract prce.
copy of such report sha be transmtted to the Secretary of the Treasury for
consderaton n connecton wth the edera ncome ta returns of the cob-
tractor for the ta abe year or years concerned.
The method of ascertanng the amount of e cess proft to be pad nto tfe
Treasury sha be determned by the Secretary of the Treasury n agreeroes
wth the Secretary of the Navy and made avaabe to the ptbc. The metbw
ntay f ed upon sha be so determned on or before une 30, 1934: Pntr.
That n any case where an e cess proft may be found to be owng to the Unted
States n consequence hereof, the Secretary of the Treasury sha aow credt
for any edera ncome ta es pad or remanng to be pad upon the amoMt
of such e cess proft.
The contract or subcontracts referred to heren are mted to those when
the award e ceeds 10,000.
(5) Secton 3(b) of the ct referred to above n paragraph (a)
was further amen ded by the ct of pr 3, 1939 (Pubc, No. 1 .
Seventy-s th Congress, frst sesson C. . 1939-1 (Part 1), 430).
and as so amended reads as foows:
Seo. 3. (b) To pay nto the Treasury proft, as herenafter provded sha be
determned by the Treasury Department, n e cess of 10 per centum of the tota
contract prces for the constructon and/or manufacture of any compete nava
vesse or porton thereof, and n e cess of 12 per centum of the tota contract
prces for the constructon and/or manufacture of any compete arcraft or por-
ton thereof, of such contracts wthn the scope of ths secton as are competed
by the partcuar contractng party wthn the ncome ta abe year, such amount
to become the property of the Unted States, but the surety under such contracts
sha not be abe for the payment of such e cess proft: Provded, That f there
s a net oss on a such contracts or subcontracts for the constructon and/or
manufacture of any compete nava vesse or porton thereof competed by the
partcuar contractor or subcontractor wthn any ncome ta abe year, such net
oss sha be aowed as a credt n determnng the e cess proft, f any. for tfct
ne t succeedng ncome ta abe year, and that f there s a net oss, or a net
proft ess than 12 per centum, as aforesad on a such contracts or subcontracts
for tho constructon and/or manufacture of any compete arcraft or portdoc
thereof competed by the partcuar contractor or subcontractor wthn any ncomf
ta abe year, such net oss or defcency n proft sha be aowed as a credt n
determnng the e cess proft, f any, durng the ne t succeedng four ncome
ta abe years, and that the method of ascertanng the amount of e cess profh.
ntay f ed upon sha be determned on or before une 30, 193S : Provded
further, That f such amount s not vountary pad the Secretary of the Treas-
ury sha coect the same under the usua methods empoyed under the nterna-
revenue aws to coect edera ncome ta es: Provded further, That a prov-
sons of aw (ncudng penates) appcabe wth respect to the ta es mposed
by Tte I of the Revenue ct of 1934, and not nconsstent wth ths sect on, sha
be appcabe wth respect to the assessment, coecton, or payment of e cess
profts to the Treasury as provded by ths secton, and to refunds by the Treasury
of overpayments of e cess profts nto the Treasury: nd provded further. That
ths secton sha not appy to contracts or subcontracts for scentfc equpment
used for communcaton, target detecton, navgaton, and fre contro as may be
o desgnated by the Secretary of the Navy, and the Secretary of the Navy sha
report annuay to the Congress the names of such contractors and subcontractors
affected by ths provson, together wth the appcabe contracts and the amounts
thereof: nd provded further, That the ncome-ta abe years sha be such ta -
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407
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abe years begnnng after December 31, 1935, e cept that the above provsos
reatng to the assessment, coecton, payment, or refundng of e cess proft to
or by the Treasury sha be retroactve to March 27, 1934.
(c) Sectons 650 and 651 of the Interna Revenue Code, approved
ebruary 10, 1939, read, respectvey, as foows:
Sec. 650. Method of Coecton.
If the amount of proft requred to be pad nto the Treasury under secton
3 of the ct of March 27, 1934, c. 95, 4 Stat. 505, as amended by the ct of
une 25, 1936, c. 12, 49 Stat 1926 (U. S. C, Supp. I, Tte 34, 196), wth
respect to contracts competed wthn ncome-ta ta abe years begnnng after
December 31, 19 , s not vountary pad, the Secretary sha coect the same
under the usua methods empoyed under the nterna revenue aws to coect
edera Income ta es.
Sec. 651. Laws ppcabe.
provsons of aw (ncudng penates) appcabe wth respect to the
ta es Imposed by Tte I of the Revenue ct of 1934, 4 Stat. 6 3, and not
Inconsstent wth secton 3 of sad ct of March 27, 1934, sha be appcabe
wth respect to the assessment, coecton, or payment of e cess profts to the
Treasury as provded by secton 650, and to refunds by the Treasury of over-
payments of e cess profts Into the Treasury.
Pursuant to the authorty prescrbed by sectons 650, 651, and 3791
of the Interna Revenue Code and secton 3 of the ct of March 27,
1934 (4 Stat., 505 34 U. S. C, 496), as amended by the ct of
une 25, 1936 (49 Stat., 1926 34 U. S. C, Sup. I , 496), and as
further amended by the ct of pr 3, 1939 (Pubc, No. 1 , Seventy-
s th Congress, frst sesson), the foowng reguatons are hereby
prescrbed wth respect to secton 3 of such ct, as frst amended
and as further amended, and sectons 650 and 651 of the Interna
Revenue Code:
Sec. 17.1. Defntons. s used In these reguatons the term
(a) ct means the ct of March 27, 1934 (4 Stat, 505 34 U. S. C,
496), as orgnay enacted, as amended by the ct of une 25, 19 6 ( 49 Stat.,
1926 34 U. S. 0., Sup. I , 496), and as further amended by the ct of pr 3,
1 . 9 (Pubc, No. 1 , Seventy-s th Congress, frst sesson a . 1939-1 (Part 1),
430).
(6) Person Incudes an ndvdua, a corporaton, a partnershp, a trust
or estate, a |ont-stock company, an assocaton, or a syndcate, group, poo,
|ont venture or other unncorporated organzaton or group, through or by
means of whch any busness, fnanca operaton or venture s carred on.
(c) Contract means an agreement made by authorty of the Secretary
of the Navy for the constructon or manufacture of any compete nava vesse
or arcraft, or any porton thereof.
(d) Contractor means a person enterng Into a drect contract wth the
Secretary of the Navy or hs duy authorzed representatve.
(e) Subcontract means an agreement entered nto by one person wth
another person for the constructon or manufacture of a compete nava vesse
or arcraft or any porton thereof, the prme contract for such vesse or
arcraft or porton thereof havng been entered Into between a contractor and
the Secretary of the Navy or hs duy authorzed representatve.
(f) Subcontractor means any person other than a contractor enterng
Into a subcontract.
(g) Contractng party means a contractor or subcontractor as the case
may be.
(ft) Contract prce or tota contract prce means the amount or tota
amount to be receved under a contract or subcontract as the case may be.
() Income-ta abe year means the caendar year, the fsca year endng
durng such caendar year, or the fractona part of such caendar or fsca year,
upon the bass of whch the contractng party s net ncome s computed and for
whch ts ncome ta returns are made for edera Income ta purposes.
Sm 17.2. Scope of these reguatons. These reguatons dea wth abty
for e cess proft on contracts and subcontracts for the constructon or manufac-
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40
ture of any compete nava vesse or arcraft or any porton thereof conpW
wthn ncome-ta abe years endng after pr 3, 1039. s to the date of
competon of a contract or subcontract, see secton 17.5 of these reguate-.
Sec. 17.3. Contracts and subcontracts under whch e cess proft abty as
be ncurred. cept as otherwse provded wth respect to contracts or snnc:-
tracts for certan scentfc equpment (see secton 17.4 of these regnatkt-
every contract awarded for an amount e ceedng 10,000 and entered ntoaf-:
the enactment of the ct of March 27, 1934, for the constructon or manufsct
of any compete nava vesse or arcraft, or any porton thereof, s sub|ect to
the provsons of the ct reatng to e cess proft abty. ny subcom
made wth respect to such a contract and nvovng an amount n e ecs d
10,000 s aso wthn the scope of the ct. If a contractng party paces ordw
wth another party, aggregatng an amount n e cess of 10,000, for artces
materas whch consttute a part of the cost of performng the contractors
contract, the pacng of such orders sha consttute a subcontract wthn ts
scope of the ct, uness t Is ceary shown that each of the orders ntow
10,000 or ess s a bona fde separate and dstnct subcontract and not a r
dvson made for the purpose of evadng the provsons of the ct.
Sec. 17.4. Contracts or subcontracts for scentfc equpment. No e cess pr
abty Is ncurred upon a contract or subcontract entered nto after theaaa
nent of secton 3(b) of the ct on une 25, 1930, f at the tme or pror to
tme such contract or subcontract s made t s desgnated by the Secretary
the Navy as beng e empt under the provsons of the ct pertanng to sceonf
equpment used for communcaton, target detecton, navgaton, or re cortr
The e empton of contracts or subcontracts for scentfc equpment does s--
e tend to any contract or subcontract entered nto pror to the enactment uf su
amendment of secton 3(b) of the ct.
Sec, 17.5. Competon of contract defned. The date of devery of there -
arcraft or porton thereof covered by the contract or subcontract sha be c
sdered the date of competon of the contract or subcontract uness othtfws
determned onty by the Secretary of the Navy and the Secretary of the Trt-
ury or ther duy authorzed representatves. cept as otherwse provded t
the precedng sentence, the repacement of defectve parts of devered artces
the performance of other guarantee work n respect of such artces w rrf
operate to e tend the date of competon. s to the treatment of the cost
such work as a cost of performng a contract or subcontract, see secton 175 1
of these reguatons. s to a refund n case of ad|ustment due to any sub
quenty ncurred addtona costs, see secton 17.19 of these reguatons. If
contract or subcontract s at any tme canceed or termnated, t s competed t
the tme of the canceaton or termnaton.
Sec. 17.6. Manner of determnng abty cth respect to contract or
contracts for compete nava vesses or portons thereof. If n an neome-taa
year endng after pr 3. 1939, a contractng party competes one or more e -
tracts or subcontracts comng wthn the scope of the ct and entered nto for -
constructon or manufacture of any compete nava vesse or any porton tbtffr-
the amount of e cess proft to be pad to the Unted States wth respect to t.
such contracts and subcontracts competed wthn the ncome-ta abe year sM
be computed as foows:
The frst step s to ascertan the tota contract prces of a such contracts
subcontracts competed by the contractng party wthn the ncome-ta abe |
s to tota contract prces, see sectons 17.1 and 17. of these reguatons.
The second step s to ascertan the cost of performng such contracts and s
contracts (see secton 17.9 of these reguatons) and to deduct such cost from_t
tota contract prces of such contracts and subcontracts as computed n the W .
step.
The amount remanng after such subtracton Is the amount of net proft or on
oss upon such contracts and subcontracts competed wthn the Income-tasaM
year.
The thrd step, n case there Is a net proft upon such contracts and s
tracts, s to subtract from the amount of such net proft as computed n u
second step the sum of
(1) n amount equa to 10 per cent of the tota contract prces of suc |
tracts and subcontracts competed wthn the ncome-ta abe year and
(2) The amount of any net oss whch was sustaned n the precedngnf01
ta abe year wth respect to contracts or subcontracts entered Into for t f |
structon or manufacture of any compete nava vesse or any porton tber
and whch s aowabe as a credt n determnng the e cess proft for then
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Msc
abe year wth respect to contracts and subcontracts entered nto for the
onstructon or manufacture of any compete nava vesse or any porton
hereof (see paragraph (a) of secton 17.10 of these reguatons).
The amount remanng after such subtracton s the amount of e cess proft
or the ncome-ta abe year wth respect to contracts and subcontracts entered
ato for the constructon or manufacture of any compete nava vesse or any
orto t thereof.
The fourth step s to ascertan the amount of credt aowed for edera Income
a es pad or remanng to be pad upon the amount of such e cess proft
s computed n the thrd step (see secton 17.11 of these reguatons) and then
mbtract from the amount of such e cess proft the amount of credt for edera
ncome ta es.
The amount remanng after ths subtracton s the amount of e cess proft
o be pad to the Unted States by the contractng party for the ncome-ta abe
fear wth respect to contracts and subcontracts entered nto for the con-
tructon or manufacture of any compete nava vesse or any porton thereof
nd competed wthn the ncome-ta abe year.
The appcaton of the provsons of ths secton of the reguatons may be
ustrated by the foowng e ampe:
ampe: On September 1, 1939, the Corporaton, whch keeps ts books and
makes ts edera ncome ta returns on a caendar year bass, entered nto a
contract wth the Secretary of the Navy for the constructon of portons of a
nava vesse comng wthn the scope of the ct, the tota contract prce of whch
was 200,000. On March 10, 1940, the Corporaton entered nto another such
contract, the tota contract prce of whch was 40,000. oth contracts were
competed wthn the caendar year 1940, the frst at a cost of 155,000 and the
second at a cost of 45,000. Durng the year 1940 the Corporaton aso com-
peted at a oss of 10,000 two contracts entered nto for the constructon or
manufacture of nava arcraft comng wthn the scope of the ct or the
year 1939 the Corporaton sustaned a net oss of 2,500 on a contracts and
subcontracts for any compete nava vesse or any porton thereof comng wthn
the scope of the ct and competed wthn the caendar year 1939. or the
year 1939 the Corporaton aso sustaned a net oss of 1, 00 on a other
contracts and subcontracts comng wthn the scope of the ct whch were
competed wthn the caendar year 1939. or purposes of edera ncome ta ,
the net Income of the Corporaton for the year 1940 amounted to 96,000,
whch amount ncuded the net proft of 40,000 upon the contracts entered
nto on September 1, 1939, and March 10, 1940. or the year 1940 the Cor-
poraton pad edera ncome ta es amountng to 19,200. The e cess proft
abty of the Corporaton for 1940 s payabe wth respect to the contracts
for portons of a nava vesse whch were competed n 1940. The oss of 10,000
on other contracts competed n 1940 and the net oss of 1, 00 for 1939 on con-
tracts and subcontracts for nava arcraft do not enter nto the computaton of
such abty. ccordngy, the e cess proft abty of the Corporaton for
1940 s 10, 00 computed as foows:
Tota contract prces:
Contract No. 1 200, 000
Contract No. 2 40,000
240,000
Less: Cost of performng contracts:
200,000
Net proft on contracts 40,000
Less: 10 per cent of tota contract prces (10 per cent of
240,000) 24.000
Net oss from 1939 2,500
26,500
cess proft for year 1940 13, 500
Less: Credt for edera Income ta es ( edera ncome ta
on 13,500 at rates for 1940) 2,700
mount of e cess proft payabe to the Unted States 10, 00
209196 40 14
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410
Sec. 17.7. Manner of determnng abty wth respect to contracts or n
contracts for compete nava arcraft or portons thereof. If n an nco -
ta abe year endng after pr 3, 1939, a contractng party competes one
more contracts or subcontracts comng wthn the scope of the ct and enter-:
nto for the constructon or manufacture of any compete nava arcraft
any porton thereof, the amount of e cess proft to be pad to the Unted Staos
wth respect to a such contracts and subcontracts competed wthn the ncome-
ta abe year sha be computed as foows:
The frst step s to ascertan the tota contract prces of a snch contracts and
subcontracts competed by the contractng party wthn the ncome-taabs
year. s to tota contract prces, see sectons 17.1 and 17. of these reguaton
The second step s to ascertan the cost of performng such contracts and mf-
contracts (see secton 17.9 of these reguatons) and to deduct such cost fts
the tota contract prces of such contracts and subcontracts as computed n
the frst step.
The amount remanng after such subtracton s the amount of net proft c:
net oss upon such contracts and subcontracts competed wthn the na r
ta abe year.
The thrd step, In case there s a net proft upon such contracts and sobers-
tracts, s to subtract from the amount of such net proft as computed n tte
(1) n amount equa to 12 per cent of the tota contract prces of such con-
tracts and subcontracts competed wthn the ncome-ta abe year
(2) The amount of any net oss whch was sustaned n a pror neo -
ta abe year wth respect to contracts or subcontracts for the constructon or
manufacture of any compete nava arcraft or any porton thereof, and whc
Is aowabe as a credt n determnng the e cess proft for the ncome-ta abe
year wth respect to contracts and subcontracts entered nto for the constrneno
or manufacture of compete nava arcraft or any porton thereof (see paragra
(6) of secton 17.10 of these reguatons) and
(3) The amount of any defcency n proft whch was sustaned In a pr
Income-ta abe year wth respect to contracts or subcontracts entered nto for
the constructon or manufacture of any compPte nava arcraft or any porton
thereof, and whch s aowabe as a credt n determnng the e cess proft fo:
the ncome-ta abe year wth respect to contracts and subcontracts entered InM
for the constructon or manufacture of compete nava arcraft or any portco
thereof (see paragraph (c) of secton 17.10 of these reguatons).
for the ncome-ta abe year wth respect to contracts and subcontracts entered
nto for the constructon or manufacture of compete nava arcraft or an
porton thereof.
The fourth step Is to ascertan the amount of credt aowed for eden
Income ta es pad or remanng to be pad upon the amount of such e cess
proft as computed n the thrd step (see secton 17.11 of these reguatons)
and then subtract from the amount of such e cess proft the amount of credt
for edera Income ta es.
The amount remanng after ths subtracton Is the amount of e cess proft
to be pad to the Unted States by the contractng party for the ncome-
ta abe year wth respect to contracts and subcontracts entered Into for the
constructon or manufacture of compete nava arcraft or any porton thereof
and competed wthn the Income-ta abe year.
The appcaton of the provsons of ths secton of the reguatons may be
ustrated by the foowng e ampe:
ampe: On September 1, 1939, the Corporaton, whch keeps ts book-
and makes ts edera Income ta returns on a caendar year bass, entere-
nto a contract wth the Secretary of the Navy for the constructon of arcraft
comng wthn the scope of the ct, the tota contract prce of whch was
200,000. On March 10, 1940, the Corporaton entered Into another suet
competed wthn the caendar year 1940, the frst at a cost of 155,000 and
the second at a cost of 45,000. Durng the year 1940 the Corporaton aso
competed at a oss of 10,000 two contracts entered Into for the constrnctor.
or manufacture of portons of a nava vesse comng wthn the scope of the
ct. or the year 1939 the Corporaton sustaned a net oss of 2,500 s|d
a defcency n proft of 1,000 on a contracts and subcontracts for wts
arcraft comng wthn the scope of the ct and competed wthn the caendar
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411
Msc.
year 1039. or the year 1939 the Corporaton aso sustaned a net oss of
1, 00 on a other contracts and subcontracts comng wthn the scope of the
ct whch were competed wthn the caendar year 1939. or purposes of
the edera ncome ta , the net ncome of the Corporaton for the year 1940
amounted to 96,000 whch amount ncuded the net proft of 40,000 upon
the contracts entered nto on September 1, 1939, and March 10, 1940. or the
year 1940 the Corporaton pad edera Income ta es amountng to 19,200.
The e cess proft abty of the Corporaton for 1940 s payabe wth respect
to the contracts for nava arcraft whch were competed n 1940. The oss of
10,000 on other contracts competed n 1940 and the net oss of 1, 00 for
1939 on contracts and subcontracts other than for nava arcraft do not enter
Into the computaton of such abty. ccordngy, the e cess proft abty
of the Corporaton for 1940 s ,700 computed as foows:
240,000
200,000
240,000) 2 , 00
Defcency n proft from 1939 1,000
32,300
cess proft for year 1940 7,700
Less: Credt for edera ncome ta es ( edera ncome ta on 7,700
at rates for 1940) 1,000
mount of e cess proft payabe to the Unted States 6, 700
Sec. 17. . Tota contract prce. The tota contract prce of a partcuar con-
tract or subcontract (see secton 17.1 of these reguatons) may be receved n
money or ts equvaent. If somethng other than money Is receved, ony the
far market vaue of the thng receved, at the date of recept, s to be ncuded
In determnng the amount receved. onuses earned for betterng performance
and penates ncurred for faure to meet the contract guarantees are to be
regarded as ad|ustments of the orgna contract prce. Trade or other dscounts
granted by a contractng party n respect of a contract or subcontract per-
formed by such party are aso to be deducted n determnng the true tota
contract prce of such contract or subcontract
Sec. 17.9. Cost of performng a contract or subcontract. (a) Genera rue.
The cost of performng a partcuar contract or subcontract sha be the sum of
(1) the drect costs, ncudng theren e pendtures for materas, drect abor
and drect e penses, ncurred by the contractng party n performng the con-
tract or subcontract and (2) the proper proporton of any ndrect costs (In-
cudng theren a reasonabe proporton of management e penses) ncdent to
and necessary for the performance of the contract or subcontract.
(6) ements of cost. No defntons of the eements of cost may be stated
whch are of Invarabe appcaton to a contractors and subcontractors. In
genera, the eements of cost may be defned for purposes of the ct as foows:
(1) Manufacturng cost, whch s the sum of factory cost (see paragraph (c)
of ths secton) and other manufacturng cost (see paragraph (d) of ths
secton)
(2) Msceaneous drect e penses (see paragraph (e) of ths secton)
(3) Genera e penses, whch are the sum of ndrect engneerng e penses,
usuay termed engneerng overhead (see paragraph (f) of ths secton) and
e penses of dstrbuton, servcng and admnstraton (see paragraph (g) of ths
secton) and
(4) Guarantee e penses (see paragraph (h) of ths secton),
(c) actory cost. actory cost s the sum of the foowng:
(1) Drect materas. Materas, such as those purchased for stock and sub-
sequenty ssued for contract operatons and those acqured under subcontracts.
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412
whch become a component part of the fnshed product or whch are used drecty t
n fabrcatng, convertng or processng such materas or parts.
(2) Drect productve abor. Productve abor, usuay termed shop abor, I
whch s performed on and s propery chargeabe drecty to the artce mano-
factured or constructed pursuant to the contract or subcontract, but whch ord-
nary does not ncude drect engneerng abor (see subparagraph (3) of ths
paragraph).
(3) Drect engneerng abor. The compensaton of professona engneers and
other techncsts (ncudng reasonabe advsory fees), and of draftsmen, propery
chargeabe drecty to the cost of the contract or subcontract
(4) Msceaneous drect factory charges. Items whch are propery charge-
abe drecty to the factory cost of performng the contract or subcontract bat
whch do not come wthn the cassfcatons n subparagraphs (1), (2), and (3)
of ths paragraph, as, for e ampe, royates whch the contractng party pays
to another party and whch are propery chargeabe to the cost of performng the
contract or subcontract (but see paragraph (d) of ths secton).
(5) Indrect factory e penses. Items, usuay termed factory overhead.
whch are not drecty chargeabe to the factory cost of performng the contract
or subcontract but whch are propery ncdent to and necessary for the per
formance of the contract or subcontract and consst of the foowng:
( ) habor. mounts e pended for factory abor, such as supervson and n-
specton, cerca abor, tmekeepng, packng and shppng, stores suppy, servces
of too crb attendants, and servces n the factory empoyment bureau, whch are
not chargeabe drecty to productve abor of the contract or subcontract
( ) Materas and suppes. The cost of materas and suppes for genera
use n the factory n current operatons, such as shop fue, ubrcants, heat-
treatng, patng, ceanng and anodzng suppes, nondurabe toos and gauges,
statonery (such as tme tckets and other forms), and bo ng and wrappng
materas.
(C) Servce e penses. actory e penses of a genera nature, such as those
for power, heat and ght (whether purchased or produced), ventaton and ar-
condtonng and operaton and mantenance of genera pant assets and
factes.
(D) ed charges and obsoescence. Recurrng charges v th respect to prop-
erty used for manufacturng purposes of the contract or subcontract, such as
premums for fre and eevator nsurance, property ta es, rentas and aow-
ances for deprecaton of such property, ncudng mantenance and deprecaton
of reasonabe stand-by equpment and deprecaton and obsoescence of speca
equpment and factes necessary acqured prmary for the performance of
the contract or subcontract In makng aowances for deprecaton, consdera-
ton sha be gven to the number and ength of shfts.
( ) Msceaneous ndrect factory e penses. Msceaneous factory e penses
not drecty chargeabe to the factory cost of performng the contract or sub-
contract, such as purchasng e penses ordnary and necessary e penses of re-
arrangng factes wthn a department or pant empoyees wefare e penses
premums or dues on compensaton nsurance empoyers payments to unem-
poyment od age and soca securty edera and State funds not ncudng
payments deducted from or chargeabe to empoyees or offcers pensons and
retrement payments to factory empoyees factory accdent compensaton (as
to sef-nsurance, see paragraph (g) of ths secton) but not ncudng any
amounts whch are not ncdent to servces, operatons, pant, equpment or
factes nvoved n the performance of the contract or subcontract
(d) Other manufacturng cost. Other manufacturng cost as used n para-
graph (6) of ths secton ncudes tems of manufacturng costs whch are not
propery or satsfactory chargeabe to factory costs (see paragraph (c) of ths
secton) but whch upon a compete showng of a pertnent facts are propery
to be ncuded as a cost of performng the contract or subcontract as for
nstance, payments of royates and amortzaton of the cost of desgns pur-
chased and patent rghts over ther usefu fe and deferred or unqu-
dated e permenta and deveopment charges. or e ampe, n case e per-
menta and deveopment costs have been propery deferred or captazed and
are amortzed n accordance wth a reasonaby consstent pan, a proper por-
ton of the current charge, determned by a ratabe aocaton whch s rea-
sonabe n consderaton of the pertnent facts, may be treated as a cost of
performng the contract or subcontract In the case of genera e permenta
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413
Msc.
and deveopment e penses whch may be charged off currenty, a reasonabe
porton thereof may be aocated to the cost of performng the contract or sub-
contract. If a speca e permenta or deveopment pro|ect s carred on n
pursuance of a contract, or n antcpaton of a contract whch Is ater entered
nto, and the e pense s not treated as a part of genera e permenta and
deveopment e penses or s not otherwse aowed as a cost of performng the
contract, there ceary appearng no reasonabe prospect of an addtona con-
tract for the type of artce nvoved, the entre cost of such pro|ect may be
aowed as a part of the cost of performng the contract
(e) Msceaneous drect e penses. Msceaneous drect e penses as used
In paragraph (6) of ths secton ncude
(1) Cost of nstaaton and constructon. Cost of nstaaton and construc-
ton ncudes the cost of materas, abor and e penses necessary for the erecton
and nstaaton pror to the competon of the contract and after the devery
of the product or matera manufactured or constructed pursuant to the con-
tract or subcontract
(2) Sundry drect e penses. Items of e pense whch are propery chargeabe
drecty to the cost of performng a contract or subcontract and whch do not
consttute guarantee e penses (see paragraph (ft) of ths secton) or drect
costs cassfed as factory cost or other manufacturng cost (see paragraphs (c)
and (d) of ths secton), such as premums on performance or other bonds,
requred under the contract or subcontract State saes ta es Imposed on the
contractng party freght on outgong shpments fees pad for wnd tunne
and mode basn tests demonstraton and test e penses crash nsurance pre-
mums traveng e penses. In order for any such tem to be aowed as a
charge drecty to the cost of performng a contract or subcontract, (1) a
detaed record sha be kept by the contractng party of a tems of a smar
character, and (2) no tem of a smar character whch s propery a drect
charge to other work sha be aowed as a part of any ndrect e penses n
determnng the proper proporton thereof chargeabe to the cost of performng
the contract or subcontract. s to aowabe ndrect e penses, see paragraphs
(c)(5), (/), (g), and (/) of ths secton.
(f) Indrect engneerng e penses. Indrect engneerng e penses, usuay
termed engneerng overhead, whch are treated In ths secton as a part of
genera e penses n determnng the cost of performng a contract or subcon-
tract (see paragraph (6) of ths secton), comprse the genera engneerng
e penses whch are ncdent to and necessary for the performance of the contract
or subcontract, such as the foowng:
(1) Labor. Reasonabe fees of engneers empoyed In a genera consutng
capacty, and compensaton of empoyees for persona servces to the engneerng
department such as supervson, whch s propery chargeabe to the contract
or subcontract, but whch s not chargeabe as drect engneerng abor (see
paragraph (c)(3) of ths secton).
(2) Matera. Suppes for the engneerng department, such as paper and
Ink for draftng and smar suppes.
(3) Msceaneous e penses. penses of the engneerng department such
as ( ) mantenance and repar of engneerng equpment, and ( ) servces
purchased outsde of the engneerng department for bue prntng, drawng,
computng, and ke purposes.
(g) penses of dstrbuton, servcng, and admnstraton. penses of ds-
trbuton, servcng, and admnstraton, whch are treated n ths secton as
a part of genera e penses n determnng the cost of performng a contract
or subcontract (see paragraph (6) of ths secton), comprehend the e penses
ncdent to and necessary for the performance of the contract or subcontract,
whch are ncurred n connecton wth the dstrbuton and genera servcng
of the contractng party s products and the genera admnstraton of the
busness, such as
(1) Compensaton for persona servces of empoyees. The saares of the
corporate and genera e ecutve offcers and the saares and wages of admns-
tratve cerca empoyees and of the offce servce empoyees such as teephone
operators, |antors, ceaners, watchmen, and offce equpment reparmen.
(2) ddng and genera seng e penses. ddng and genera seng
e penses whch by reference to a the pertnent facts and crcumstances
reasonaby consttute a part of the cost of performng a contract or subcontract.
The treatment of bddng and genera seng e penses as a part of genera e -
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Msc.) 414
penses n accordance wth ths paragraph s n eu of any drect charges
whch otherwse mght be made for such e penses. The term bddng
e penses as used n ths secton ncudes a e penses n connecton wth
preparng and submttng bds.
(3) Genera servcng e penses. penses whch by reference to a the pert-
nent facts and crcumstances reasonaby consttute a part of the cost of perform-
ng a contract or subcontract and whch are ncdent to devered or nstaed
artces and are due to ordnary ad|ustments or mnor defects but ncudng no
tems whch are treated as a part of guarantee e penses (see paragraph ( ) of
ths secton) or as a part of drect costs, such as drect materas, drect abor,
and other drect e pense.
(4) Other e penses. Msceaneous offce and admnstratve e penses, such
as statonery and offce suppes postage repar and deprecaton of offce equp-
ment contrbutons to oca chartabe or communty organzatons to the e tent
consttutng ordnary and necessary busness e penses empoyees wefare e -
penses premums and dues on compensaton nsurance empoyers payments to
unempoyment, od age, and soca securty edera and State funds not ncud-
ng payments deducted from or chargeabe to empoyees or offcers pensons and
retrement payments to admnstratve offce empoyees and accdent compensaton
to offce empoyees (as to sef-nsurance, see the foowng subparagraph).
Sub|ect to the e cepton stated n ths subparagraph, n cases where a contract-
ng party assumes ts own nsurabe rsks (usuay termed sef-nsurance ),
osses and payments w be aowed In the cost of performng a contract or sub-
contract ony to the e tent of the actua osses suffered or payments Incurred
durng, and In the course of, the performance of the contract or subcontract and
propery chargeabe to such contract or subcontract. If, however, a contractng
party assumes ts own nsurabe rsks (a) for compensaton pad to empoyees
for n|ures receved n the performance of ther dutes, or (6) for unempoyment
rsks n States where nsurance s requred, there may be aowed as a part of
the cost of performng a contract or subcontract a reasonabe porton of the
charges set up for purposes of sef-nsurance under a system of accountng regu-
ary empoyed by the contractng party, as determned by the Commssoner of
Interna Revenue, at rates not e ceedng the awfu or approved rates of Insur-
ance companes for such nsurance, reduced by amounts representng the acqus-
ton cost n such companes, provded the contractng party adopts and consst-
enty foows ths method wth respect to sef-Insurance n connecton wth a
contracts and subcontracts subsequenty performed by hm.
owances for nterest on nvested capta are not aowabe as costs of per-
formng a contract or subcontract.
mong the tems whch sha not be Incuded as a part of the cost of perform-
ng a contract or subcontract or consdered n determnng such cost, are the
foowng: ntertanment e penses dues and membershps other than of
reguar trade assocatons donatons e cept as otherwse provded above
osses on other contracts profts or osses from saes or e changes of capta
assets e traordnary e penses due to strkes or ockouts fnes and penates
amortzaton of unreazed apprecaton of vaues of assets e penses, man-
tenance and deprecaton of e cess factes (ncudng Ide and and budng,
de parts of a budng, and e cess machnery and equpment) vacated or
abandoned, or not adaptabe for future use n performng contracts or sub-
contracts Increases n reserve accounts for contngences, repars, compensa-
ton nsurance (e cept as above provded wth respect to sef-nsurance) and
guarantee work edera and State ncome and e cess-profts ta es and str-
ta es cash dscount earned up to 1 per cent of the amount of the purchase,
e cept that a dscounts on subcontracts sub|ect to the ct w be consdered
nterest ncurred or earned bond dscount or fnance charges premums for
fe nsurance on the ves of offcers ega and accountng fees n connecton
wth reorganzatons, securty ssues, capta stock ssues, and the prosecuton of
cams aganst the Unted States (ncudng ncome ta matters) ta es and
e penses on ssues and transfers of capta stock osses on nvestments bad
debts and e penses of coecton and e change.
In order that the cost of performng a contract or subcontract may be ac-
counted for ceary, the amount of any e cess profts repayabe to the Unted
States pursuant to the ct shoud not be charged to or ncuded n such cost
(ft) Guarantee e penses. Guarantee e penses ncude the varous tems of
factory cost, other manufacturng cost, cost of nstaaton and constructon,
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415
MsC.
Indrect engneerng e penses and other genera e penses (see paragraphs (c)
to (g), ncusve, of ths secton) whch are ncurred after devery or nstaa-
ton of the artce manufactured or constructed pursuaut to the partcuar con-
tract or subcontract and whch are ncdent to the correcton of defects or
defcences whch the contractng party s requred to make under the guarantee
provsons of the partcuar contract or subcontract If the tota amount of
such guarantee e penses s not ascertanabe at the tme of fng the report
requred to be fed wth the coector of nterna revenue (see secton 17.16 of
these reguatons) and the contractng party Incudes any estmated amount
of such e penses as part of the camed tota cost of performng the contract
or subcontract, such estmated amount sha be separatey shown on the report
and the reasons for camng such estmated amount sha accompany the re-
port but ony the amount of guarantee e penses actuay Incurred w be
aowed. If the amount of guarantee e penses actuay ncurred s greater than
the amount (f any) camed on the report and the contractng party has made
an overpayment of e cess proft, a refund of the overpayment sha be made n
accordance wth the provsons of secton 17.19 of these reguatons. If the
amount of guarantee e penses actuay ncurred s ess than the amount
camed on the report and an addtona amount of e cess proft s determned
to be due, the addtona amount of e cess proft sha be assessed and pad n
accordance wth the provsons of secton 17.19 of these reguatons.
() Unreasonabe compensaton. The saares and compensaton for servces
whch are treated as a part of the cost of performng a contract or subcon-
tract ncude reasonabe payments for saares, bonuses, or other compensaton
for servces. s a genera rue, bonuses pad to empoyees (and not to offcers)
n pursuance of a reguary estabshed Incentve bonus system may be aowed
as a part of the cost of performng a contract or subcontract.
The test of aowabty s whether the aggregate compensaton pad to each
ndvdua s for servces actuay rendered ncdent to, and necessary for, the
performance of the contract or subcontract, and s reasonabe. cessve
or unreasonabe payments whether n cash, stock, or other property ostensby
as compensaton for servces sha not be ncuded n the cost of performng a
contract or subcontract.
( ) ocaton of ndrect costs. No genera rue appcabe to a cases may
be stated for ascertanng the proper proporton of the ndrect costs to be
aocated to the cost of performng a partcuar contract or subcontract. Such
proper proporton depends upon a the facts and crcumstances reatng to the
performance of the partcuar contract or subcontract. Sub|ect to a requre-
ment that a tems whch have no reaton to the performance of the contract or
subcontract sha be emnated from the amount to be aocated, the foowng
methods of aocaton are outned as acceptabe n a ma|orty of cases:
(1) actory ndrect e penses. The aowabe ndrect factory e penses
(see paragraph (c)(5) of ths secton) sha ordnary be aocated or ds-
trbuted to the cost of the contract or subcontract on the bass of the propor-
ton whch the drect productve abor (see paragraph (c)(2) of ths secton)
attrbutabe to the contract or subcontract bears to the tota drect productve
abor of the producton department or partcuar secton thereof durng the perod
wthn whch the contract or subcontract s performed, e cept that f the ndrect
factory e penses are ncurred n dfferent amounts and In dfferent proportons
by the varous producng departments consderaton sha be gven to such cr-
cumstances to the e tent necessary to make a far and reasonabe determnaton
of the true proft and e cess proft.
(2) ngneerng ndrect e penses. The aowabe ndrect engneerng
e penses (see paragraph (/) of ths secton) sha ordnary be aocated or
dstrbuted to the cost of the contract or subcontract on the bass of the
proporton whch the drect engneerng abor attrbutabe to the contract or
subcontract (see paragraph (c)(3) of ths secton) bears to the tota drect
engneerng abor of the engneerng department or partcuar secton thereof
durng the perod wthn whch the contract or subcontract s performed. If
the e penses of the engneerng department are not suffcent n amount to
requre the mantenance of separate accounts, the engneerng ndrect costs
may be ncuded n the ndrect factory e penses (see paragraph (o) (5) of ths
secton) and aocated or dstrbuted to the cost of performng the contract or
subcontract as a part of such e penses, provded the proporton so aocated or
dstrbuted s proper under the facts and crcumstances reatng to the per-
formance of the partcuar contract or subcontract
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Msc. I
416
(3) dmnstratve e penses or overhead ). The aowabe e penses of
admnstraton (see paragraph (p) of ths secton) or other genera e penses
e cept Indrect engneerng e penses, bddng and genera seng e penses, and
genera servcng e penses sha ordnary be aocated or dstrbuted to the
cost of performng a contract or subcontract on the bass of the proporton whch
the sum of the manufacturng cost (see paragraph (6) of ths secton) and the
cost of nstaaton and constructon (see paragraph (e) of ths secton) attrb-
utabe to the partcuar contract or subcontract bears to the sum of the tota
manufacturng cost and the tota cost of nstaaton and constructon durng
the perod wthn whch the contract or subcontract s performed.
(4) ddng, genera seng, and genera servcng e penses. The aowabe
bddng and genera seng e penses and genera servcng e penses (see para-
graph (g) (2) and (3) of ths secton) sha ordnary be aocated or ds-
trbuted to the cost of performng a contract or subcontract on the bass of
() The proporton whch the contract prce of the partcuar contract
or subcontract bears to the tota saes made (ncudng contracts or sub-
contracts competed) durng the perod wthn whch the partcuar contract
or subcontract s performed, or
() The proporton whch the sum of the manufacturng cost (see para-
graph (6) of ths secton) and the cost of nstaaton and constructon (see
paragraph (e) of ths secton) attrbutabe to the partcuar contract or sub-
contract bears to the sum of the tota manufacturng cost and the tota cost
of nstaaton and constructon durng the perod wthn whch the contract
or subcontract s performed,
e cept that speca consderaton sha be gven to the reaton whch certan
casses of such e penses bear to the varous casses of artces produced by the
contractng party In each case In whch such consderaton Is necessary n order
to make a far and reasonabe determnaton of the true proft and e cess proft
See secton 17.14 of these reguatons.
Sec. 17.10. Credts for net oss and defcency n proft n computng e ee
proft. (a) Net oss on contracts and subcontracts for nava vesses or porton
thereof. In the case of contracts or subcontracts for the constructon or manu-
facture of any compete nava vesse or any porton thereof comng wthn the
scope of the ct whch are competed wthn an ncome-ta abe year endng after
pr 3, 1939, the term net oss as used In the ct and In these reguatons
means the amount by whch the tota costs of performng a such contracts and
subcontracts competed wthn such ncome-ta abe year e ceeds the tota con-
tract prces of such contracts and subcontracts. Such net oss sustaned by a
contractng party for an ncome-ta abe year endng after pr 3, 1939, s aow-
abe as a credt n computng the contractng party s e cess proft on contracts
and subcontracts for the constructon or manufacture of any compete nava
vesse or any porton thereof whch are competed wthn the ne t succeedng
ncome-ta abe year.
(6) Net oss on contracts and subcontracts for nava arcraft or porton
thereof. In the case of contracts or subcontracts for the constructon or
manufacture of any compete nava arcraft or any porton thereof comng
wthn the scope of the ct whch are competed wthn an Income-ta abe
year endng after pr 3, 1939, the term net oss as used n the ct and
In these reguatons means the amount by whch the tota costs of performng
a such contracts and subcontracts competed wthn such Income-ta abe
year e ceeds the tota contract prces of such contracts and subcontracts.
Such net oss sustaned by a contractng party for an Income-ta abe year
endng after pr 3, 1939, s aowabe as a credt n computng the con-
tractng party s e cess proft on contracts and subcontracts for the construc-
ton or manufacture of any compete nava arcraft or any porton thereof whch
are competed wthn the four ne t succeedng Income-ta abe years.
(c) Defcency n proft. The term defcency n proft as used n the
ct and n these reguatons reates ony to contracts and subcontracts comng
wthn the scope of the ct whch are for the constructon or manufacture
of any compete nava arcraft or any porton thereof and are competed wthn
an Income-ta abe year endng after pr 3, 1939. s so used, the term
defcency n proft means the amount by whch 12 per cent of the tota
contract prces of such contracts and subcontracts whch are competed by a
partcuar contractng party wthn the Income-ta abe year e ceeds the net
proft upon such contracts and subcontracts. defcency n proft sustaned
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417
Msc.
by a contractng party wth respect to such contracts and subcontracts for
the constructon or manufacture of compete nava arcraft or any porton
thereof and competed wthn any ncome-ta abe year endng after pr 3,
1939, s aowabe as a credt n computng the contractng party s e cess proft
on contracts and subcontracts for the constructon or manufacture of compete
nava arcraft or any porton thereof whch are competed wthn the four
ne t succeedng ncome-ta abe years.
(d) Cam for credt. Credt for a defcency n proft or a net oss may be
camed n the contractng party s annua report of proft fed wth the co-
ector of nterna revenue (see secton 17.16 of these reguatons), but It sha
be supported by separate schedues for each contract or subcontract nvoved
showng tota contract prces, costs of performance and pertnent facts reatve
thereto, together wth a summarzed computaton of the defcency n proft or
net oss. The defcency In proft or net oss camed s sub|ect to verfcaton
and ad|ustment. s to preservaton of books and records, see secton 17.14 of
these reguatons. defcency n proft or net oss sustaned on contracts and
subcontracts competed wthn one ncome-ta abe year may not be consdered
In computng a net oss or defcency n proft sustaned on contracts and sub-
contracts competed wthn another ncome-ta abe year.
The provsons of ths secton of the reguatons may be ustrated by the
foowng e ampes:
ampe (1): or the caendar year 1939 the Corporaton, whch keeps
ts books and makes ts edera ncome ta returns on a caendar year bass,
sustaned a net oss of 50,000 upon a contracts and subcontracts comng
wthn the scope of the ct whch were entered nto for the constructon or
manufacture of any compete nava vesse or any porton thereof and were
competed wthn the caendar year 1939. or the caendar year 1940 the
Corporaton had a net proft of 30,000 upon a such contracts and subcontracts
competed wthn the year 1940. It aso had a net proft of 10,000 upon other
contracts competed wthn that year, a such contracts beng for nava arcraft
comng wthn the scope of the ct or the caendar year 1941 the corpora-
ton had a net proft of 25,000 upon contracts competed wthn that year. The
net oss of 50,000 sustaned n 1939 may be taken as a credt aganst the net
proft of 30,000 reazed n 1940 upon the contracts for the constructon or
manufacture of compete nava vesses or portons thereof competed wthn that
year but the e cess of 20,000 ( 50,000 mnus 30,000) may not be taken as a
credt n computng the e cess proft reazed upon the other contracts competed
n 1940 at a net proft of 10,000 or as a credt In computng the e cess proft
upon the contracts competed wthn the year 1941 at a net proft of 25,000.
ampe (2): or the caendar year 1939 the Corporaton, whch keeps ts
books and makes Its edera Income ta returns on a caendar year bass, sus-
taned a net oss of 10,000 and a defcency n proft of 35,000 upon a contracts
and subcontracts for nava arcraft and portons thereof comng wthn the scope
of the ct and competed wthn that year. On a contracts and subcontracts
for nava arcraft comng wthn the scope and competed wthn the caendar
year 1940 the Corporaton reazed a net proft whch was 25,000 n e cess of
12 per cent of the tota contract prces of such contracts and subcontracts. On
a contracts and subcontracts for nava arcraft comng wthn the scope of the
ct and competed wthn the caendar year 1941 the Corporaton reazed a
net proft whch was 20,000 n e cess of 12 per cent of the tota contract prces
of such contracts. The net oss of 10,000 and defcency n proft of 35,000 (or
a tota of 45,000) sustaned n 1939 wth respect to contracts and subcontracts
for nava arcraft competed wthn that year may be taken as a credt to the
e tent of 25,000 In computng the e cess proft on the contracts and subcontracts
for nava arcraft competed n 1940. The remander of such net oss and such
defcency n proft ( 45,000 mnus 25,000 or 20,000) may be taken as a credt n
computng the e cess proft reazed on the contracts and subcontracts for nava
arcraft competed n the year 1941.
Seo. 17.11. Credt for edera ncome ta es. or the purpose of computng
the amount of e cess proft to be pad to the Unted States, a credt Is aowabe
aganst the e cess proft for the amount of edera Income ta es pad or reman-
ng to be pad on the amount of such e cess proft. The edera ncome ta es
n respect of whch ths credt Is aowabe ncude the ncome ta es mposed by
Ttes I and I of the Revenue ct of 193 , and Chapter 1 and Subchapter of
Chapter 2 of the Interna Revenue Code, and the e cess-profts ta es mposed by
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41
secton 602 of the Revenue ct of 193 , and Subchapter of Chapter 2 of the
Interna Revenue Code. Ths credt s aowabe for these ta es ony to the
e tent that t s affrmatvey shown that they have been fnay determned and
pad or reman to be pad and that they were mposed upon the e cess prvft
aganst whch the credt s to be made. In case such a credt has been aowed
and the amount of edera ncome ta es mposed upon the e cess proft s rede-
termned, the credt prevousy aowed sha be accordngy ad|usted.
Seo. 17.12. aure of contractor to requre agreement by subcontractor.
very contract or subcontract comng wthn the scope of the ct s requred
by the ct to contan, among other thngs, an agreement by the contractng
party to make no subcontract uness the subcontractor agrees
(a) To make a report, as descrbed n the ct, under oath to the Secretary
of the Navy upon the competon of the subcontract
(6) To pay nto the Treasury e cess proft, as determned by the Treasury
Department, n the manner and amounts specfed n the ct
(c) To make no subdvson of the subcontract for the same artce or artces
for the purpose of evadng the provsons of the ct
( Z) That the manufacturng spaces and books of ts own pant, affates,
and subdvsons sha at a tmes be sub|ect to nspecton and audt as provded
In the ct,
If a contractng party enters nto a subcontract wth a subcontractor who
fas to make such agreement, such contractng party sha, n addton to Its
abty for e cess proft determned on contracts or subcontracts performed
by t, be abe for any e cess proft determned to be due the Unted States
on the subcontract entered nto wth such subcontractor. In such event, how-
ever, the e cess proft to be pad to the Unted States n respect of the sub-
contract entered nto wth such subcontractor sha be determned separatey
from any contracts or subcontracts performed by the contractng party enterng
nto the subcontract wth such subcontractor.
Sso. 17.13. vason of e cess proft. Secton 3 of the ct provdes that the
contractng party sha agree to make no subdvsons of any contract or sub-
contract for the same artce or artces for the purpose of evadng the pro-
vsons of the ct. If any such subdvson or subcontract s made t sha
consttute a voaton of the agreement provded for n the ct, and the
cost of competng a contract or subcontract by a contractng party whch
voates such agreement sha be determned In a manner necessary ceary to
refect the true e cess proft of such contractng party.
Sec. 17.14. ooks of account and records. It s recognzed that no unform
method of accountng can be prescrbed for a contractng partes sub|ect to the
provsons of the ct. ach contractng party s requred by aw to make a
report of ts true proft and e cess proft. Such party must, therefore, mantan
such accountng records as w enabe t to do so. See secton 17.9 of these
reguatons. mong the essentas are the foowng:
(1) The proft or oss upon a partcuar contract or subcontract sha be
accounted for and fuy e paned n the books of account separatey on each
(2) ny cost accountng methods, however standard they may be and regardess
of ong contnued practce, sha be controed by, and be n accord wth, the ob|ec-
tves and purposes of the ct and of any reguatons prescrbed thereunder.
(3) The accounts sha ceary dscose the nature and amount of the dffer-
ent tems of cost of performng a contract or subcontract
In cases where t has been the custom prory to use so-caed norma
rates of overhead e pense or admnstratve e penses, or standard or nor-
ma prces of matera or abor charges, no ob|ecton w be made to the use
temporary durng the perod of performng the contract or subcontract of
such methods n chargng the contract or subcontract, f the method of ac-
countng empoyed s such as ceary to refect. In the fna determnaton
upon the books of account, the actua proft derved from the performance of
the contract or subcontract and f the necessary ad|ustng entres are entered
upon the books and they e pan n fu deta the revsons necessary to accord
wth the facts. s to the eements of cost, see secton 17.9 of these reguatons.
books, records, and orgna evdences of costs (ncudng, for e ampe,
producton orders, bs or schedues of materas, purchase requstons, pur-
chase orders, vouchers, requstons for materas, standng e pense orders,
nventores, abor tme cards, pay ros, cost dstrbuton sheets) pertnent to
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419
Msc.
the determnaton of the true proft, e cess proft, defcency In proft, or net
oss from the performance of a contract or subcontract sha be kept at a
tmes avaabe for Inspecton by Interna-revenue offcers, and sha be care-
fuy preserved and retaned so ong as the contents thereof may become mate-
ra n the admnstraton of the ct Ths provson Is not confned to books,
records, and orgna evdences pertanng to tems whch may be consdered
to be a part of the cost of performng a contract or subcontract. It s app-
cabe to a books, records, and orgna evdences of costs of each pant, branch,
or department nvoved n the performance of a contract or subcontract or n the
dstrbuton of costs to the contract or subcontract
Sec. 17.15. Report to Secretary of the Navy. Upon the competon of a con-
tract or a subcontract comng wthn the scope of the ct and these reguatons,
the contractng party s requred to make a report, under oath, to the Secretary
of the Navy. s to the date of competon of a contract or subcontract, see
secton 17.5 of these reguatons. The ct requres that such report sha be In
the form prescrbed by the Secretary of the Navy and sha state the tota contract
prce, the cost of performng the contract, the net ncome from such contract, and
the per centum such ncome bears to the contract prce. The contractng party
sha aso ncude as a part of such report a statement showng
(1) The manner n whch the Indrect costs were determned and aocated
to the cost of performng the contract or subcontract (see secton 17.9 of these
reguatons)
(2) The name and address of every subcontractor wth whom a subcontract
was made, the ob|ect of such subcontract, the date when competed and the
amount thereof and
(3) The name and address of each affate or other organzaton, trade or
busness owned or controed drecty or ndrecty by the same nterests as
those who so own or contro the contractng party, together wth a statement
showng n deta a transactons whch were made wth such affate or other
organzaton, trade or busness and are pertnent to the determnaton of the
e cess proft
copy of the report requred to be made to the Secretary of the Navy s
requred to be transmtted by the contractng party to the Secretary of the
Treasury. Such copy sha not be transmtted drecty to the Secretary of the
Treasury but sha be fed as a part of the annua report See secton 17.16
of these reguatons.
Sec. 17.16. nnua reportt for ncome-ta abe years. (a) Oenera requre-
ments. very contractng party competng a contract or subcontract wthn
the contractng party s ncome-ta abe year endng after pr 3, 1030, sha
fe, wth the coector of nterna revenue for the coecton dstrct n whch
the contractng party s edera Income ta return Is requred to be fed,
annua reports on the prescrbed forms of the proft and e cess proft on a
contracts and subcontracts comng wthn the scope of the ct If any con-
tracts or subcontracts so competed by the contractng party were entered nto
for the constructon or manufacture of any compete nava vesse or any por-
ton thereof, the proft and e cess proft on a such contracts and subcontracts
competed wthn the Income-ta abe year endng after pr 3, 1939, sha be
computed n accordance wth the provsons of secton 17.6 of these reguatons.
If any contracts or subcontracts so competed by the contractng party were
entered nto for the constructon or manufacture of any compete nava ar-
craft or any porton thereof, the proft and e cess proft on a such contracts
and subcontracts competed wthn the ncome-ta abe year endng after pr
3, 1930, sha be computed n accordance wth the provsons of secton 17.7 of
these reguatons. There sha be Incuded as a part of the annua report a
statement, preferaby n coumnar form, showng separatey for each contract
or subcontract competed by the contractng party wthn the ncome-ta abe
year and covered by the report, the tota contract prce, the cost of performng
the contract or subcontract, and resutng proft or oss on each contract or
subcontract together wth a summary statement showng n deta the com-
putaton of the net proft or net oss upon each group of contracts and subcon-
tracts covered by the report and the amount of the e cess proft, f any, wth
respect to each group of contracts and subcontracts covered by the report
copy of the report made to the Secretary of the Navy (see secton 17.15 of
these reguatons) wth respect to each contract or subcontract covered n the
annua report sha be fed as a part of such annua report In case the ncome-
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420
ta abe year of the contractng party Is a perod of ess than 12 months (see
secton 17.1 of these reguatons), the reports requred by ths secton sha be
made for snch perod and not for a fu year.
(6) Tme for fng annua reports. nnua reports of contracts and subcon-
tracts competed by a contractng party wthn an ncome-ta abe year endng
after pr 3, 1939, sha be fed on or before the 15th day of the nnth month
foowng the cose of the contractng party s Income-ta abe year. It s m-
portant that the contractng party render on or before the due date annua reports
as neary compete and fna as t s possbe for the contractng party to prepare.
n e tenson of tme granted the contractng party for fng Its edera ncome
ta return does not serve to e tend the tme for fng the annua reports requred
by ths secton. uthorty consstent wth authorzatons for grantng e tensons
of tme for fng edera Income ta returns s hereby deegated to the varous
coectors of Interna revenue for grantng e tensons of tme for fng the reports
requred by ths secton. ppcaton for e tensons of tme for fng sucb re-
ports shoud be addressed to the coector of nterna revenue for the dstrct n
whch the contractng party fes ts edera ncome ta returns and must con-
tan a fu recta of the causes for the deay.
Sm 17.17. Payment of e cess proft abty. The amount of the e cess proft
abty to be pad to the Unted States sha be pad on or before the due date
for tng the report wth the coector of Interna revenue. See secton 17.16 o
these reguatons. t the opton of the contractng party, the amount of the
e cess proft abty may be pad In four equa Instaments nstead ot n I
snge payment, n whch case the frst Instament s to be pad on or before the
date prescrbed for the payment of the e cess proft as a snge payment the
second Instament on or before the 15th day of the thrd month, the thrd n-
stament on or before the 15th day of the s th month, and the fourth nsta-
ment on or before the 15th day of the nnth month, after such date.
Sec. 17.1 . Labty of surety. The surety under contracts entered nto after
the amendment of secton 3(b) of the ct on une 25, 1936, sha not be abe for
payment of e cess proft due the Unted States n respect of such contracts.
Seo. 17.19. Determnaton of abty for e cess proft, nterest, and peta-
tes assessment, coecton, payment, refunds. The duty of determnng the
correct amount of e cess proft abty on contracts and subcontracts comng
wthn the scope of the ct Is upon the Commssoner of Interna Revenue.
Under secton 3(b) of the ct, as amended, and secton 651 of the Interna
Revenue Code, a provsons of aw (ncudng the provsons of aw reatng
to nterest, penates, and refunds) appcabe wth respect to the ta es mposed
by Tte I of the Revenue ct of 1934 and not Inconsstent wth secton 3 of
the ct are appcabe wth respect to the assessment, coecton, or payment
of e cess profts on contracts and subcontracts comng wthn the scope of the
ct and to refunds of overpayments of profts nto the Treasury under the
ct Cams by a contractng party for the refund of an amount of e cess
proft, nterest, penates, and addtons to such e cess proft sha conform to
the genera requrements prescrbed wth respect to cams for refund of
overpayments of ta es Imposed by Tte I of the Revenue ct of 1034 and,
f fed on account of any addtona costs Incurred pursuant to guarantee
provsons In a contract, sha be suppemented by a statement under oath
showng the amount and nature of such costs and a facts pertnent thereto.
dmnstratve procedure for the determnaton, assessment, and coecton
of e cess proft abty under secton 3 of the ct, sectons 650 and 651 of
the Interna Revenue Code, and these reguatons, and the e amnaton of
reports and cams In connecton therewth w be prescrbed from tme to
tme by the Commssoner of Interna Revenue.
Sbc. 17.20. ppcabty of Treasury Decson 4713, as amended. Treasury
Decson 4723, approved December 31, 1936, by the ctng Secretary of the
Treasury and approved anuary 6, 1937, by the ctng Secretary of the Navy
(C. . 1937-1, 519), as amended by Treasury Decson 4741, approved une t
1937, by the ctng Secretary of the Treasury and approved une 3, 1937, by
the Secretary of the Navy (C. . 1937-1, 531), as further amended by Treasury
Decson 4 61, approved September 16, 193 , by the ctng Secretary of the
Treasury and approved September 19, 193 , by the ctng Secretary of the
Navy (C. . 193 -2, 4 0) (Part 5 of Tte 26, Code of edera Reguatons ,
and as further amended by Treasury Decson 4 97, approved pr 5, 1939,
by the ctng Secretary of the Treasury and approved pr 24, 1939, by the
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421
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ctng Secretary of the Navy (C. . 1939-1 (Part 1), 404), s hereby superseded
to the e tent nconsstent wth the foregong reguatons. Treasury Decson
4723, as amended, sha reman n fu force and effect wth respect to a contracts
nnd subcontracts competed pror to the contractng party s frst ncome-ta abe
year endng after pr 3, 1930.
arod N. Graves,
pproved une 1G, 1939.
ohn W. anes,
pproved une 23, 1939.
Chares dson,
ctng Secretary of the Navy.
( ed wth the Dvson of the edera Regster une 24, 1939, 12.43 p. m.)
1939-49-10114
I. T. 333
orm of agreement to be used by a subcontractor sub|ect to
secton 3 of the nson ct, as amended.
dvce s requested reatve to the form of agreement to be
used by a subcontractor sub|ect to secton 3 of the nson ct, as
amended.
Partcuar nqury s made as to (1) whether, n the case of a cor-
poraton, the agreement to be bound by the provsons of secton 3
of the nson ct, as amended, shoud take the form of a wrtten
acknowedgment sgned by a propery consttuted offcer of the sub-
contractor, or whether mere performance under a subcontract s
suffcent for the purpose of the statute and (2) whether the use of a
rubber stamp paced upon a purchase order acknowedgment form
and ntaed by a cerk n the subcontractor s organzaton woud
be consdered an adequate form of agreement.
The form of the agreement s not matera but there must be an
agreement of record by the subcontractor to compy wth the pre-
scrbed stpuatons. or e ampe, the amount of the subcontract
award shoud be shown and t shoud be stated that the subcontractor
agrees to the provsons of secton 3 of the nson ct, as amended.
In eu of a forma agreement between the prme contractor and
the subcontractor, propery e ecuted by offcers of both contractng
partes (under sea where necessary), the ureau w nterpose no
ob|ecton to the use of a rubber stamp mpresson, propery authent-
cated, paced by an offcer or empoyee of the subcontractor upon the
purchase order of the prme contractor whch ceary ndcates an
acceptance of the order and the agreement of the subcontractor to be
bound by the provsons of secton 3 of the nson ct, as amended.
It shoud be understood, however, that the queston of whether
each order receved by the subcontractor from the prme contractor
n an amount not e ceedng 10,000 s an actua bona fde separate
and dstnct subcontract, and not a subdvson made for the purpose
of evadng the provsons of secton 3 of the nson ct, as amended,
must be determned upon the utmate fndngs and the partcuar
facts n each case. (See I. T. 2930, C. . I -2, 533 (1935).)
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1939-27-9906
T.D.4909
TITL 26 INT RN L R NU . C PT R L SU C PT R , P RT 19.
C SS PRO ITS ON RMY CONTR CTS OR IRCR T.
Reguatons under secton 14 of the ct of pr 3,1939, and other
provsons.
Offce of the Secretary of the Treasury,
Washngton, D. C.
War Department,
Offce of the Secretary of War,
Washngton, D. C.
To Offcers and mpoyees of the Treasury Department, the War
Department, ana Others Concerned:
Tabe of Contents.
Secton.
16.0. Introductory.
16.1. Defntons.
16.2. Contracts and subcontracts under whch e cess proft abty may be
ncurred.
16.3. Contracts or subcontracts for scentfc equpment
16.4. Competon of contract defned.
16.5. Manner of determnng abty.
16.6. Computaton of e cess proft abty.
16.7. Tota contract prce.
16. . Cost of performng a contract or subcontract.
16.9. Credt for net oss or for defcency n proft n computng e cess proft.
16.10. Credt for edera ncome ta es.
16.11. aure of contractor to requre agreement by subcontractor.
16.12. vason of e cess proft
16.13. ooks of account and records.
16.14. Report to Secretary of War.
16.15. nnua reports for ncome-ta abe years.
16.16. Payment of e cess proft abty.
16.17. Labty of surety.
16.1 . Determnaton of abty for e cess proft, nterest and penates assess-
ment, coecton, payment refunds.
Secton 16.0. Introductory. (a) Secton 14 of the ct entted n
ct to provde more effectvey for the natona defense by carryng
out the recommendatons of the Presdent n hs message of anuary
12, 1939, to the Congress, approved pr 3, 1939 (Pubc, No. 1 ,
Seventy-s th Congress, frst sesson (C. . 1939-1), (Part 1), 430),
provdes:
Sec. 14. the provsons of secton 3 of the ct of March 27, 1934, as
amended (4 Stat 505 49 Stat. 1926), and as amended by ths secton sha
be appcabe wth respect to contracts for arcraft or any porton thereof for
the rmy to the same e tent and n the same manner that such provsons are
appcabe wth respect to contracts for arcraft or any porton thereof for the
Navy: Provded, That the Secretary of War sha e ercse a functons under
such secton wth respect to arcraft for the rmy whch are e ercsed by the
Secretary of the Navy wth respect to arcraft for the Navy: Provded further.
That secton 3b of the ct of March 27, 1934 (4 Stat. 505), as amended (49
Stat. 1926: 34 U. S. C. Supp. I , 496), s hereby further amended by nsertng n
the frst sentence after the words n e cess of 10 per centum of the tota
contract prces the words for the constructon and/or manufacture of any
compete nava vesse or porton thereof, and n e cess of 12 per centum of the
tota oontract prces for the constructon and/or manufacture of any compete
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arcraft or porton thereof by Insertng n the frst provso after the words
That If there s a net oss on a such contracts or subcontracts the words
for the constructon and/or manufacture of any compete nava vesse or por-
ton thereof and by nsertng at the end of the frst provso after the words
Income ta abe year a comma and the words nnd that f there s a net oss,
or a net proft ess than 12 per centum, as aforesad on a such contracts or
subcontracts for the constructon and/or manufacture of any compete arcraft
or porton thereof competed by the partcuar contractor or subcontractor wthn
any Income ta abe year, such net oss or defcency n proft sha be aowed
as a credt n determnng the e cess proft, f any, durng the ne t succeedng
four ncome ta abe years, and that the method of ascertanng the amount of
e cess proft, Intay f ed upon sha be determned on or before une 30, 1939 :
Provded further, That when arcraft are procured by the Secretary of War
as a resut of compettve bds requrng the submsson of sampe arcraft wth
bd, the Secretary s authorzed, In hs dscreton, to purchase sampe ar-
craft of compettors to whom an award Is not made, not more than one each
from not more than three such compettors, n order of mert, at prces not
e ceedng 75, 60, and 50 per centum, respectvey, of the cost appcabe n the
opnon of the Secretary to the deveopment and manufacture of such sampe
arcraft.
(b) Secton 3 of the ct entted n ct to estabsh the compos-
ton of the Unted States Navy wth respect to the categores of vesses
mted by the treates sgned at Washngton, ebruary 6, 1922, and at
London, pr 22, 1930, at the mts prescrbed by those treates to
authorze the constructon of certan nava vesses and for other pur-
poses, approved March 27, 1934 (4 Stat., 505 34 U. S. C, 496),
as amended by the ct of une 25, 1936 (49 Stat., 1926 34 U. S. C,
Sup. I , 496), and as further amended by the ct of pr 3, 1939
(Pubc, No. 1 , Seventy-s th Congress, frst sesson C. . 1939-1
(Part 1), 430), reads as foows:
Sbo. 3. The Secretary of the Navy Is hereby drected to submt annuay to
the ureau of the udget estmates for the constructon of the foregong vesses
and arcraft and there s hereby authorzed to be approprated such sums as
may be necessary to carry nto effect the provsons of ths ct: Provded, That
no contract sha be made by the Secretary of the Navy for the constructon
and/or manufacture of any compete nava vesse or arcraft, or any porton
thereof, heren, heretofore, or hereafter authorzed uness the contractor agrees
(a) To make a report, as herenafter descrbed, under oath, to the Secretary
of the Navy upon the competon of the contract
(b) To pay Into the Treasury proft, as herenafter provded sha be deter-
mned by the Treasury Department, n e cess of 10 per centum of the tota
contract prces for the constructon and/or manufacture of any compete nava
vesse or porton thereof, and n e cess of 12 per centum of the tota contract
prces for the constructon and/or manufacture of any compete arcraft or
porton thereof, of such contracts wthn the scope of ths secton as are com-
peted by the partcuar contractng party wthn the ncome ta abe year, such
amount to become the property of the Unted States, but the surety under such
contracts sha not be abe for the payment of such e cess proft: Provded,
That f there Is a net oss on a such contracts or subcontracts for the con-
structon and/or manufacture of any compete nava vesse or porton thereof
competed by the partcuar contractor or subcontractor wthn any ncome
ta abe year, such net oss sha be aowed as a credt In determnng the
e cess proft, f any, for the ne t succeedng ncome ta abe year, and that f
there s a net oss, or a net proft ess than 12 per centum, as aforesad on a
such contracts or subcontracts for the constructon and/or manufacture of any
compete arcraft or porton thereof competed by the partcuar contractor
or subcontractor wthn any Income ta abe year, such net oss or defcency
n proft sha be aowed as a credt n determnng the e cess proft, If any,
durng the ne t succeedng four Income ta abe years, and that the method
of ascertanng the amount of e cess proft, ntay f ed upon sha be deter-
mned on or before une 30, 1939: Provded further. That f such amount s
not vountary pad the Secretary of the Treasury sha coect the same under
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the usua methods empoyed under the nterna-revenue aws to coect edera
ncome ta es: Provded further, That a provsons of aw (ncudng penates)
appcnbe wth respect to the ta es mposed by Tte I of the eveoue ct
of 1934, and not nconsstent wth ths secton, sha be appcabe wth respect
to the assessment, coecton, or payment of e cess profts to the Treasury a
provded by ths secton, and to refunds by the Treasury of overpayments of
e cess profts nto the Treasury: nd provded further, That ths secton sha
not appy to contracts or subcontracts for scentfc equpment used for com-
muncaton, target detecton, navgaton, and fre contro as may be so desgnated
by the Secretary of the Navy, and the Secretary of the Navy sha report
annuay to the Congress the names of such contractors and subeontractors
affected by ths provson, together wth the appcabe contracts and the amount
thereof: nd provded further, That the ncome-ta abe years sha be socb
ta abe years begnnng after December 31, 1935, e cept that the above provsos
reatng to the assessment, coecton, payment, or refundng of e cess proft
to or by the Treasury sha be retroactve to March 27, 1934.
(c) To make no subdvsons of any contract or subcontract for the same
artce or artces for the purpose of evadng the provsons of ths ct, but
any subdvson of any contract or subcontract nvovng an amount In e cess
of 10,000 sha be sub|ect to the condtons heren prescrbed.
(d) That the manufacturng spaces and books of ts own pant, affates, and
subdvsons sha at a tmes be sub|ect to nspecton and audt by any person
desgnated by the Secretary of the Navy, the Secretary of the Treasury, and/or
by a duy authorzed commttee of Congress.
(e) To make no subcontract uness the subcontractor agrees to the foregong
condtons.
The report sha be n form prescrbed by the Secretary of the Navy and
sha state the tota contract prce, the cost of performng the contract, the
net ncome, and the per centum such net ncome bears to the contract prce.
copy of such report sha be transmtted to the Secretary of the Treasury
for consderaton n connecton wth the edera ncome ta returns of the
contractor for the ta abe year or years concerned.
The method of ascertanng the amount of e cess proft to be pad nto the
Treasury sha be determned by the Secretary of the Treasury n agreement
wth the Secretary of the Navy and made avaabe to the pubc. The method
ntay f ed upon sha be so determned on or before une 30, 1934: Provded,
That n any case where an e cess proft may be found to be owng to the Unted
States n consequence hereof, the Secretary of the Treasury sha aow credt
for any edera ncome ta es pad or remanng to be pad upon the amount
of such e cess proft.
The contract or subcontracts referred to heren are mted to those where
the award e ceeds 10,000.
Pursuant to the authorty prescrbed by secton 14 of the ct of
pr 3, 1939 (Pubc, No. 1 , Seventy-s th Congress, frst sesson),
and secton 3 of the ct of March 27, 1934, as amended, the foowng
reguatons are hereby prescrbed:
Secton 16.1. Defntons. s used In these reguatons the term
(a) ct means the ct of pr 3, 1930 (Pubc, No. 1 , Seventy-s th Con-
gress, frst sesson C. . 1939-1 (Part 1), 430), together wth the appcabe
provsons of secton 3 of the ct of March 27, 1934 ( 4 Stat. 505 34 T . S. C,
496), as amended by the ct of une 25, 1936 (49 Stat., 1926 34 U. S. C,
Sup. I , 496), and as further amended by the ct of pr 3, 1939 (Pubc
No. 1 , Soventy-s th Congress, frst sesson: C. . 1939-1 (Part 1), 430).
(6) Person Incudes an ndvdua, a corporaton, a partnershp, a trust
or estate, a |ont-stock company, an assocaton, or a syndcate, group, po .
ont venture or other unncorporated organzaton or group, through or by
means of whch any busness, fnanca operaton, or venture s carred on.
(c) Contract means an agreement made by authorty of the Secretary of
War for the constructon or manufacture of any compete arcraft or any porton
thereof for the rmy.
(d) Contractor means a person enterng nto a drect contract wth the
Secretary of War or hs duy authorzed representatve.
(c) Subcontract means an agreement entered nto by one person wth
another person for the constructon or manufacture of any compete arcraft
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or any porton thereof for the rmy, the prme contract for such arcraft or
porton thereof havng been entered Into between a contractor and the Secretary
cf War or hs duy authorzed representatve.
(f) Subcontractor means any person other than a contractor enterng Into
a subcontract.
(g) Contractng party means a contractor or subcontractor as the case
may be.
(ft) Contract prce or tota contract prce means the amount or tota
amount to be receved under a contract or subcontract as the case may be.
(() Income-ta abe year means the caendar year, the fsca year endng
durng such caendar year, or the fractona part of such caendar or fsca year,
upon the bass of whch the contractng party s net ncome s computed and for
whch ts ncome ta returns are made for edera Income ta purposes.
Sec. 16.2. Contracts and subcontracts under whch e cess proft abty may
be ncurred. cept as otherwse provded wth respect to contracts or sub-
contracts for certan scentfc equpment (see secton 16.3 of these reguatons),
every contract awarded for an amount e ceedng 10,000 and entered Into
after the enactment of the ct of pr 3, 1939, for the constructon or manu-
facture of any compete arcraft or any porton thereof for the rmy, s sub|ect
to the provsons of the ct reatng to e cess proft abty. ny subcontract
made wth respect to such a contract and Invovng an amount n e cess of
10,000 s aso wthn the scope of the ct. If a contractng party paces orders
wth another party, aggregatng an amount n e cess of 10,000, for artces or
materas whch consttute a part of the cost of performng the contract or
subcontract, the pacng of such orders sha consttute a subcontract wthn
the scope of the ct, uness It Is ceary shown that each of the orders nvovng
10,000 or ess s a bona fde separate and dstnct subcontract and not a subd-
vson made for the purpose of evadng the provsons of the ct.
Seo. 16.3. Contracts or subcontracts for scentfc equpment. No e cess proft
abty Is ncurred upon a contract or subcontract entered nto after the enact-
ment of the ct of pr 3, 1039, If at the tme or pror to the tme such contract
or subcontract s made It s desgnated by the Secretary of War as beng e empt
under the provsons of the ct pertanng to scentfc equpment used for com-
muncaton, target detecton, navgaton, and fre contro.
Sec. 16.4. Competon of contract defned. The date of devery of the arcraft
or porton thereof covered by the contract or subcontract sha be consdered
the date of competon of the contract or subcontract uness otherwse deter-
mned |onty by the Secretary of War and the Secretary of the Treasury or
ther duy authorzed representatves. cept as otherwse provded In the
precedng sentence, the repacement of defectve parts of devered artces or
the performance of other guarantee work In respect of such artces w not
operate to e tend the date of competon. s to the treatment of the cost of
such work as a cost of performng a contract or subcontract, see secton 16. (h)
of these reguatons. s to a refund In case of ad|ustment due to any subse-
quenty ncurred addtona costs, see secton 16.1 of these reguatons. If a
contract or subcontract s at any tme canceed or termnated, t s competed
at the tme of the canceaton or termnaton.
Sec. 16.5. Manner of determnng abty. The frst step In the determna-
ton of the e cess proft to be pad to the Unted States by a contractng party
wth respect to contracts and subcontracts competed wthn an ncome-ta abe
year Is to ascertan the tota contract prces of a contracts and subcontracts
competed by the contractng party wthn the ncome-ta abe year. s to tota
contract prces, see secton 16.7 of these reguatons.
The second step s to ascertan the cost of performng such contracts and
subcontracts and to deduct such cost from the tota contract prces of such
contracts and subcontracts as computed n the frst step. See secton 16. of
these reguatons.
The amount remanng after such subtracton Is the amount of net proft or
net oss upon the contracts and subcontracts competed wthn the ncome-ta abe
year.
The thrd step, n case there s a net proft upon such contracts and subcon-
tracts, s to subtract from the amount of such net proft as computed In the
(1) n amount equa to 12 per cent of the tota contract prces of the contracts
and subcontracts competed wthn the Income-ta abe year
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(2) The amount of any net oss sustaned In a pror ncome-ta abe year and
aowabe as a credt n determnng the e cess proft for the ncome-ta abe year
(see secton 16.9 of these reguatons) and
(3) The amount of any defcency n proft sustaned In a pror ncome-ta abe
year and aowabe as a credt n determnng the e cess proft for the ncome-
ta abe year (see secton 16.9 of these reguatons).
for the ncome-ta abe year.
The fourth step s to ascertan the amount of credt aowed for edera n-
come ta es pad or remanng to be pad upon the amount of such e cess
proft (see secton 16.10 of these reguatons) and then subtract from the amount
of such e cess proft the amount of credt for edera ncome ta es.
The amount remanng after ths subtracton s the amount of e cess proft
to be pad to the Unted States by the contractng party for the ncome-ta abe
yetr.
Sec. 16.6. Computaton of e cess proft abty. The appcaton of the
provsons of secton 16.5 of these reguatons may be ustrated by the fo-
owng e ampe:
ampe: On September 1, 1939, the Corporaton whch keeps ts books and
makes ts edera ncome ta returns on a caendar year bass entered nto a
contract comng wthn the scope of the ct, the tota contract prce of whch
was 200,000. On March 10, 1940, the corporaton entered Into another such
competed wthn the caendar year 1940, the frst at a cost of 155,000 and the
second at a cost of 45,000. Durng the year 1939 the Corporaton sustaned
a net oss of 2,500 and a defcency n proft of 1,000 on contracts and subcon-
tracts entered nto after pr 3, 1939, and competed wthn the ncome-ta abe
year 1939. or purposes of the edera ncome ta , the net ncome of the
Corporaton for the year 1940 amounted to 96,000, whch ncuded the tota
net proft of 40,000 upon the two contracts. or the year 1940 the Corpora-
ton pad a edera ncome ta of 13,240 upon ts entre net ncome. The
e cess proft abty s 6,700, computed as foows:
Contract No. 1 200, 000
240.000
Contract No. 1 155.000
200,000
240,000) 2 ,000
Defcency n proft from 1939 1,000
32,300
cess proft for year 1940 7,700
Less: Credt for edera Income ta es ( edera ncome ta on 7,700
at the rates for 1940) 1,000
mount of e cess proft payabe to the Unted States 6,700
Sec. 16.7. Tota contract prce. The tota contract prce of a partcuar con-
tract or subcontract (see secton 16.1 of these reguatons) may be receved n
money or ts equvaent. If somethng other than money s receved, ony the
far market vaue of the thng receved, at the date of recept, s to be n-
cuded n determnng the amount receved. onuses earned for betterng
performance and penates ncurred for faure to meet the contract guaran-
tees are to be regarded as ad|ustments of the orgna contract prce. Trade
or other dscounts granted by a contractng party n respect of a contract
or subcontract performed by such party are aso to be deducted n determn-
ng the true tota contract prce of such contract or subcontract.
Sec. 16. . Cost of performng a contract or subcontract. (a) Genera rue.
The cost of performng a partcuar coutract or subcontract sha be the sum
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of (1) the drect costs, Incudng theren e pendtures for materas, drect
abor and drect e penses, ncurred by the contractng party n performng
the contract or subcontract and (2) the proper proporton of any ndrect
costs (ncudng theren a reasonabe proporton of management e penses) n-
cdent to and necessary for the performance of the contract or subcontract.
(6) ements of cost. No defntons of the eements of cost may be stated
whch are of nvarabe appcaton to a contractors and subcontractors. In
genera, the eements of cost may be defned for purposes of the ct as foows:
(1) Manufacturng cost, whch s the sum of factory cost (see paragraph (c)
of ths secton) and other manufacturng cost (see paragraph (d) of ths secton)
(2) Msceaneous drect e penses (see paragraph (e) of ths secton)
(3) Genera e penses, whch are the sum of ndrect engneerng e penses,
usuay termed engneerng overhead (see paragraph (f) of ths secton), and
e penses of dstrbuton, servcng, and admnstraton (see paragraph (g) of ths
secton) and
(4) Guarantee e penses (see paragraph (ft) of ths secton),
(c) actory cost. actory cost s the sum of the foowng:
(1) Drect materas. Materas, such as those purchased for stock and sub-
sequenty Issued for contract operatons and those acqured under subcon-
tracts, whch become a component part of the fnshed product or whch are
used drecty In fabrcatng, convertng or processng such materas or parts.
(2) Drect productve abor. Productve abor, usuay termed shop abor,
whch s performed on and Is propery chargeabe drecty to the artce manu-
factured or constructed pursuant to the contract or subcontract, but whch ord-
nary does not Incude drect engneerng abor (see subparagraph (3) of ths
paragraph).
(3) Drect engneerng abor. The compensaton of professona engneers and
other techncsts (ncudng reasonabe advsory fees), and of draftsmen, prop-
ery chargeabe drecty to the cost of the contract or subcontract.
(4) Msceaneous drect factory charges. Items whch are propery charge-
abe drecty to the factory cost of performng the contract or subcontract but
whch do not come wthn the cassfcatons n subparagraphs (1), (2), and (3)
of ths paragraph, as for e ampe, royates whch the contractng party pays
to another party and whch are propery chargeabe to the cost of performng
the contract or subcontract (but see paragraph (d) of ths secton).
(5) Indrect factory e penses. Items, usuay termed factory overhead,
whch are not drecty chargeabe to the factory cost of performng the contract
or subcontract but whch are propery Incdent to and necessary for the per-
formance of the contract or subcontract and consst of the foowng:
( ) Labor. mounts e pended for factory abor, such as supervson and
Inspecton, cerca abor, tmekeepng, packng and shppng, stores suppy, serv-
ces of too crb attendants, and servces n the factory empoyment bureau, whch
are not chargeabe drecty to productve abor of the contract or subcontract
( ) Materas and suppes. The cost of materas and suppes for genera
use n the factory In current operatons, such as shop fue, ubrcants, heat-
treatng, patng, ceanng and anodzng suppes, nondurabe toos and gauges,
statonery (such as tme tckets and other forms), and bo ng and wrappng
materas.
(C) Servce e penses. actory e penses of a genera nature, such as those for
power, heat and ght (whether purchased or produced), ventaton and ar-
condtonng and operaton and mantenance of genera pant assets and factes.
(D) ed charges and obsoescence. Recurrng charges wth respect to prop-
erty used for manufacturng purposes of the contract or subcontract, such as
premums for fre and eevator nsurance, property ta es, rentas and aowances
for deprecaton of such property, Incudng mantenance and deprecaton of
reasonabe stand-by equpment and deprecaton and obsoescence of speca
equpment and factes necessary acqured prmary for the performance of
the contract or subcontract. In makng aowances for deprecaton, consdera-
ton sha be gven to the number and ength of shfts.
( ) Msceaneous ndrect factory e penses. Msceaneous factory e penses
not drecty chargeabe to the factory cost of performng the contract or sub-
contract, such as purchasng e penses ordnary and necessary e penses of re-
arrangng factes wthn a department or pant empoyees wefare e penses
premums or dues on compensaton nsurance empoyers payments to unem-
poyment, od age and soca securty edera and State funds not ncudng pay-
ments deducted from or chargeabe to empoyees or offcers pensons and re-
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42
trement payments to factory empoyees factory accdent compensaton (as to
sef-nsurance, see paragraph (g) of ths secton) but not ncudng any amounts
whch are not ncdent to servces, operatons, pant, equpment or factes
nvoved n the performance of the contract or subcontract
(d) Other manufacturng cost. Other manufacturng cost as used n para
graph (6) of ths secton ncudes tems of manufacturng costs whch are not
propery or satsfactory chargeabe to factory costs (see paragraph (c) o
ths secton) but whch upon a compete showng of a pertnent facta art
propery to be ncuded as a cost of performng the contract or subcontract, as
for nstance, payments of royates and amortzaton of the cost of desgns pur-
chased and patent rghts over ther usefu fe and deferred or unqu-
dated e permenta and deveopment charges. or e ampe, n case e per-
menta and deveopment costs have been propery deferred or captazed and
are amortzed n accordance wth a reasonaby consstent pan, a proper porton
of the current charge, determned by a ratabe aocaton whch s reasonabe
n consderaton of the pertnent facts, may be treated as a cost of perform
ng the contract or subcontract. In the case of genera e permenta and
deveopment e penses whch may be charged off currenty, a reasonabe port
thereof may be aocated to the cost of performng the contract or subcontract
If a speca e permenta or deveopment pro|ect s carred on n pursuance o
a contract, or n antcpaton of a contract whch s ater entered nto, and e
e pense s not treated as a part of genera e permenta and deveopment e -
penses or s not otherwse aowed as a cost of performng the contract, there
ceary appearng no reasonabe prospect of an addtona contract for the
type of artce nvoved, the entre cost of such pro|ect may be aowed as a
part of the cost of performng the contract.
(e) Msceaneous drect e penses. Msceaneous drect e penses as used
In paragraph (6) of ths secton ncude
(1) Cost of nstaaton and constructon. Cost of nstaaton and construc-
ton ncudes the cost of materas, abor and e penses necessary for the erecton
and nstaaton pror to the competon of the contract and after the devery
of the product or matera manufactured or constructed pursuant to the con-
tract or subcontract.
(2) Sundry drect e penses. Items of e pense whch are propery chargeabe
drecty to the cost of performng a contract or subcontract and whch do not
consttute guarantee e penses (see paragraph (ft) of ths secton) or drect
costs cassfed as factory cost or other manufacturng cost (see paragraphs
(c) and (d) of ths secton), such as premums on performance or other bonds
requred under the contract or subcontract State saes ta es mposed on the
contractng party freght on outgong shpments fees pad for wnd tunne and
mode basn tests demonstraton and test e penses crash nsurance prem-
ums traveng e penses. In order for any such tem to be aowed as a charge
drecty to the cost of performng a contract or subcontract, (1) a detaed record
sha be kept by the contractng party of a tems of a smar character, and
(2) no tem of a smar character whch s propery a drect charge to other
work sha be aowed as a part of any ndrect e penses n determnng the
proper proporton thereof chargeabe to the cost of performng the contract or
subcontract. s to aowabe ndrect e penses, see paragraphs (c)(5), (/)t
(g), and ( ) of ths secton.
(f) Indrect engneerng e penses. Indrect engneerng e penses, usuay
termed engneerng overhead, whch are treated n ths secton as a part of
genera e penses n determnng the cost of performng a contract or subcontract
(see paragraph (6) of ths secton), comprse the genera engneerng e pense
whch are Incdent to and necessary for the performance of the contract or sub-
contract, such as the foowng:
(1) Labor. Reasonabe fees of engneers empoyed n a genera consntn
capacty, and compensaton of empoyees for persona servces to the engneer-
ng department, such as supervson, whch s propery chargeabe to the con-
tract or subcontract, but whch s not chargeabe as drect engneerng ab r
(see paragraph (c) (3) of ths secton).
(2) Matera. Suppes for the engneerng department, such as paper and
nk for draftng and smar suppes.
( ) Msceaneous e penses. penses of the engneerng department
as ( ) mantenance and repar of engneerng equpment, and ( ) servces
purchased outsde of the engneerng department for bue prntng, drawng,
computng, and ke purposes.
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429
Msc.
(g) penses of dstrbuton, servcng, and admnstraton. penses of
dstrbuton, servcng, and admnstraton, whch are treated n ths secton
as a part of genera e penses n determnng the cost of performng a contract
or subcontract (see paragraph (6) of ths secton), comprehend the e penses
Incdent to and necessary for the performance of the contract or subcontract,
whch are ncurred n connecton wth the dstrbuton and genera servcng
of the contractng party s products and the genera admnstraton of the bus-
ness, such as
(1) Compensaton for persona servces of empoyees. The saares of the
corporate and genera e ecutve offcers and the saares and wages of admns-
tratve cerca empoyees and of the offce servces empoyees such as teephone
operators, |antors, ceaners, watchmen and offce equpment reparmen.
(2) ddng and genera seng e penses. ddng and genera seng e -
penses whch by reference to a the pertnent facts and crcumstances reason-
aby consttute a part of the cost of performng a contract or subcontract. The
treatment of bddng and genera seng e penses as a part of genera e penses
In accordance wth ths paragraph s n eu of any drect charges whch other-
wse mght be made for such e penses. The term bddng e penses as used
n ths secton ncudes a e penses n connecton wth preparng and submt-
tng bds.
(3) Genera servcng e penses. penses whch by reference to a the
pertnent facts and crcumstances reasonaby consttute a part of the cost of
performng a contract or subcontract and whch are ncdent to devered or
Instaed artces and are due to ordnary ad|ustments or mnor defects but
ncudng no Items whch are treated as a part of guarantee e penses (see
paragraph ( ) of ths secton) or as a part of drect costs, such as drect mate-
ras, drect abor, and other drect e pense.
(4) Other e penses. Msceaneous offce and admnstratve e penses, such
as statonery and offce suppes postage repar and deprecaton of offce
equpment contrbutons to oca chartabe or communty organzatons to the
e tent consttutng ordnary and necessary busness e penses empoyees we-
fare e penses premums and dues on compensaton nsurance empoyers
payments to unempoyment, od age, and soca securty edera and State funds
not ncudng payments deducted from or chargeabe to empoyees or offcers
pensons and retrement payments to admnstratve offce empoyees and acc-
dent compensaton to offce empoyees (as to sef-nsurance, see the foowng
subparagraph).
Sub|ect to the e cepton stated n ths subparagraph, n cases where a con-
tractng party assumes ts own nsurabe rsks (usuay termed sef-Insur-
ance ), osses and payments w be aowed In the cost of performng a con-
tract or subcontract ony to the e tent of the actua osses suffered or payments
Incurred durng, and In the course of, the performance of the contract or sub-
contract and propery chargeabe to such contract or subcontract. If, however,
a contractng party assumes ts own Insurabe rsks (a) for compensaton pad
to empoyees for n|ures receved n the performance of ther dutes, or (6) for
unempoyment rsks n States where nsurance s requred, there may be aowed
as a part of the cost of performng a contract or subcontract a reasonabe porton
of the charges set up for purposes of sef-nsurance under a system of account-
ng reguary empoyed by the contractng party, as determned by the Com-
mssoner of Interna Revenue, at rates not e ceedng the awfu or approved
rates of Insurance companes for such Insurance, reduced by amounts represent-
ng the acquston cost n such companes, provded the contractng party adopts
and consstenty foows ths method wth respect to sef-nsurance n connecton
wth a contracts and subcontracts subsequenty performed by hm.
owances for Interest on nvested capta are not aowabe as costs of
performng a contract or subcontract.
mong the tems whch sha not be ncuded as a part of the cost of per-
formng a contract or subcontract or consdered n determnng such cost, are
the foowng: ntertanment e penses dues and membershps other than of
reguar trade assocatons donatons e cept as otherwse provded above
osses on other contracts profts or osses from saes or e changes of capta
assets e tradordnary e penses due to strkes or ockouts fnes and penates
amortzaton of unreazed apprecaton of vaues of assets e penses, mante-
nance, and deprecaton of e cess factes (ncudng de and and budng,
de parts of a budng, and e cess machnery and equpment) vacated or
abandoned, or not adaptabe for future use n performng contracts or sub-
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430
contracts Increases In reserve accounts for contngences, repars, compensa-
ton Insurance (e cept as above provded wth respect to sef-nsurance), and
guarantee work edera and State ncome and e cess-profts ta es and sur-
ta es cash dscount earned up to 1 per cent of the amount of the purchase,
e cept that a dscounts on subcontracts sub|ect to the ct w be consdered
nterest ncurred or earned bond dscount or fnance charges premums for
fe nsurance on the ves of offcers ega and accountng fees n connecton
wth reorganzatons, securty ssues, capta stock ssues, and the prosecuton
of cams aganst the Unted States (ncudng ncome ta matters) ta es
and e penses on ssues and transfers of capta stock osses on nvestments
bad debts and e penses of coecton and e change.
In order that the cost of performng a contract or subcontract may be
accounted for ceary, the amount of any e cess profts repayabe to the Unted
States pursuant to the ct shoud not be charged to or ncuded n such cost
(ft) Guarantee e penses. Guarantee e penses ncude the varous tems
of factory cost, other manufacturng cost, cost of nstaaton and construc-
ton, ndrect engneerng e penses, and other genera e penses (see paragraphs
(c) to (g), ncusve, of ths secton) whch are ncurred after devery or
nstaaton of the artce manufactured or constructed pursuant to the par-
tcuar contract or subcontract and whch are ncdent to the correcton of
defects or defcences whch the contractng party s requred to make under the
guarantee provsons of the partcuar contract or subcontract. If the tota
amount of such guarantee e penses s not ascertanabe at the tme of fng
the report requred to be fed wth the coector of nterna revenue (see
secton 16.15 of these reguatons) and the contractng party ncudes any est-
mated amount of such e penses as part of the camed tota cost of performng
the contract or subcontract, such estmated amount sha be separatey shown
on the report and the reasons for camng such estmated amount sha accom-
pany the report but ony the amount of guarantee e penses actuay ncurred
w be aowed. If the amount of guarantee e penses actuay ncurred s
greater than the amount (f any) camed on the report and the contractng
party has made an overpayment of e cess proft, a refund of the overpayment
sha be made In accordance wth the provsons of secton 16.1 of these
reguatons. If the amount of guarantee e penses actuay ncurred s ess
than the amount camed on the report and an addtona amount of e cess
proft s determned to be due, the addtona amount of e cess proft sha be
assessed and pad n accordance wth the provsons of secton 16.1 of these
reguatons.
() Unreasonabe compensaton. The saares and compensaton for servces
whch are treated as a part of the cost of performng a contract or subcontract
ncude reasonabe payments for saares, bonuses, or other compensaton for
servces. s a genera rue, bonuses pad to empoyees (and not to offcers) n
pursuance of a reguary estabshed ncentve bonus system may be aowed as
a part of the cost of performng a contract or subcontract.
The test of aowabty Is whether the aggregate compensaton pad to each
ndvdua Is for servces actuay rendered ncdent to, and necessary for, the
performance of the contract or subcontract, and Is reasonabe. cessve or
unreasonabe payments whether In cash, stock, or other property ostensby as
compensaton for servces sha not be Incuded n the cost of performng a
contract or subcontract,
(/) ocaton of ndrect costs. No genera rue appcabe to a cases may
be stated for ascertanng the proper proporton of the ndrect costs to he
aocated to the cost of performng a partcuar contract or subcontract Such
proper proporton depends upon a the facts and crcumstances reatng to the
performance of the partcuar contract or subcontract Sub|ect to a requrement
that a tems whch have no reaton to the performance of the contract or
subcontract sha be emnated from the amount to be aocated, the foowng
methods of aocaton are outned as acceptabe n a ma|orty of cases:
(1) actory ndrect e penses. The aowabe ndrect factory e penses (see
paragraph (c) (5) of ths secton) sha ordnary be aocated or dstrbuted
to the cost of the contract or subcontract on the bass of the proporton whch
the drect productve abor (see paragraph (c) (2) of ths secton) attrbutabe
to the contract or subcontract bears to the tota drect productve abor of te
producton department or partcuar secton thereof durng the perod wthn
whch the contract or subcontract s performed, e cept that f the ndrect
factory e penses are ncurred In dfferent amounts and n dfferent proportons
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by the varous producng departments consderaton sha be gven to such
crcumstances to the e tent necessary to make a far and reasonabe deter-
mnaton of the true proft and e cse proft.
(2) ngneerng ndrect e penses. The aowabe ndrect engneerng e -
penses (see paragraph (/) of ths secton) sha ordnary be aocated or
dstrbuted to the cost of the contract or subcontract on the bass of the
proporton whch the drect engneerng abor attrbutabe to the contract or
subcontract (see paragraph (c) (3) of ths secton) bears to the tota drect
engneerng abor of the engneerng department or partcuar secton thereof
durng the perod wthn whch the contract or subcontract s performed. If
the e penses of the engneerng department are not suffcent n amount to re-
qure the mantenance of separate accounts, the engneerng ndrect costs may
be ncuded n the ndrect factory e penses (see paragraph (c) (5) of ths
secton) and aocated or dstrbuted to the cost of performng the contract or
subcontract as a part of such e penses, provded the proporton so aocated or
dstrbuted s proper under the facts and crcumstances reatng to the per-
formance of the partcuar contract or subcontract
(3) dmnstratve e penses (or overhead ). The aowabe e penses of
admnstraton (see paragraph (g) of ths secton) or other genera e penses
e cept Indrect engneerng e penses, bddng and genera seng e penses, and
genera servcng e penses sha ordnary be aocated or dstrbuted to the
cost of performng a contract or subcontract on the bass of the proporton
whch the sum of the manufacturng cost (see paragraph (6) of ths secton)
and the cost of nstaaton and constructon (see paragraph (e) of ths secton)
attrbutabe to the partcuar contract or subcontract bears to the sum of the
tota manufacturng cost and the tota cost of nstaaton and constructon
durng the perod wthn whch the contract or subcontract s performed.
(4) ddng, genera seng, and genera servcng e penses. The aowabe
bddng and genera seng e penses and genera servcng e penses (see para-
graph (g) (2) and (3) of ths secton) sha ordnary be aocated or dstrb-
uted to the cost of performng a contract or subcontract on the bass of
(0 The proporton whch the contract prce of the partcuar contract
or subcontract bears to the tota saes made (ncudng contracts or sub-
contracts competed) durng the perod wthn whch the partcuar contract
or subcontract s performed, or
(t) The proporton whch the sum of the manufacturng cost (see para-
graph (6) of ths secton) and the cost of nstaaton and constructon
(see paragraph (e) of ths secton) attrbutabe to the partcuar contract
or subcontract bears to the sum of the tota manufacturng cost and the
tota cost of nstaaton and constructon durng the perod wthn whch
the contract or subcontract s performed,
e cept that speca consderaton sha be gven to the reaton whch certan
casses of such e penses bear to the varous casses of artces produced by the
contractng party n each case n whch such consderaton s necessary n order
to make a far and reasonabe determnaton of the true proft and e cess proft.
See secton 16.13 of these reguatons.
Sec. 16.9. Credt for net ess or for defcency n proft n computng e cess
proft. The term net oss as used n the ct and as apped to contracts and
subcontracts comng wthn these reguatons means the amount by whch the
tota costs of performng a such contracts and subcontracts entered nto after
pr ,1939, and competed by a partcuar contractng party wthn the ncome-
ta abe year e ceeds the tota contract prces of such contracts and subcontracts.
s to the meanng of ncome-ta abe year, see secton 16.1 of these reguatons.
The term defcency n proft as used n the ct and as apped to con-
tracts and subcontracts comng wthn these reguatons means the amount by
whch 12 per cent of the tota contract prces of a such contracts and subcon-
tracts entered nto after pr 3, 1939, and competed by a partcuar contract-
ng party wthn the ncome-ta abe year e ceeds the net proft upon a such
contracts and subcontracts.
net oss or a defcency n proft sustaned by a contractng party for an
ncome-ta abe year s aowabe as a credt n computng the contractng
party s e cess proft on contracts and subcontracts comng wthn these regu-
atons and competed durng the four ne t succeedng ncome-ta abe years.
Credt for such a net oss or defcency n proft may be camed In the con-
tractng party s annua report of proft fed wth the coector of Interna
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432
revenue (see secton 16.15 of these reguatons), but t sha be supported by
separate schedues for each contract or subcontract Invoved showng tota
contract prces, costs of performance and pertnent facts reatve thereto, to-
gether wth a summarzed computaton of the net oss or defcency In proft
The net oss or defcency n proft camed s sub|ect to verfcaton and ad-
|ustment s to preservaton of books and records, see secton 16.13 of these
reguatons.
Net oss or defcency In proft sustaned on contracts and subcontracts com-
peted wthn one Income-ta abe year may not be consdered In computng
net oss or defcency In proft sustaned on contracts and subcontracts com
peted wthn another Income-ta abe year.
The provsons of ths secton may be ustrated by the foowng e ampe:
ampe: The Corporaton, whch keeps Its books and makes ts edend
Income ta returns on a caendar year bass, entered nto and competed con-
tracts for arcraft for the rmy comng wthn the scope of the ct as foows:
Contracts were competed wthn the caendar year 1939 on whch the Cor-
poraton sustaned a net oss of 30,000 and a defcency In proft of 10,000
contracts totang 175,000 were competed In 1940 at a cost of 155,000, the
Corporaton thereby reazng a net proft of 20,000 but sustanng a de-
fcency n proft of 1,000 (1. e., 12 per cent of 175,000, or 21,000, ess
20,000) contracts totang 400,000 were competed n 1941 at a cost of
300,000, or at a net proft of 100,000. fter deductng from the net proft
of 100,000 for the year 1941 the amount of 4 ,000 (1. e., 12 per cent of the
tota contract prces of 400,000), there remans 52,000 n e cess proft on
the contracts competed n the year 1941. The net oss of 30,000 and the
defcency n proft of 10,000 sustaned In 1939 and the defcency n proft
of 1,000 sustaned n 1940 may be deducted from such 52,000 In determnng
the amount of e cess proft payabe by the Corporaton for the year 1941
wth respect to the contracts competed In such year.
Sec. 16.10. Credt for edera ncome ta es. or the purpose of computng
the amount of e cess proft to be pad to the Unted States, a credt Is aow-
abe aganst the e cess proft for the amount of edera ncome ta es pad
or remanng to be pad on the amount of such e cess proft. The edera
ncome ta es n respect of whch ths credt s aowabe Incude the ncome
ta es mposed by Ttes I and I of the Revenue ct of 193 , and Chapter 1
and Subchapter of Chapter 2 of the Interna Revenue Code, and the e cess-
profts ta es Imposed by secton 602 of the Revenue ct of 193 and Sub-
chapter of Chapter 2 of the Interna Revenue Code. Ths credt s aow-
abe for these ta es ony to the e tent that It s affrmatvey shown that they
have been fnay determned and pad or reman to be pad and that they
were mposed upon the e cess proft aganst whch the credt s to be made.
In case such a credt has been aowed and the amount of edera ncome
ta es mposed upon the e cess proft s redetermned, the credt prevousy
aowed sha be ad|usted accordngy.
Sec. 16.11. aure of contractor to requre agreement by subcontractor.
very contract or subcontract comng wthn the scope of the ct and these regu-
atons s requred by the ct to contan, among other thngs, an agreement by
the contractng party to make no subcontract uness the subcontractor agrees
(a) To make a report, as descrbed n the ct, under oath to the Secretary of
War upon the competon of the subcontract
(6) To pay nto the Treasury e cess proft, as determned by the Treasury
Department, n the manner and amounts specfed n the ct
(c) To make no subdvson of the subcontract for the same artce or artces
for the purpose of evadng the provsons of the ct
(d) That the manufacturng spaces and books of ts own pant, affates, and
subdvsons sha at a tmes be sub|ect to nspecton and audt as provded n
the ct.
If a contractng party enters nto a subcontract wth a subcontractor who
fas to make such agreement, such contractng party sha, n addton to ts
abty for e cess proft determned on contracts or subcontracts performed by
t, be abe for any e cess proft determned to be due the Unted States on the
subcontract entered nto wth such subcontractor. In such event, however, the
e cess proft to be pad to the Unted States n respect of the subcontract entered
Into wth such subcontractor sha be determned separatey from any contracts or
subcontracts performed by the contractng party enterng nto the subcontract
wth such subcontractor.
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Sec. 16.12. vason of e cess proft Secton 3 of the ct of March 27, 1934, as
amended, provdes that the contractng party sha agree to make no subdvsons
of any contract or subcontract for the same artce or artces for the purpose of
evadng the provsons of the ct. If any such subdvson or subcontract s
made t sha consttute a voaton of the agreement provded for n the ct, and
the cost of competng a contract or subcontract by a contractng parry whch
voates such agreement sha be determned n a manner necessary ceary to
refect the true e cess proft of such contractng party.
Seo. 16.13. ooks of account and records.- It s recognzed that no unform
method of accountng can be prescrbed for a contractng partes sub|ect to
the provsons of the ct. ach contractng party s requred by aw to make
a report of ts true profts and e cess proft Such party must, therefore, man-
tan such accountng records as w enabe t to do so. See secton 16. of these
reguatons. mong the essentas are the foowng:
(1) The proft or oss upon a partcuar contract or subcontract sha be ac-
counted for and fuy e paned n the books of account separatey on each
(2) ny cost accountng methods, however standard they may be and regard-
ess of ong contnued practce, sha be controed by, and be n accord wth,
the ob|ectves and purposes of the ct and of any reguatons prescrbed
thereunder.
(3) The accounts sha ceary dscose the nature and amount of the dfferent
tems of cost of performng a contract or subcontract.
In cases where t has been the custom prory to use so-caed norma
rates of overhead e pense or admnstratve e penses, or standard or nor-
ma prces of matera or abor charges, no ob|ecton w be made to the use
temporary durng the perod of performng the contract or subcontract of such
methods In chargng the contract or subcontract, f the method of accountng
empoyed s such as ceary to refect, n the fna determnaton upon the books
of account, the actua proft derved from the performance of the contract or
subcontract and f the necessary ad|ustng entres are entered upon the books
and they e pan In fu deta the revsons necessary to accord wth the facts.
s to the eements of cost, see secton 16. of these reguatons.
books, records, and orgna evdences of costs (ncudng, among other
thngs, producton orders, bs or schedues of materas, purchase requstons,
purchase orders, vouchers, requstons for materas, standng e pense orders,
nventores, abor tme cards, pay ros, cost dstrbuton sheets) pertnent to
the determnaton of the true proft, e cess proft, defcency In proft or net
oss from the performance of a contract or subcontract sha be kept at a
tmes avaabe for nspecton by Interna-revenue offcers, and sha be care-
fuy preserved and retaned so ong as the contents thereof may become matera
In the admnstraton of the ct. Ths provson s not confned to books,
records, and orgna evdences pertanng to tems whch may be consdered
to be a part of the cost of performng a contract or subcontract. It s app-
cabe to a books, records, and orgna evdences of costs of each pant, branch,
or department nvoved n the performance of a contract or subcontract or n
the aocaton or dstrbuton of costs to the contract or subcontract.
Sec. 16.14. Report to Secretary of War. Upon the competon of a contract
or subcontract comng wthn the scope of the ct and these reguatons, the
contractng party s requred to make a report, under oath, to the Secretary
of War. s to the date of competon of a contract or subcontract, see secton
16.4 of these reguatons. Such report sha be In the form prescrbed by the
Secretary of War and sha state the tota contract prce, the cost of perform-
ng the contract, the net ncome from such contract, and the per centum such
Income bears to the contract prce. The contractng party sha aso Incude
as a part of such report a statement showng
(1) The manner n whch the Indrect costs were determned and aocated to
the cost of performng the contract or subcontract (see secton 16. of these
reguatons)
(2) The name and address of every subcontractor wth whom a subcontract
was made, the ob|ect of such subcontract, the date when competed and the
amount thereof and
(3) The name and address of each affate or other organzaton, trade, or
busness owned or controed drecty or ndrecty by the same nterests as those
who so own or contro the contractng party, together wth a statement showng
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434
n deta a transactons whch were made wth such affate or other organza-
ton, trade, or busness and are pertnent to the determnaton of the e cess proft
copy of the report requred to be made to the Secretary of War s re-
qured to be transmtted by the contractng party to the Secretary of the
Treasury. Such copy sha not be transmtted drecty to the Secretary of the
Treasury but sha be fed as a part of the annua report See secton 16.15
of these reguatons.
Sec. 10.15. nnua reports for ncome-ta abe years. (a) Genera requre-
ments. very contractng party competng a contract or subcontract wthn the
contractng party s ncome-ta abe year endng after pr 3, 1939, sha fe wth
the coector of nterna revenue for the coecton dstrct n whch the contract-
ng party s edera ncome ta returns are requred to be fed an annua report
on the prescrbed form of the proft and e cess proft on a contracts and sob-
contracts comng wthn the scope of the ct and these reguatons and com-
peted wthn the partcuar ncome-ta abe year. There sha be ncuded
as a part of such report a statement, preferaby n coumnar form, showng
separatey for each such contract or subcontract competed by the contractng
party wthn the ncome-ta abe year the tota contract prce, the cost of per-
formng the contract or subcontract, and the resutng proft or oss on each
contract or subcontract together wth a summary statement showng n deta
the computaton of the net proft or net oss upon a contracts and subcontracts
competed wthn the ncome-ta abe year and the amount of the e cess proft,
f any, for the ncome-ta abe year covered by the report copy of the report
made to the Secretary of War (see secton 16.14 of these reguatons) wth
respect to each contract or subcontract covered n the annua report, sha be
fed as a part of such annua report. In case the ncome-ta abe year of the
contractng party s a perod of ess than 12 months (see secton 10.1 of these
reguatons), the report requred by ths secton sha be made for such perod
and not for a fu year.
(6) Tme for fng annua reports. - nnua reports of contracts and sub-
contracts comng wthn the scope of the ct and these reguatons competed
by a contractng party wthn an ncome-ta abe year must be fed on or before
the 15th day of the nnth month foowng the cose of the contractng party s
ncome-ta abe year. It s mportant that the contractng party render on or
before the due date an annua report as neary compete and fna as t Is
possbe for the contractng party to prepare. n e tenson of tme granted
the contractng party for fng ts edera ncome ta return does not serve to
e tend the tme for fng the annua report requred by ths secton. uthorty
consstent wth authorzatons for grantng e tensons of tme for fng edera
ncome ta returns s hereby deegated to the varous coectors of nterna
revenue for grantng e tensons of tme for fng the reports requred by ths
secton. ppcaton for e tensons of tme for fng such reports shoud be
addressed to the coector of nterna revenue for the dstrct n whch the con-
tractng party fes ts edera ncome ta returns and must contan a fu
recta of the causes for the deay.
Sec. 10.16. Payment of e cess proft abty. The amount of the e cess proft
abty to be pad to the Unted States sha be pad on or before the due date
for fng the report wth the coector of nterna revenue. See secton 16.15
of these reguatons. t the opton of the contractng party, the amount of the
e cess proft abty may be pad n four equa nstaments nstead of n a
snge payment, n whch case the frst nstament s to be pad on or before
the date prescrbed for the payment of the e cess proft as a snge payment,
the second nstament on or before the 15th day of the thrd month, the thrd
nstament on or before the 15th day of the s th month, and the fourth nsta-
ment on or before the 15th day of the nnth month, after such date.
Sec. 16.17. Labty of surety. The surety under contracts entered nto wth
the Secretary of War for the constructon or manufacture of any compete
arcraft or any porton thereof for the rmy sha not be abe for payment
of e cess proft due the Unted States n respect of such contracts.
Sec. 16.1 . Determnaton of abty for e cess proft, nterest, and penates
assessment, coecton, payment, refcnds. The duty of determnng the correct
amount of e cess proft abty on contracts and subcontracts comng wthn
the scope o I he ct and these reguatons s upon the Commssoner of Interna
Revenue. Under secton 3(b) of the ct of March 27, 1934, as ast amended, a
provsons of aw (ncudng the provsons of aw reatng to nterest penates,
and refunds) appcabe wth respect to the ta es mposed by Tte I of the
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435
Msc.
Revenue ct of 1934 and not nconsstent wth secton 3 of the ct of March
27, 1934, as ast amended, are appcabe wth respect to the assessment, co-
ecton, or payment of e cess profts on contracts and subcontracts comng wthn
the scope of the ct and these reguatons and to refunds of overpayments of
profts Into the Treasury under the ct. Cams by a contractng party for the
refund of an amount of e cess proft, nterest, penates, and addtons to such
e cess proft sha conform to the genera requrements prescrbed wth respect
to cams for refund of overpayments of ta es mposed by Tte I of the Revenue
ct of 1934 and, f fed on account of any addtona costs ncurred pursuant to
guarantee provsons n a contract, sha be suppemented by a statement under
oath showng the amount and nature of such costs and a facts pertnent
thereto.
dmnstratve procedure for the determnaton, assessment, and coecton
of e cess proft abty under the ct and these reguatons and the e amna-
ton of reports and cams n connecton therewth w be prescrbed from tme
to tme by the Commssoner of Interna Revenue.
arod N. Graves,
pproved une 16,1939.
ohn W. anes,
pproved une 2 ,1939.
Lous ohnson,
ctng Secretary of War.
( ed wth the Dvson of the edera Regster une 29, 19 9, 12.03 p. m.)
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M NU CTUR ND T -P YM NT O RM NT D
M LT LI UORS.
Reguatons 1 (1934), rtce II: porta- 1939-33-9964
ton, free of ta , of fermented mat quors. T. D. 4919
portaton, free of ta , of fermented mat quors to Guam
and mercan Samoa.
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Secton 40 of the Revenue ct of 1939 (Pubc, No. 155, Seventy-
s th Congress) provdes as foows:
Secton 3301(b) of the Interna Revenue Code s amended by addng a comma
and the words Guam, and mercan Samoa after the words Puerto
Rco.
Pursuant to authorty conferred by secton 3791(a)(1), Interna
Revenue Code, paragraph 30 of rtce II, Reguatons 1 , ap-
proved October 25, 1934, s hereby amended to read as foows:
Par, 30. ermented mat quors may be removed from the pace of mann-
facture or storage for e port to a foregn country wthout the payment of
ta . Shpments to the Panama Cana Zone have the same status as e ports-
tons to foregn countres. The aw provdes for shpment of fermented mat
quor wthout the payment of ta to the Phppne Isands, Puerto Rco,
Guam, mercan Samoa, and the rgn Isands. The provsons of these regua-
tons, and the forms prescrbed, n respect to the remova of fermented mat
quor, free of ta , for e portaton to foregn countres, appy to ke removas
and shpments to the Phppne Isands, Puerto Rco, Guam, mercan Samoa,
the rgn Isands, and the Panama Cana Zone. awa and aska are
Terrtores of the Unted States, and a shpments thereto must be ta -pad
before wthdrawa from the brewery premses.
arod N. Graves,
ohn W. anes,
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437
Msc.
PRODUCTION, ORTI IC TION, T -P YM NT, TC., O
WIN .
TITL 26 INT RN L R NU . C PT R I, P RT 17 .
Shpment of wne, free of ta , to Guam and mercan Samoa.
Washngton, D. C.
Secton 3361(b) of the Interna Revenue Code s amended by addng a comma
and the words Guam and mercan Samoa after the words Puerto Rco.
Pursuant to authorty conferred by secton 3791 (a) 1 of the Inter-
na Revenue Code, paragraph 143, rtce II, Reguatons No. 7,
approved October 6,1937 (secton 17 .143 of the Code of edera Reg-
uatons), s amended to read as foows:
Par. 143. Shpments to mercan possessons. The provsons of these regu-
atons, and the forms prescrbed, n respect to the remova of wnes, free of ta
for e portaton to foregn countres, appy to ke removas and shpments to the
Phppne Isands, Puerto Rco, Guam, mercan Samoa, the rgn Isands, and
the Panama Cana Zone. awa and aska are Terrtores of the Unted
States, and a shpments of domestc wnes thereto must be ta -pad before
wthdrawa from bonded wneres or other bonded premses, uness transferred In
bond to a bonded wnery or storeroom ocated In one of those Terrtores.
Gut T. everng,
ohn W. anes,
Reguatons 7 (1937), rtce DI: por-
taton of wne free of ta .
1939-35-99 9
T. D.4926
( ed wth the Dvson of the edera Regster ugust 23. 19 9, 11.13 a. m.)
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43
DISTILL D SPIRITS.
rtce III, Gaugng Manua (193 ): ow- 1939-41-1005
ance for oss of sprts whe n warehouse, T. D.4S 9
rtce II: Soa age or absorpton.
Losses of brandy and frut sprts from packages fed from
storage tanks n bonded warehouses pror to une 26, 1936.
Offce or Commssoner of Interna Revenue,
Washngton, D. C.
The ct of ugust 4, 1939 (Pubc, No. 264, Seventy-s th Con-
gress), provdes as foows:
That the Commssoner of Interna Revenue, wth the approva of the
Secretary of the Treasury, s authorzed to make aowances for osses b|
eakage and evaporaton n accordance wth secton 2901, Interna Revenue
Code, upon wthdrawa of packages of brandy or frut sprts now deposted n
nterna-revenue bonded warehouses, whch were fed from storage tanks n
bonded warehouses pror to une 26,1936.
Pursuant to the foregong provson of aw and the authorty con-
taned n secton 3176 of the Interna Revenue Code, aowance for
osses by eakage and evaporaton w be made n accordance wth
secton 2901, Interna Revenue Code, and the appcabe provsons
of rtce III of the Gaugng Manua (193 ), as e tended b|
Treasury Decson 4 5 C. . 1939-1 (Part 1), 396 , upon re-
gauge for wthdrawa of packages of brandy or frut sprts now
deposted n nterna revenue bonded warehouses, whch were fed
from storage tanks n bonded warehouses pror to une 26, 1936. The
perod for whch aowance w be made w be cacuated from the
date of fng of the packages to the date of regauge for wthdrawa.
owance for ncrease n tare by reason of soakage or absorpton
w be gven such packages n accordance wth rtce II of the
Gaugng Manua.
Gut T. everng,
pproved October 2, 1939. Commuto .
ohn W. anes,
( ed wth the Dvson of the edera Regster October 3, 1939, 12.34 p. m)
1939-39-10035
T.D.4944
Shpment of dsted sprts, free of ta , to Guam and mercan
Samoa.
Washngton, D. C.
Secton 3361(b) of the Interna Revenue Code Is amended by addng
comma and the words Guam, and mercan Samoa after the words Pu 1
Rco.
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439
Msc.
y vrtue of the foregong provson of aw, and pursuant to
authorty conferred by secton 3791 (a) 1, Interna Revenue Code, ds-
ted sprts may be wthdrawn free of ta from dsteres and
nterna revenue bonded warehouses for shpment to Guam and
mercan Samoa under the rues and reguatons governng the
shpment of dsted sprts, free of ta , to the Phppnes, Puerto
co, the rgn Isands, and the Panama Cana Zone.
Gut T. everno,
Commssoner.
ohn W. anes,
( ed wth the Dvson of the edera Regster September 22, 1939,12.53 p. m.)
OTTLING O DISTILL D SPIRITS IN OND.
eguatons 6, Sectons 45-62 (added). 1939-34-9967
T.D.4924
ottng dsted sprts n bond for e port. mendng Reguatons
No. 6.
Washngton, D. G.
Pursuant to authorty n sectons 2903 to 2906, ncusve, and secton
2910, Interna Revenue Code, Reguatons No. 6, ottng of Dsted
Sprts n ond, approved une 3,193 , as amended, are hereby further
amended by addng thereto sectons 45 to 62, ncusve, to read as
foows:
Sec. 45. Dsted sprts whch may be botted n ootd for e port. Under the
provsons of sectons 2903 to 2906, ncusve, of the Interna Revenue Code, ds-
ted sprts whch have remaned n wooden contaners for at east four years
from the date of orgna gauge as to frut brandy, or orgna entry as to other
sprts (e cept gn for e port) and have been duy entered for wthdrawa for
bottng n bond for e port and have been duy gauged and the requred marks,
brands, and e port stamps aff ed to the packages contanng the same, may be
removed to the bottng house for bottng n bond for e port. Such sprts may
be reduced n the bottng tank by the addton of pure water ony to not ess than
0 per centum proof.
Pursuant to the provsons of secton 2910 of the Interna Revenue Code, gn of
not ess than 0 per centum proof may at any tme wthn eght years after entry
n bond be botted n bond for e port
Seo. 46. ppcaton for wthdrawa of sprts for bottng for e port. When-
ever sprts are to be wthdrawn from an nterna revenue bonded warehouse for
bottng In bond for mmedate e portaton, appcaton for wthdrawa therefrom
w be made on orm 206. If the sprts are to be wthdrawn for bottng for
temporary storage before e portaton, appcaton for wthdrawa w be made
on orm 655.
Sec. 47. Sze and knd of bottes. Dsted sprts may be botted n bond for
e port n the foowng szed bottes and no others:
1 quart.
quart.
1 pnt.
pnt
Less than pnt.
1 ottes of ess than pnt capacty may be of sze desred.
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440
ottes must be fed as neary as possbe to conform to the amount stated to
be contaned theren but n no case may the amount of sprts contaned In any
botte vary from the amount Intended or stated to be contaned theren more than
2 per cent. ottes to be used for bottng dsted sprts n bond for e port sha
be tested as to capacty n accordance wth the provsons of secton 37 of these
reguatons.
Lquor bottes as defned n Reguatons 13 may be used, but w not be requred
n bottng dsted sprts n bond for e port.
Seo. 4 . Denomnatons of e port strp stamps. port strp stamps w be
provded n the foowng denomnatons ony:
1 quart
quart.
1 pnt.
pnt.
Less than pnt
Sec. 49. Number of e port stamps n sheet. port strp stamps of Less than
pnt denomnaton w be ssued 50 In a sheet port strp stamps of a
other denomnatons w be Issued 42 n a sheet. Requstons for stamps by
propretors of warehouses must be made for fu sheets. Stamps ess than a fu
sheet may not be sod by a coector.
Sec. 50. Requstonng, shppng, and overprntng e port strp stamps. -
port strp stamps w be requstoned, shpped, and overprnted In the manner
provded n sectons 16, 1 , 19, and 20 of these reguatons for requstonng,
shppng, and overprntng of strp stamps for dsted sprts botted n bond for
domestc consumpton, e cept that n overprntng e port strp stamps the proof
at whch the sprts are to be botted w be prnted on the stamps In addton
to the other requred data.
Seo. 51. Record of e port stamps, orm 1606. The storekeeper-gauger w
keep a separate record, marked port, on orm 1606 of the number of each
denomnaton of e port strp stamps receved by hm durng the month, the
number turned over to the propretor for overprntng and returned to hm, the
number used durng the month, and the number on hand at the begnnng and
cose of the month. summary statement (Part 2 of orm 1606) of such record
sha be prepared and forwarded to the dstrct supervsor each month as provded
by the nstructons on the form.
Sec. 52. Labeng of dsted sprts botted for e port. bottes contanng
dsted sprts botted n bond for e port sha have securey aff ed thereto a
abe showng the foowng nformaton:
1. nd of sprts.
2. Name of actua bona fde dster, or the name of the Indvdua, frm, part-
nershp, corporaton, or assocaton n whose name the sprts were produced and
warehoused.
3. Proof of the sprts.
4. The words otted n bond for e port.
The cauton notce prescrbed n secton 23 for sprts botted In bond for
domestc consumpton w not be requred on sprts botted for e port
Sec. 53. Constructon of cases for sprts botted n bond for e port. Cases
constructed accordng to the specfcatons set forth In sectons 27 and 2 , or n
accordance wth specfcatons whch may be approved hereafter, may be used
for packagng sprts botted n bond for e port.
Sec. 54. Capacty of cases. Sprts botted n bond for e port sha be packed
In cases to contan not ess than 2 wne gaons nor more than 5 wne gaons each.
Sec. 55. Numberng of cases. ach case contanng dsted sprts botted n
bond for e port w be gven a sera number. The seres of numbers n use for
numberng cases contanng sprts botted for domestc consumpton w be con-
tnued n numberng cases contanng sprts botted In bond for e port. Remnant
cases w be gven the same sera number as the ast fu case contanng sprts
In the same bottng ot foowed by the etter R.
Seo. 56. Markng cases for sprts botted for e port. The Government sde of
cases used for packagng dsted sprts botted In bond for e port w be marked
as provded n secton 30(a) for dsted sprts botted n bond for domestc con-
sumpton, and n addton thereto the number and capacty of the bottes contaned
theren, the wne and proof gaon contents, the words or port from U. S. .,
the name of the domestc port from whch, and the foregn port to whch, the
sprts are to be shpped, and the date of wthdrawa for e portaton, w be
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441
Msc.
pany burned, embossed, prnted, or stenced thereon In etters and fgures of
not ess than one-haf nch n heght. The marks and brands w be paced on
the cases n the foowng manner and order:
, No. 100 .12 1-quart bottes
O N RL YCORN CO.
Dstery No. 5G4. Lousve, y.
otted at ohn Doe .00 wne gas.
Interna Revenue D. S. .Storekeeper-Ganger 2.40 proof gas.
onded Warehouse Insp. une 5,1939 60 proof
No. 300 y.
Made otted
a, 1934 Sprng, 1939
or port from T . S. .
New York to London une 6, 1939
Sec. 57. ppcaton for e port strp stamps. ppcaton w be made on
orm 1315 (Part 1), n dupcate, to the storekeeper-ganger for the necessary
e port strp stamps to cover the bottes of sprts to be fed. If the number
and denomnaton of stamps requested by the propretor are necessary to cover
the quantty of sprts to be botted, the storekeeper-ganger w ssue the stamps
and make the necessary entry on hs record of stamps, orm 1606. Upon com-
peton of the bottng, the detas of the statement Cases fed, Part 2 of
orm rS, w be fed n by the storekecper-gauger n accordance wth the
Instructons on the form, and one copy wth the cut-out portons of the e port
barre stamps attached thereto w be forwarded to the dstrct supervsor.
pproprate entry w aso be made of the cases fed on orm 200 or orm 055
n accordance wth the nstructons on the form.
Sec. 5 . ff ng of e port strp stamps, use of caps, cups, and carton . port
strp stamps must be securey aff ed to the bottes n the same manner as strp
stamps are requred to be aff ed to sprts botted n bond for domestc consump-
ton. The provsons of secton 3 of these reguatons, respectng the aff ng
of strp stamps, and the use of cups, caps, seas, and cartons on bottes so
stamped, sha appy to sprts botted for e port
Sec. 59. Remnants. Where the sprts remanng In a bottng tank are found
to be ess than the quantty necessary to consttute a fu case of botted sprts,
the sprts so remanng sha be mmedatey drawn off, botted and cased. Such
remnant may be ta -pad for domestc consumpton, or may be removed to the
e port storage warehouse for storage unt the ne t ot of sprts of the same
knd, produced by the same dster durng the same year and dstng season
are dumped for bottng for e portaton, at whch tme the remnant case may
be returned to the bottng house and the bottes used for fng a compete
case, or, f the sprts are of the age and proof requred for domestc botted
In bond sprts, the remnant case may be deposted n the bonded warehouse
for subsequent dsposton n the manner provded by reguatons for the ds-
poston of remnant cases of sprts botted n bond for domestc purposes.
Indca bottes must be used In the event the remnant s to be drawn off
nto bottes of a capacty of one-haf pnt or greater for ta -payment or for
return to the bonded warehouse for subsequent dsposton as botted n bond
sprts. The bottes must bo stamped wth red strp stamps, uness the sprts
are 100 degrees proof and have remaned In wooden contaners for at east
four years from the date of orgna gauge as to frut brandy, or orgna entry
as to other sprts, In whch event they may be stamped wth domestc botted
n bond stamps. The bottes must aso be propery abeed. The cases con-
tanng the remnant bottes must be marked and branded as requred by the
respectve reguatons governng the bottng of ta -pad sprts or sprts botted
In bond for domestc purposes. ottes n remnant cases deposted n the
e port storage warehouse must be strp stamped and abeed wth e port
abes and the case contanng same must be marked and branded as prescrbed
y these reguatons for markng eases of sprts botted n bond for e port,
e cept as to the date of wthdrawa and the names of the ports.
209106 40 15
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442
In a cases where a remnant s dsposed of as heretofore provded, notttk
w be made n Part 2 of orm 1515 and on orm 206 or orm 655, as tbe ct
may be, showng the dsposton made of such remnant
Sec. 60. Ta -payment of osses n hottng and remnants. Losses n bottr.
sprts for e port w be reported on orm 1607 for ta -payment, as provded Id
secton 39 of these reguatons. The ta w be pad on remnant cases whch t s
desred to remove for domestc consumpton, pursuant to appcaton on ora
1519, propery modfed for the purpose. owever, such remnant w be remove:
mmedatey upon competon of the bottng to the ta -pad room.
Skc. 01. Remnant cases returned to bottng house. When remnant cases are
to be returned to the bottng house from the e port storage warehouse for w
n tng a compete case, they w be ncuded n the appcaton. orm
or orm 655, coverng the wthdrawa of buk contaners for bottng for ernort
S-c. 62. Records. port bottng transactons w be reported on the sturr
keeper-gauger s monthy return, orm 1516, and the dstrct supervsor s notbv
account, orm 1517, respectvey, as provded n sectons 41 and 42, aud o
accordance wth the nstructons on the respectve forms.
These sectons sha be effectve on and after October 1, 1939.
Gut T. evehng,
Commssoner of Interna Itevem .
ohn W. anes,
MISC LL N OUS.
1939-27-W
T. D. 4W
Desgnaton of actng dstrct supervsor.
Treast|rt Department,
Washngton, D. C.
To Dstrct Supervsors:
Secton 22, Tte 5, U. S. C, 1934 edton, provdes as foows:
22. Departmenta reguatons. The head of each department s authorzed
to prescrbe reguatons, not nconsstent wth aw, for the government of to
department, the conduct of ts ofcers and cerks, the dstrbuton and per-
formance of ts busness, aud the custody, use, and preservaton of the records,
papers, and property appertanng to t.
Pursuant to the above-quoted provson of aw the foowng regua-
tons are prescrbed:
n assstant supervsor or other quafed empoyee sha be desgnated
the dstrct supervsor to act as dstrct supervsor durng the tempora
absence or dsabty of the dstrct supervsor, provded, however, that tfcf
Deputy Commssoner of Interna Revenue n charge of the coho Ta
may desgnate the person who sha act as dstrct supervsor, n whch event
hs desgnaton sha be n eu of, or sha supersede, that of the dstrct
supervsor. In the event there s no dstrct supervsor for the dstrct tbt
Deputy Commssoner of Interna Revenue n charge of the coho Ta I m
sha desgnate an actng dstrct supervsor.
The desgnaton of an actng dstrct supervsor sha be n wrtng over w
sgnature of the dstrct supervsor or the Deputy Commssoner of Interna
Revenue, as the case may be, addressed to the person so desgnated, and sha
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show the effectve d :te thereof and the perod such person Is authorzed to act
as dstrct supervsor. Upon competon of duty as actng dstrct supervsor,
the person so desgnated sha be reeved n wrtng over the sgnature of the
dstrct supervsor or the Deputy Commssoner of Interna Revenue, as the
case may be, the effectve date of reef from further duty as actng dstrct
supervsor beng shown. Sgned copes of etters of desgnaton and reef
sha be fed n the offce of the dstrct supervsor md the oce of the
Deputy Commssoner of Interna Revenue n charge of the coho Ta Unt
as a permanent record.
reguatons, orders, or nstructons nconsstent herewth are hereby
revoked.
arod N. Graves,
pproved une 26, 1939.
ohn W. anes,
( ed wth the Dvson of the edera Regster une 27, 1939, 2.47 p. m.)
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444
INDUSTRI L LCO OL.
Reguatons 3( coho), rtce 146- : Sae of 1939-35-9990
denatured acoho, denatured rum and artces. T. D.492S
Saes of denatured acoho, denatured rum and artces.
( mendment of Reguatons No. 3.)
Washngton, D. C.
Pursuant to the authorty n sectons 3105(a), 3124(a) (6), and
3111, Interna Revenue Code, artce 146- of Reguatons No. 3 s
hereby amended by strkng out the foowng paragraph:
No person sha se denatured acoho, denatured rum, or any substance or
preparaton n the manufacture of whch denatured acoho or denatured mm
s used, under crcumstances from whch he mght reasonaby deduce that t s
the ntenton of the purchaser to procure the same for use for beverage
purposes.
and substtutng n eu thereof the foowng:
No person sha se denatured acoho, denatured rum, or any substance or
preparaton made wth or contanng denatured acoho or denatured rum. f r
use, or for sae for use, for beverage purposes nor sha he se any of such
products under crcumstances from whch t mght reasonaby appear that t s
the ntenton of the purchaser to procure the same for sae or use for beverage
purposes.
Gut T. everng,
Commvs o er of Interna Rcvem.
ohn W. anes,
( ed wth the Dvson of the edera Regster ugust 25, 1939 10.20 a. n.)
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LI UOR T ING CT O 1934.
1939-27-9905
T. D. 490
Strp stamps. ( mendment of Treasury Decson 441 C. .
III-1, 522 (1934) , as amended.)
Offce of Commssons of Interna Revenue,
Washngton, D. C.
Pursuant to the authorty n secton 2 03(d), Interna Revenue
Code, paragraph 9 of Treasury Decson 441 , as amended, s hereby
amended by strkng out the foowng paragraph:
very person emptyng any botte stamped under the provsons of Tte 2 of
the Lquor Ta ng ct of 1934, sha, at the tme of emptyng such botte, destroy
the stamp thereon,
and substtutng n eu thereof the foowng:
The stamp requred to be paced on contaners of dsted sprts by secton
2 03(a), Interna Revenue Code, sha be destroyed upon the openng of the
contaner for the purpose of emptyng the contents or any part thereof: Pro-
vded, Th t a porton of the stamp sha be eft attached to the contaner whe
any part of the contents reman theren.
arod N. Graves,
pproved une 27,1939.
ohn W. anes,
ctng /Secretary of the Treasury.
( ed wth the Dvson of the edera Regster une 29, 1939, 10.05 a. m.)
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446
INT RN L R NU COD .
1939-42-1006
T. D. 4952
TITL 2G INT RN L R NU . C PT R I, P RT 317.
Reguatons reatng to the ta mposed by the ct approved
March 1, 1 93. as amended, wth respect to certan hydrauc
mnng.1
Washngton, D. C.
Tabe of Contents.
Secton.
317.0. Introductory.
317.1. Scope of reguatons.
317.2. Defntons.
317.3. Rates of ta .
317.4. Labty for the ta .
317.5. scertanment of quantty mned.
317.6. Returns.
317.7. Due date and pace for fng returns and payng ta .
317. . Penates and nterest.
Secton 317.0. Introductory. (a) The ct entted n ct to
create the Caforna Debrs Commsson and reguate hydrauc mn-
ng n the State of Caforna, approved March 1, 1 93, as amended
(27 Stat., 507 34 Stat., 1001 4 Stat., 111 ), provdes n part as
foows:
That a commsson Is hereby created, to be known as the Caforna
Debrs Commsson, consstng of three members.
Sec. 3. That the |ursdcton of sad commsson, n so far as tbe
same affects mnng carred on by the hydrauc process, sha e tend
to a such mnng n the terrtory draned by the Sacramento and San
oaqun Rver systems n the State of Caforna.
Sko. . That for the purposes of ths ct hydrauc mnng and
mnng by the hydrauc process, are hereby decared to have the
meanng and appcaton gven to sad terms n sad State.
Snc. 9. That the ndvdua propretor or propretors, or n case of a
corporaton ts manager or agent apponted for that purpose, ownng
mnng ground n the terrtory In the State of Caforna mentoned
n secton 3 hereof, whch t Is desred to work by the hydrauc
process, must fe wth sad commsson a verfed petton, settng forth
such facts as w compy wth aw and the rues prescrbed by sad
commsson.

Sec. 13. That n case a ma|orty of the members of sad commsson,
wthn 30 days after the tme so f ed, concur n the decson n favor
of the pettoner or pettoners, the sad commsson sha thereupon
make an order drectng the methods and specfyng n deta the man-
ner n whch operatons sha proceed n such mne or mnes
Sec. 23. Upon the constructon by the sad commsson of dams or
other works for the detenton of debrs from hydrauc mnes and the
ssung of the order provded for by ths ct to any ndvdua, com-
pany, or corporaton to work any mne or mnes by hydrauc process,
the ndvdua, company, or corporaton operatng thereunder workng
any mne or mnes by hydrauc process, the debrs from whch fows
Into or s In whoe or In part restraned by such dams or other works
erected by sad commsson, sha pay for each cubc yard mned from
Sectons 317.0 to 317. are Issued under the authorty contaned In secton t,
Stat., 510, as amended by secton 2, 4 Stat.. 111 , and chapter 653, 52 Stat, 1040:31
U. S. C, 6 3. and Sup. I and secton 3791 of the Interna Revenue Code (53 Sut,
art 1), and nterpret sad secton 23, 27 Stat., 510, as amended.
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the natura bank a ta equa to the tota capta cost of the dam,
reservor, and rghts of way dvded by the tota capacty of the reser-
vor for the restrant of debrs, as determned n each case by the
Caforna Debrs Commsson, whch ta sha be pad annuay on a
date f ed by sad commsson and n accordance wth reguatons to
be adopted by the Secretary of the Treasury, and the Treasurer of the
Unte States s hereby authorzed to receve the same.
( ) The Interna Revenue Code provdes n part:
Sec. 3603. Notce Requrng Records, Statements, and Speca
Returns.
Whenever n the udgment of the Commssoner necessary he may
requre any person, by notce served upon hm, to make a return,
render under oath such statements, or keep such records as the Com-
mssoner deems suffcent to show whether or not such person s abe
to ta .

Sec. 3612. Returns ecuted by Commssoner or Coector.
(a) uthorty of Coector. If any person fas to make and fe
a return or st at the tme prescrbed by aw or by reguaton made
under authorty of aw, or makes, wfuy or otherwse, a fase or
frauduent return or st, the coector or deputy coector sha make
the return or st from hs own knowedge and from such nformaton
as he can obtan through testmony or otherwse.
(b) uthorty of Commssoner. In any such case the Comms-
soner may, from hs own knowedge and from such nformaton as
he can obtan through testmony or otherwse
(1) To make return. Make a return, or
(2) To amend coector s return. mend any return made by
a coector or deputy coector.
(c) Lega Status of Returns. ny return or st so made and
subscrbed by the Commssoner, or by a coector or deputy coector
and approved by the Commssoner, sha be prma face good and
suffcent for a ega purposes.
(d) ddtons to Ta .
( aure to fe return. In case of any faure to make
and fe a return or st wthn the tme prescrbed by aw, or pre-
scrbed by the Commssoner or the coector n pursuance of aw,
the Commssoner sha add to the ta 25 per centum of ts amount,
e cept that when a return s fed after such tme and t s shown
that the faure to fe t was due to a reasonabe cause and not to
wfu negect, no such addton sha be made to the ta : Pro-
vded, That In the case of a faure to make and fe a return
requred by aw, wthn the tme prescrbed by aw or prescrbed by
the Commssoner n pursuance of aw, f the ast date so pre-
scrbed for fn| the return s after ugust 30, 1935, then there
sha be added to the ta , n eu of such 25 per centum: 5 per
centum f the faure Is for not more than 30 days, wth an add-
tona 5 per centum for each addtona 30 days or fracton thereof
durng whch faure contnues, not to e ceed 25 per centum n
the aggregate.
(2) raud. In case a fase or frauduent return or st s w-
fuy made, the Commssoner sha add to the ta 50 per centum
of ts amount.

(e) Coecton of ddtons to Ta . The amount added to any ta
under paragraphs (1) and (2) of subsecton (d) sha be coected at
the same tme and n the same manner and as a part of the ta uness
the ta has been pad before the dscovery of the negect, fasty, or
fraud, n whch case the amount so added sha be coected n the same
manner as the ta .
(f) Determnaton and ssessment. The Commssoner sha de-
termne and assess a ta es, other than stamp ta es, as to whch
returns or sts are so made under the provsons of ths secton.

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44
Seo. 3614. amnaton of ooks and Wtnesses.
(a) To Determne Labtt of the Ta payer. The Commssoner,
for the purpose of ascertanng the correctness of any return or for the
purpose of makng a return where none has been made, Is authorsed,
by any offcer or empoyee of the ureau of Interna Revenue, ncudng
the fed servce, desgnated by hm for that purpose, to e amne any
books, papers, records, or memoranda bearng upon the matters requred
to be Incuded n the return, and may requre the attendance of the
person renderng the return or of any offcer or empoyee of such per-
son, or the attendance of any other person havng knowedge n the
premses, and may take hs testmony wth reference to the matter
requred by aw to e ncuded n such return, wth power to admnster
oaths to such person or persons.

Sec. 3616. Penates.
Whenever any person
(a) ase Returns. Devers or dscoses to the coector or deputy
any fase or frauduent st, return, account, or statement, wth ntent to
defeat or evade the vauaton, enumeraton, or assessment ntended to
be made or,
(b) Negect to Obey Summons. eng duy summoned to appear to
testfy, or to ap ear and produce books ns requred under secton 3615,
negects to appear or to produce sad hooks he sha e fned not e -
ceedng 1,000, or be mprsoned not e ceedng one year, or both, at the
dscreton of the court, wth costs of prosecuton.

Seo. 3632. uthorty to dmnster Oaths, Take Testmony, and
Certfy.
(a) Interna Revenue Personne.
(1) Persons n charge of admnstraton of nterna reveko
aws generay. very coector, deputy coector, nterna revenue
agent, and nterna revenue offcer assgned to duty under an n-
terna revenue agent, s authorzed to admnster oaths and to take
evdence touchng any part of the admnstraton of the nterna
revenue aws wth whch he s charged, or where such oaths and
evdence are authorzed by aw or reguaton authorzed by aw to
be taken.

Sec. 3 55. Notce and Demand for Ta .
(a) Devery. Where t s not otherwse provded, the coector sha
n person or by deputy, wthn 10 days after recevng any st of ta es
from the Commssoner, gve notce to each person abe to pay any
ta es stated theren, to be eft at hs dweng or usua pace of bus-
ness, or to be sent by ma, statng the amount of such ta es am de-
mandng payment thereof.
(b) ddton to Ta for Nonpayment. If such person does not pay
the ta es, wthn 10 days after the servce or the sendng by ma of
such notce, t sha be the duty of the coector or hs deputy to coect
the sad ta es wth a penaty of 5 per centum addtona upon the
nmount of ta es, and nterest at the rate of 6 per centum per annum
from the date of such notce to the date of payment .

Seo. 3770. uthohty to Make batements, Credts, and Refunds.
(a) To Ta payers.
(1) ssessments and coectons generay. cept as other-
wse provded by aw n the case of ncome, estate, and gft ta es,
the Commssoner, sub|ect to reguatons prescrbed by the Secre-
tary, s authorzed to remt, refund, and pay back a ta es erro-
neousy or egay assessed or coected, a penates coected
wthout authorty, and a ta es that appear to be un|usty assessed
or e cessve n amount, or n any manner wrongfuy coected.

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Msc.
Sec. 3791. Rues and Reguatons.
(a) uthorzaton

(2) In case of change n aw. The Commssoner may make a
such reguatons, not otherwse provded for, as may have become
necessary by reason of any ateraton of aw n reaton to nterna
revenue.
Sec. 317.1. Scope of reguatons. These reguatons dea wth the ta mposed
wth respect to certan hydrauc mnng, the debrs from whch fows nto or s n
whoe or n part restraned by dams or other works erected for the detenton of
debrs by the Caforna Debrs Commsson n the area draned by the Sacra-
mento and San oaqun Rver systems n the State of Caforna.
More specfcay these reguatons appy to hydrauc mnng the debrs from
whch fows nto or s n whoe or n part restraned by debrs dams or other
works erected or to be erected by the Caforna Debrs Commsson on trbu-
tares of the Sacramento Rver as foows: (a) the debrs dam or works
known as North ork on the North ork of the mercan Rver, |ust
above the confuence of the North and Mdde orks of the mercan Rver,
ocated n Pacer County, State of Caforna (6) the debrs dam or works
known as Upper Narrows on the Yuba Rver, ust above the confuence
of the Yuba and eather Rvers, ocated n Nevada and Yuba Countes,
State of Caforna and (c) the debrs dam or works known as Ruek-a-
Chucky on the Mdde ork of the mercan Rver, |ust above the confuence
of the Mdde and North orks of the mercan Rver, ocated n Pacer and
dorado Countes, State of Caforna.
Sec. 317.2. Defntons. s used n these reguatons:
(a) The term ct means n ct to create the Caforna Debrs Cora-
msson and reguate hydrauc mnng n the State of Caforna approved
March 1, 1 03, as amended (27 Stat., 507 34 Stat, 1001 4 Stat, 111 ).
(6) The term person means an ndvdua, a trust estate, partnershp,
company or corporaton.
(c) The term Secretary means the Secretary of the Treasury.
d) The term Commssoner means the Commssoner of Interna Revenue.
(e) The term coector means the coector of nterna revenue.
If) The terms hydrauc mnng and mnng by the hydrauc process
sha have the meanng and appcaton gven sad terms n the State of
Caforna.
( /) The term ta abe year means the 12-month perod endng on ugust
31 of each year for whch the ta mposed by the ct s payabe.
Sec. 317.3. Rates of ta . Under the ct the Caforna Debrs Commsson
w determne and prescrbe wth respect to each debrs dam or other works
the rate of ta payabe n the area served by the partcuar debrs dam or
works. The Secretary of War w notfy the Secretary of the Treasury of the
rate of ta f ed wth respect to each debrs dam or works as such rate be-
comes known.
The ta s payabe annuay on the bass of the number of cubc yards mned
from the natura bank by the hydrauc process durng the ta abe year.
Sec. 317.4. Labty for the ta . Labty for ta attaches to any person
engaged at any tme durng the ta abe year n hydrauc mnng n an area
served by any of the debrs dams or other works dentfed In secton 317.1 f
the debrs from such mnng operatons s n whoe or n part restraned by
any of such debrs dams or works.
Sec. 317.5. scertanment of quantty mned. ach person engaged In hy-
drauc mnng operatons wthn the scope of the ta sha make or cause to
be made approprate surveys of the premses on whch such hydrauc mnng
operatons are conducted for the purpose of determnng the cubc yardage
nned from the natura bank. Such surveys sha be made at the begnnng
and end of hydrauc mnng operatons n each ta abe year by a censed
engneer or other quafed agency havng pror approva of the Caforna
Debrs Commsson, and sha conform to requrements prescrbed by the Ca-
forna Debrs Commsson.
Sec. 317.6. Returns. very person abe for ta for any ta abe year sha
prepare for such year a return n trpcate on orm 1 (Caforna Debrs) n
accordance wth the nstructons thereon and n accordance wth these regu-
atons.
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450
The return sha show the Identty of the partcuar dam or other works
restranng debrs from the mne the name and ocaton of the mne the
name and address of the person to whom the Caforna Debrs Commsson
has ssued a cense to operate the mne the number and date of the cense:
the name and address of the owner of the mne the dates on whch hydrauc
mnng operatons began and ended durng the ta abe year for whch the
return s made the number of cubc yards mned by the hydrauc process at
the mne durng the ta abe year the rate of ta per cubc yard determned
by the Caforna Debrs Commsson appcabe to the partcuar mne the
amount of ta due and payabe (cubc yards mned mutped by the rate
of ta per cubc yard).
Wth each return there must be submtted a supportng affdavt of the per-
son who made the surveys at the mne for the mnng season covered by the
return (see secton 317.5), statng that such surveys were made In accordance
wth requrements prescrbed by the Caforna Debrs Commsson.
The return sha be made under oath and verfed before an offcer duy
authorzed to admnster oaths.
Sec. 317.7. Due date and pace for fng returns and pang ta . The re-
turn for each ta abe year sha be fed n trpcate wth, and the ta sha
be pad to, the coector at San rancsco, Caf., on or before September
30 of each year. The ta s due and payabe on such date wthout assessment
by the Commssoner or notce from the coector.
Sec. 317. . Penates and nterest. In the case of faure to fe a return
wthn the prescrbed tme, a certan percentage of the amount of the ta s
added to the ta uness the return s ater fed and faure to fe the return
wthn the prescrbed tme s shown to the satsfacton of the Commssoner
to be due to reasonabe cause and not to wfu negect. The amount to foe
added to the ta s 5 per cent f the faure s for not more than 30 days,
wth an addtona 5 per cent for each addtona 30 days or fracton thereof
dnrng whch faure contnues, not to e ceed 25 per cent n the aggregate.
Where assessment s made, and payment s not made wthn 10 days after
the ssuance of the frst notce and demand ( orm 17), there w accrue
under secton 3655 of the Interna Revenue Code a 5 per cent penaty and
nterest at the rate of 6 per cent per annum computed upon the entre assessment
from the date of Issuance of orm 17 unt date of payment.
If a cam for abatement s fed wth the coector wthn 10 days after
the date of the Issuance of the frst notce and demand, the 5 per cent penaty
does not attach. If the assessment Is not pad wthn 10 days after recept
of notce of re|ecton of the cam, the 5 per cent penaty appes. The fn
of the cam does not stay the runnng of nterest, whch contnues to run
for the fu perod that ntervenes between the date of the frst notce and
demand and the date of payment.
If a fase or frauduent return be wfuy made, the penaty under secton
3612 of the Interna Revenue Code s 50 per cent of the tota ta due. or
other penates see secton 3G16 of the Interna Revenue Code.
Gut T. everng,
pproved and adopted October 11, 1939.
ohn W. anes,
( ed wth the Dvson of the edera Regster October 12, 1939, 12.50 p. m.)
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451
Msc.
MISC LL N OUS
OL OM RG RIN .
1930-27-0903
MS. 215
Schedue of oeomargarne produced and matera used durng the month of
May, 1030, as compared wth May. 10S .
May, 1939.
May. 193 .
Tota producton of uocoored oeomargarne
Pound .
1 22.67 , 16
Poundt.
2 , S77. 717
Tota wthdrawn ta -pad .
22. 06,1
2 .715, 92
Ingredent schedue of uucoored oeomargarne:
1, 20, 730
22,3 4
2, 937,713
23.695
6, 772,514
53,417
5,290
4, 46 ,069
73,577
9 7.27
2 ,927
73.0 7
.Od
7.543
194, 105
6 4,246
Mk
7,706,15
11,461
9,939,309
79,359
6.425
5, 47 , 01
109,2 5
1,335,924
273,502
151, 392
Rce o
469.926
256,795
1 ,260
1,163.317
10. 657
2, 045.934
1,161
Sat
976.501
9.70
6,526.001
1, 109
tamn concentrate -
Tota
23. 741,1
29, 741, 02
1W.044
122. 361
Ingredent schedue of coored oeomargarne:
20,7S
3 ,340
Coor.
2.5 9
26.49
101
3
63,024
129
I
Cottonseed o
6.015
7 0
474
2
1 ,4 2
Cottonseed stearne
Lecthn
290
2
Oeo o
M.420
3,641
13. 10
1.000
20
72
4
7. 526
43
29,911
5.055
17,965
1
Pam kerne o . ... . ....
246
69
6,37
42.022
1
74
7,354
Tota
136. 2G3
139, 216
Of the amount produced, 35,055 pounds were reworked.
Of the amount produced, 2(1,573 pounds were reworked.
Of the amount produced, 1. 24 pounds were reworked.
Of the amount produced. 127 oouuds were reworked.
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452
1939-31-9M0
MS. 216
Schedue of oeomargarne produced and materas used durng the month 0/
une, 1939, as compared wth une, 193 .
une. 1939.
une, 193 .
Pound .
21,030,442
7. 1S.7
Ingredent schedue of uncoored oeomargarne:
20. 729. 401
1. 101, 573
14. 530
2,120.921
21,094
ft. 702.223
49.40
5.547
4,093.S1
1,705
997,320
259.907
114.531
45 .SC
eef fat
MM
Zm
9.47S.54
.
6.
Lecthn
m
eutn ard
114. S
1.3 W
Oeo steartne
w.n
Oeo stock
o w
190.7
Sat
919.007
.7 4
6.435,20
1.194
tamn concentrate
ot)
Tota
22,096.311
Tota producton of coored oeomargarne
0.150
15. 40
-
abassu o .
1,76
IS
Coconut o
1,726
100
1
n
Coor
6,233
130
303
4
ftSf
Cottonseed stearfne . .
s:
1
17.921
3,275
11.430
33
4

Neutra ard . . . ...
20
m

Pam kerne o
Peanut o ....... . ................

13
4.440
33
34.640
1
I
Tota
, 475) -

1 Of the amount produced, 26,02 pounds were reworked.
Of the amount produced, 376 pounds were reworked.
Of the amount produced, 190 pounds were roworked.
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M C.
1939-36-10002
MS. 217
Schedue of oeomargarne produced and materas used durng the month of
uy, 19 9, as compared wth uy, 19S .

uy, 193 .
uy, 1939.
Tota producton ot uncoored oeomargarne .
Pound .
119,159,532
Pounds.
26,407,924
Tota wthdrawn ta -pad
20,099,144
25, 643,679
1,332,131
11,900
1,622,41
1 ,205
5,61 .396
4 ,30
4, 0
3, 49,754
109.305
50.4 6
244, 53
60,742
1,0 5,612
Cottonseed o .................................................
6, 306, 672
2,105
,16 , 560
61,722
6,654
4,764,261
92, 160
1,074,471
313,9 0
166, 215
450
263, 317
2 0.6
1,065,756
11,53
2,959, 423
0
Neutra ard. ....
Oeo st arue ... - ..... ..... ..... .....
Pam kerne o ................ ...
1 6 354
3 ,606
7,744
5,592.062
760
Peanut o
oda (bensosM of)
tamn concentrate ........ . ......... ... ..............
20.192, 964
26, 613, 4 7
102.674
101, 36
Dgredent schedue of coored oeomargarne:
14, 36
27,695
40
40
Coor
36,943
63
3,116
23,91
2
22,032
267
255
a
Mk
20,10
2, 14
9,032
75
43
22, 16
4,704
16, 491
600
26
22
43
6,561
27
32,677
6,145
29
20,090
Tota
110,9 2
116,467
I Of the amount produced, 41,065 pounds were reworked.
1 Of the amount produced, 39,115 pounds were reworked.
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Msc.
454
1939-40 100
MS.2I
Schedue of oeomargarne produced and materas used durng the
ugust, 1939, as compared wth ugust, 193 .
ugust, 1939.
Tota producton of uncoored
Tota wthdrawn ta-pad.
abassu o
eef fat
Coconut o
Corn o ...
Cottonseed o
Dervatve of gycerne --
Lecthn .
Mk
Neutraard
Oeo o
Oeo sparne
Oeo stock
Pam kerne o
Peanut o
Sat -
Soda (hentoate of)
Soya bean o
tamn concentrate
Tota..
abassu o
Coconut o .
Coor
Cottonseed o..
Cottonseed stearne..
Dervatve of gycerne
Lecthn
Mk.
Neutra ad.
Oeo o..
Oeo stearne
Oeo stock
Pam kerne o
Pounds.
21.4tfS.2M
Peanut o.
Sat
Soda (benzoatc of)
Soya bean o
tamn concentrate
Tota
21.192, M
344. 719
v.too
72 .173
21.S 6
9 ). s 9
53.6 7
6, 119
292.993
123.031
04 . 166
273. M
5 .053
253 954
950. 3
. 44
,, 537.605
1.214
22. 703, 534
O. 1 9
13.5 4
34.497
76
.317
120
247
51
21.970
1.953
11,614
1.050
1.162
6,564
35.653
1
121.273
Of the amount produced, 2 .047 pounds were reworked.
Of the amount produced, 32,2 7 pounds were reworked.
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453
Msc.
1930-44-100 1
MS. 219
Schedue of oeomargarne produced and materas used durng the month of
September, 1939, as compared wth September, 19 S.
September, September,
1939 193 .
Tota producton of uncoored oeomargarne.
Ingredent schedue of uncoorcd oeomargarne:
abassu o
COCODUt o
Corn o
Cottonseed o
Cottonseed stearne
Dervatve of gycerne
Lecthn
Mk..
Neutra ard
Oeo o ---
Oeo stearne
Oeo stock -
Pam kerne o -
Peanut o -
Sat
Soda (benzoate of)
Soyu bean o
Soya bean stcarne
tamn concentrate
Tota. -
Tota producton of coored oeomargarne.
Tota wthdrawn ta.vpad
abassu o
Coconut o
Coor
Corn o.
Cottonseed o
Cottonseed stcarne -
Dervatve of gycerne
1-ecthn.
Mk
Neutra ard
Oeo o
Oeo stcarne
Oeo stock
Pam kerne o... - -
Peanut o
Sat
Soda (benroateof)
Soya bean o
Soya bean stearne -
tamn concentrate
Pounds.
1 27.996, 26
Pound .
32. 2 0, 6R2
Tota
2 . 97. 7
, 40 , 912
, 0 4. 621
34, 0
, 02 . 23
9. 1 0
63. 45
7,643
. 275.3
112,3 4
4 .002
329. 319
62. 22
25 . 102
190, 929
12. 192
337,913
1,379
31.967,202
71.242
.667.307
10. 23 , 664
161,961
,7 5
6,190. 1 7
110,563
1,093,992
273.643
11 .035
113,472
330.247
1,291,013
12,316
4,274,614
9. M
1,147
29. 065. 395
107. 675
20. IS I
146
2 .6 1
7
6.046
4 0
306
67
21, 391
2,711
13.940
33, 764.263
1 106,20(1
116
6 066
39
33. 423
44, 131
122
, 660
244
3
25,7 4
4. 135
16, 910
160
1 9
105
14
6,765
06
17,373
9
114. 059
124, 7 5
1 Of the amount produced. 13,414 pounds were reworked.
1 Of the amount produced. 20.6 5 pounds were reworked.
1 Of the amount produced. 1.640 pounds were reworkod.
Of the amount produced, 2,4 0 pounds were reworked.
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Msc.
456
1939-50-1011
MS. 220
Schedue of oeomargarne produced and matera used durng the month M
October, 1939, as compared wth October, 193 .
October,
1939.
Ocotw
IRS.
Tota producton of nncoored oeomargarne
Pound .
1 23. 634. 661
Tota wthdrawn ta -pad _ .
23. (ISO. WO
31.7 S.W
9 ,136
2.122,001
21.711
,674.9 2
57.120
6, 70
4. 502. SU2
4.34
602.937
236,212
69.517
mm
MMp
Cottonseed o .
I. .
SO,
7.
Mk ...
S
197.034
1,031,2 0
9.935
5.940,916
)
1 .W
7W

Sat . -
,w.
3.92171
1.421
m
24, 547. 2S2
ISO, 154
26,041
ft
Ingredent schedue of coored oemargarne:
44.926
m
15
15
13,623
395
60
4, 43
S, 400
17,161
1.719
a
ft

Dervatve of gycerne... ...... ... ................ .
Lecthn.
mm
Mk
s
Oeo o -
ft I
Pam kerne o .. .....
Peanut o 7 7 7 77T
77
,729
Soda (henzoate of). .................................
55
41,205
Sova bean stearne . ... . ...... .
2
1
tamn concentrate ...
Tota
166,26
I
Of the amount produced, ,f6G pounds were reworked.
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457
Msc.
TO CCO.
1939-2 -9913
T. 60
Statement of manufactured tobarco produced, by casses, durng the month of
pr, 1939, as compared cth pr, 19 .
pr, 1939.
pr, 193 .
Ph
Pounds.
4,075, 54
425, 507
324,903
3,023,411
15,044, 77
Pounds.
4,374,732
366,253
365,662
3,492,609
16,362, 31
Twst
Tota
22, 94,612
24,9 2,0 7
Note. These fgures are sub|ect to revson unt pubshed In the Commssoner s annua report.
1939-31-9939
T. 61
Statement of manufactured tobacco produced, by casses, durng the month of
May, 1939, as compared wth May, 193 .
May, 1939.
May, 193 .
Pug
Pounds.
4,973, 571
Pounds.
4,615,093
434.053
394,22
3, 550, 736
16.771, 63
Twst
533, 545
395. 19
3, 501. 236
17,746, 697
TotaL
27.150, 247
25,765,973
Note. These fgures are sub|ect to revson unt pubshed In the Commssoner s annua report.
1939-35-99 5
T.62
une, 1939, at compared wth une, 19 .
une, 1939.
une, 193 .
Pounds.
4, 652, 401
4 3,727
400, 74
.910,703
17,979,150
Pounds.
6,036,600
460,211
426,956
Scrap chewng
4,141,994
17,11 ,09
Smokng
27,492,729
27,1 3,759
Note. These fgures are sub|ect to revson unt pubshed n the Commssoner s annua report.
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45
1939-10-10043
T.63
uy, 11)30, as compared u th uy, 193 .
uy, 1939.
uy. 193 .
Pound .
4,293.934
405.001
400.2
3,0 9. 307
15.261,007
Pounds.
4,701.279
436.301
37 . 7S
5.441 30
14, 005, 301
Pug
23, 449. 637
24.9M.46S
Not . These fgures are sub|ect to revson unt pubshed n the Commssoner s aonua report.
1939-44-100S0
T. 64
Statement of manufactured tobacco produced, by casses, durng the month of ugust.
19S9, as compared u-h ugust, 19 .
ugust, 1939.
ugust ,193 -
Pounds.
Pounds.
ag.
5,152, 71
5M , 543
407, 21
5, 139.62
5 6.722
40 ,6ft S
3. TOM
17,962.129
Twst
4,345.7 2
19,356, 96
Tota
29, 22, 93
27,765.954
NOT . These fgures are sub|ect to revson unt pubshed n the Commssoner s annua report.
1939-49-10116
T.65
September, 1939, as oomparcd wth September, 193 .
September,
September.
1U39.
193S.
Phg
Pounds.
4,470,5
4 1,926
34 ,371
3.521.475
17,503,30
Pound _
5,023,424
433.4SS
402.9m
3.655.429
17, 15,217
Twst
mokg ........... ...........
Tota
26.325,66
27,327,40
Not. Tbeso fgures are sub|ect to revson unt pubshed n the Commssoner s annua report.
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#
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459
Msc.
1939-42-10065
Mm.4963
Procedure reatng to consderaton by the ureau of requests by
ta payers for rungs or advce on matters affectng ta abty.
Washngton, D. C, September 27, 1939.
Other Offcas and mpoyees of the ureau of Interna Revenue,
and Others Concerned:
1. The ureau s recevng a arge number of requests from ta -
payers and ther counse for rungs and advce upon questons whch
reate to the character and e tent of ta abtes resutng from
frrospectve as we as consummated transactons. The ureau w
uncton on such requests as ndcated beow:
2. Rungs w be made on prospectve transactons ony where the
aw or reguatons provde for a determnaton by the Commssoner
of the effect of a proposed transacton for ta purposes, as n the case
of a transfer comng under the provsons or sectons 1250-1253 of
the Interna Revenue Code, or an e change comng under the prov-
sons of secton 112 () of the Interna Revenue Code, or n connec-
ton wth the e ecuton of a cosng agreement under the provsons
of secton 3760 of the Interna Revenue Code wth respect to a ta -
abe perod endng subsequent to the date of the agreement. The
Commssoner w e ercse hs dscretonary power to enter nto
a cosng agreement for a ta abe perod endng subsequent to the
date thereof ony where such e ercse s n the nterests of a wse
admnstraton of the revenue system. The estabshed pocy of the
ureau n not compyng wth requests for rungs on prospectve
transactons w contnue to be foowed e cept n the nstances
herenabove provded.
3. request receved from a ta payer or hs representatve for a
rung on a queston nvovng an ssue n a return or returns fed for
a year or years wth respect to whch the perod of mtaton on
assessment or refund of ncome or e cess-profts ta es has not e pred
w be referred to the nterna revenue agent n charge havng |urs-
dcton of the return or returns for approprate acton on the request
and consderaton n connecton wth the e amnaton of such return
or returns. It s not ntended, however, n such cases to prevent the
nterna revenue agent n charge from seekng advce or nformaton
from Washngton Defore takng acton.
4. The estabshed pocy of gvng advce upon requests of ta -
payers or ther representatves on questons reatng to the character
and e tent of ta abtes resutng from consummated transac-
tons affectng a return to be fed w De contnued under the foow-
ng crcumstances:
(a) The compete facts reatve to the transacton, together wth
a copy of each contract, or other document, necessary to present the
queston, must be gven.
(b) The names of a the rea partes nterested must be stated
regardess of who presents the queston, whether an nterested party,
attorney, accountant, or other representatve.
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Msc.
460
c) The request must be sgned by the ta payer, or n case he s
represented by an attorney or agent, the request must be accompaned
by propery e ecuted power of attorney.
5. copy of a etter addressed to a ta payer w not be furnshed
to hs attorney or agent uness the ureau s specfcay authorzed to
do so by the ta payer.
Got T. f vertko,
CommsswMT.
1939-30-9925
D. C. 230 (Rev.)
Laws and Reguatons Governng the Recognton of gents, ttorneys, and
Other Persons Representng Camants efore the Treasuky Department
and Offces Thereof.
1039 mendment. Department Crcuar No. 230 of 1936 (revsed). Commttee on
nroment and Dsbarment.
Washngton, une 24,1 939.
TITL 31 MON T ND IN NC : TR SURY. SU TITL , P RT 10 R GU-
L TIONS R L TING TO T PR CTIC O TTORN YS ND G NTS.
Secton 3 of Department Crcuar No. 230 (revsed) of October 1,
1936, revsed to read as foows:
Secton 10.3 s hereby suppemented by addng at the end thereof
the foowng:
() The quafcatons for enroment stated n subsecton (a) 1 and 2 (begn-
nng wth the word Persons and endng wth the word accountants ) are
prerequstes for genera enroment for practce before the Treasury Department
owever, speca enroment for the presentaton of matters before a partcu-
ar bureau or dvson may be effected n the foowng manner: n appcant for
such speca enroment sha present hs quafcatons to the Commttee. The
Commttee sha prescrbe an e amnaton for such appcant. If the Commttee
Is satsfed that the appcant s possessed of the quafcatons necessary to
enabe hm to render vauabe servces to camants and other persons before
the partcuar bureau or dvson before whch he s seekng authorzaton to
practce, t sha ssue to the appcant an approprate speca enroment card-
Moreover, authorty for the presentaton of a partcuar matter before the
Treasury Department may be effected n the foowng manner: n appcant for
such authorty sha present hs quafcatons to the Commttee. If the Com-
mttee s satsfed that the appcant s possessed of the quafcatons necessary
to enabe hm to render vauabe servces to hs prncpa n the presentaton
of the partcuar matter before the Treasury Department, t sha ssue to the
appcant an approprate etter of authorty. Such a etter of authorty sha
not be necessary, e cept n the case of matters before the ureau of Interna
Revenue, f the offcer or empoyee of the bureau or dvson before whom
appearance s made s satsfed that the person appearng s not under orders
of suspenson or dsbarment from the Treasury Department and s so ceary
quafed that appcaton to the Commttee woud be a useess formaty.
Nothng n ths subsecton sha authorze any procedure to permt a person
to act as a customhouse broker wthout compance wth the requrements of
Department Crcuar No. 559 (Rues and Reguatons Reatng to Custom-
house rokers), nor mt the rghts granted by such Crcuar No. 559 to cus-
tomhouse brokers to represent ther cents before the Treasury Department.
Stephen . Gbbons,
ed wth the Dvson of the edera Regster une 24, 1339, 11.03 a. nv
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1939-30-9924
Mm. 4 6
Powers of attorney n ncome, profts, estate, and gft ta cases.
Washngton, D. C, ebruary 23, 1939.
eads of ed Dvsons of the Technca Staff, and Other
Offcers and mpoyees of the ureau of Interna Revenue
Concerned:
1. ffectve mmedatey the responsbtes and dutes heretofore
assumed by the Pubc Reatons Dvson of the ureau n respect
of powers of attorneys fed n ncome, profts, estate, and gft ta
cases w be transferred to and assumed by the nterna revenue
agent n charge havng |ursdcton of the case.
2. pproprate fes w be estabshed n the severa offces, and
agents and attorneys representng ta payers on ncome, profts,
estate, and gft ta cases and contractng partes on nson ct e cess
proft cases w be requred to fe powers of attorney n the offce
of the nterna revenue agent n charge n whch the case s under
consderaton, and suffcent authentcated copes w be requred to
permt the pacng of a copy wth the return or report for each ta
year under consderaton.
3. Upon the transfer of a case from the offce of one nterna reve-
nue agent n charge to that of another nterna revenue agent n
charge, the orgna power of attorney w be transferred wth the
case record.
4. Powers of attorney now on fe n the ureau authorzng ap-
pearances n respect of years not barred by the statute of mtatons
w be forwarded as soon as possbe to the approprate fed
dvsons.
5. The fes of powers of attorney mantaned n the agents offces
w be avaabe for the nformaton of and ad to Technca Staff
offces.
6. ttenton s nvted to the provsons of Department Crcuar
No. 230 (Revsed), Laws and Reguatons Governng the Recognton
of gents, ttorneys, and Other Persons Representng Camants
efore the Treasury Department (C. . -2, 541 (1936)), as
amended, and Conference and Practce Requrements, ureau of
Interna Revenue (Revsed) (C. . I -2, 5 4 (1935)).
7. Correspondence reatng to the provsons of ths mmeograph
shoud refer to the number thereof and the symbos IT: .
Mton . Carter,
ctng Commssoner.
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462
1939-4 -1010
CON R NC ND PR CTIC R UIR M NTS, UR U O INT RN L
R NU , R IS D UGUST, 1939.
uafcatons fob Conference.
I. Conferences may be accorded ony to ta payers or ther duy authorvd
representatves. ny ndvdua ta payer, or member of a partnershp, e ecutor
or admnstrator of an estate, trustee of a trust, or offcer of a corporaton, or
fuy authorzed reguar empoyee of an ndvdua, partnershp, estate, trust
or corporaton may appear for hmsef or for such ndvdua, partnershp,
estate, trust, or corporaton soey upon adequate dentfcaton. Ths rue aso
appes to an ndvdua, a partnershp, an estate or trust, or a corporaton wth
respect to the abty of the ndvdua, partnershp, estate or trust, or corpora-
ton as a transferee of property of a ta payer and to a fducary wth respwt
to the abty of the fducary under secton 3467 of the Revsed Statutes, as
amended (U. S. C, Tte 31, secton 192). other persons appearng a
attorneys or agents, ncudng attorneys or agents of transferees or fducares,
must e hbt evdence that the requrements of Department Crcuar No. 230
(revsed), whch contans the statutes and reguatons governng practce before
the Treasury Department, have been comped wth, and must aso conform
wth the foowng requrements:
Power of ttorney to be ed and vdence of nroment to be Su yrrra
efore Recognton s ccorded.
II. No attorney or agent representng a camant or other person before any of
the offces of the ureau of Interna Revenue sha appear or be recognzed n
any case, matter, cam, or other proceedng or busness pendng n such offct
uness the attorney or agent representng the camant presents and fes a power
of attorney, or a certfed copy thereof, from hs prncpa n proper form author-
zng hm to prosecute the case, cam, or matter In queston. Such power of
attorney sha aways be fed and evdence of enroment submtted before such
attorney or agent Is recognzed. In the event, however, that an attorney or
agent presents hmsef for conference who s not famar wth ths requrement,
or who can show that he has not had reasonabe opportunty to obtan a | wer
of attorney from hs cent, or who has not apped for enroment, but s abe to
produce such evdence as w reasonaby convnce the ureau s representatve
that he has authorty to represent the ta payer, such attorney or agent may be
heard wth the understandng that a power of attorney In proper form and
evdence of enroment w be prompty forwarded to the ureau, and that nnt
such power of attorney and evdence of enroment sha have been fed nforma-
ton w not be dscosed to such attorney or agent reatve to the ureau s att-
tude n respect of the Issues rased or to any oer matter rentng to the tn payer 5
case.
Power of ttorney to be ed Pror to na Determnaton of Ta Labt
III. No power of attorney w be accepted whch Is fed after fna determna-
ton of the ta abty, uness the power of attorney rectes that the prncpa s
cognzant of such settement and of the amount of defcency or overasscssnet
determned. (See aso tte Checks n payment of refunds, paragraph I
heren.)
Power of ttorney Not Requred n Certan Cases Pendng efore the T mto
States oabd of Ta ppeas.
T . In a docketed petton before the oard, t s consdered that the pettoner
and the Commssoner stand n the poston of partes tgant before a quas
udca body. The oard of Ta ppeas has ts own rues of practce and pro-
cedure, and ts own rues respectng admsson to practce before It. SW|
dvson n the decentrazed areas s authorzed to dea wth the counse of record
before the oard n a petton docketed by the oard. Therefore, correspondence
n connecton wth oard dockets w, ordnary, be addressed to counse of
record before the oard and In any event the poston of the ureau Is that m
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463
(Msc.
counse of record sha receve copes of any correspondence, or be advsed as to
the genera nature of any communcatons, whch for good and suffcent reason
may be addressed drect to the ta payer.
In a cases handed by the decentrazed offces of the Technca Staff, other
than cases docketed before the oard, the customary power of attorney w be
requred.
Power of ttorney Requrements.
. ny power of attorney offered In evdence In any case w he accepted ony
If t s n reguar form. Ony one power of attorney sha be n effect n any
case and there sha be ncuded n such power of attorney the names and
addresses of n attorneys or agents to whom the ta payer has deegated authorty
to represent hm.
. T C NIC L L NGU G UNN C SS RY.
It Is consdered necessary n a cases that the power of attorney contan an-
guage to convey the prncpa s ntenton, though not necessary In strcty ega
form.
. TT ST TION O CUTION O INSTRUM NT OR WITN SS S T R TO.
The power of attorney must be e ecuted before a notary pubc, or, n eu
thereof, wtnessed by two dsnterested ndvduas. The notara sea must be
aff ed uness such sea s not requred under the aws of the State wheren the
power of attorney s e ecuted. No attorney or agent as notary pubc sha take
acknowedgments, admnster oaths, certfy papers, or perform any offca act
In connecton wth matters pendng before the ureau n whch he s empoyed
as counse, attorney, or agent, or n whch he may be n any way nterested.
(See ct of une 29, 1906, 34 Stat., 622.)
C. T NT O UT ORITY D L G T D.
The authorty deegated to an attorney or agent n a power of attorney enumer-
atng certan specfc acts whch may be done w be consdered mted to those
acts.
( ) PR SS TIIOI .ITY R UIR D OR C RT IN CTS.
press authorty to do the foowng acts must be granted and shown n
the power of attorney or such acts w be consdered beyond the scope of the
agent s authorty:
1. To receve but not to ndorse and coect checks n settement of any refund.
(See secton 3477 of Revsed Statutes, whch prohbts assgnments of cams or
portons thereof, and tte Checks n payment of refunds, paragraph I
heren.)
2. To deegate authorty or to substtute another agent or attorney.
3. To e ecute consents agreeng to a ater determnaton and assessment of
ta es than s provded by statute of mtatons.
4. To e ecute cosng agreements reatve to the ta abty.
D. SIGN TUR O GR NTOR.
The power of attorney shoud be sgned as foows:
a. In the case of an ndvdua ta payer, by such Indvdua.
6. In the case of any ta abe year for whch a |ont return was made by a
husband and wfe, by both husband and wfe, e cept that ether spouse may
sgn for the other f duy authorzed n wrtng so to act.
c. In the case of a partnershp, ether by a members or n the name of the
partnershp by one of the partners duy authorzed to act
. In the case of a corporaton by an offcer of the corporaton havng authorty
to bnd same and be attested by the secretary of the corporaton over the cor-
porate sea.
1. power of attorney granted by a corporaton shoud state whether or not
the corporaton has a sea, and the sea shoud be aff ed to the power n a
cases where one s used by the corporaton. If the power of attorney shows that
the corporaton has no sea, a certfed copy of a resouton duy passed by the
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464
board of drectors of the corporaton gvng Its offcers authorty to sgn the same
shoud be submtted.
2. If the offcer who sgns the power of attorney Is aso secretary, another of er
of the corporaton, preferaby the presdent, vce presdent, or treasurer, must aso
sgn the nstrument so that two dfferent ndvduas sgnatures w appear
thereon.
e. In the case of an assocaton, the same requrements sha appy as n tb
case of a corporaton.
f. Speca cases:
If the ta payer s
Dssoved,
Insovent,
Deceased,
or has a smar status, the addtona requrements begnnng wth paragraph T
heren shoud be foowed.
. C RTI IC TION O COPI S O POW RS O TTORN Y ND ID NC IL D IS
CONN CTION T R WIT .
The certfcaton of copes of powers of attorney or papers or documents fed
n connecton therewth must be made by a notary pubc, or other proper offca,
who shoud state that he has personay compnred the copy wth the orgna
and fnds t to be a true and correct copy. Ths certfcaton appes to a copes
of powers of attorney and reated papers, ncudng prnted and photostatc
copes.
. C RT IN POW RS O TTORN Y TO IL D IN I LD O IC S.
Powers of attorney coverng Income, profts, estate, and gft ta cases, aso
nson ct cases, sha be fed n the offce of the nterna revenue agent n
charge n whch the case s under consderaton, accompaned by suffcent
authentcated copes thereof for attachment to the return for each ta year under
consderaton.
ee statements respectng contngent or partay contngent fee agreements
requred to be fed by attorneys and agents under the provsons of paw-
graph (y), secton 2, Department Crcuar No. 230, revsed, effectve October 1,
3936, as amended (see C. . 1937-2, page Wo), shoud be fed wth the nterna
revenue agent havng the case under consderaton.
Substtuton of ttorneys or oents.
I. Substtuton of attorneys or agents may be effected ony where the power
of attorney, under whch the attorney or agent of record s actng, e pressy
confers the rght of substtuton. Such attorney or agent, f n good stand
before the Department, may, by a duy e ecuted substtute power of attorney,
substtute another or others In hs stead. The ureau reserves the rght to
refuse recognton to a substtuted attorney or agent where, n ts opnon, such
substtuton w ony deay the fna ad|ustment of the case. urthermore, the
ureau w not accept a substtute power of attorney granted by an attorney
or agent, who s actng under a substtute power of attorney from the attorney
or agent of record, uness specfc authorty s granted n the prncpa s power ot
attorney to the attorney or agent of record to pass on to hs substtute the
rght of substtuton. (See aso tte Checks n payment of refunds, para-
graph I heren.)
New Power of ttorney Requred When New or ddtona ttorneys oa
gents Retaned.
II. In any case In whch a power of attorney has been fed and the ta payer
subsequenty desres to authorze other or addtona attorneys or agents to
represent hm before the ureau wth respect to the same case, a new power
of attorney must be fed, whch sha Incude the names of a attorneys or
agents who are authorzed to act for such ta payer. Such new power of attor-
ney sha contan a cause specfcay revokng any and a powers of attorney
prevousy fed wth respect to the same case. The revocaton of an authorty
to prosecute a matter before the ureau sha n no case be effectve, so far as
the ureau s concerned, before due notce n wrtng has been gven the
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nrean, and the fng of evdence of notfcaton of the revocaton to the attorney
or agent whose power haa been revoked. Where consderaton of a matter has
been hed In abeyance awatng the furnshng of evdence for whch a ca bus
been made on an attorney or agent, faure on hs part to take acton thereon
wthn three mouths from the date on whch consderaton of the matter was
suspended may be deemed by the admnstratve offcer before whom the case
s pendng cause for refusa to further recognze the authorty of the attorney
or agent. Such admnstratve offcer sha, however, gve wrtten notce of
ach refusa to the cent of such attorney or agent, and sha state brefy
the reason such acton has been taken.
vdence Requred to Substantate acts eged n Conferences.
III. No reducton n ta es proposed nor Increases n aowance of cams sha
be made uness the evdence upon whch such acton s taken s submtted n
wrtng and n verfed form. evdence e cept that of a suppementary or
ncdenta character sha be submtted over the sworn sgnature of the ta payer.
The sworn statement of facts must be submtted at east fve days before the
conference date e cept as herenafter provded, and must meet a the ssues
rased by the ureau whch the ta payer desres to contest. If the sworn state-
ment of facts s not submtted at east fve days before the conference, then t
must be accompaned by a sworn statement settng out specfcay the reasons for
not havng comped wth the 6-day rue. Nothng heren sha precude the
ta payer from submttng addtona or supportng evdence wthn a reasonabe
tme after the conference.
very affdavt, agreement, bref, or statement of facts prepared or fed by an
attorney or agent as argument or evdence n the matter of a cam or ta matter
pendng before the ureau sha have thereon a statement sgned by such attorney
or agent showng whether or not he prepared such document and whether or
not the attorney or agent knows of hs own knowedge that the facts contaned
theren are true.
Conference To e Prearranged.
I . Conferences wth ta payers or ther representatves w not ordnary be
hed wthout prevous arrangement Cases n whch ta payers or ther repre-
sentatves can submt some unusua reason for requestng an mmedate confer-
ence wthout prevous arrangement w be gven consderaton by ureau offcas
charged wth the arrangement of conferences, who may, f the crcumstances
warrant, make an e cepton to the rue.
In order that the case under consderaton may be cosed at one conference, f
at a possbe, the requrements of paragraph III of ths crcuar to the effect
that the bref submtted n advance of conference must meet a ssues rased
w be strcty enforced, and another conference w not be granted on the same
case e cept to meet new ssues rased by the ureau n the course of the frst
conference whch coud not have been antcpated pror to such conference.
Recognton of Unenro.ed mpoyees or uafed ttorneys or gents.
. tnenroed empoyees of enroed attorneys or agents w not be recognzed
In any matter by offces of the ureau e cept for the purpose of fng papers or
securng nformaton as to the status of cases. Recognton for the atter purpose
w be gven ony when the empoyee presents n each case wrtten authorty
from hs empoyer to act as the atter s substtute n obtanng the nformaton
desred regardng status and when the power of attorney of hs empoyer In each
case provdes for the substtuton of such empoyee. To factate recognton of
such empoyees, t s requested that the empoyee present at the tme of makng
nqury concernng any case the recept for the power of attorney ssued to hs
empoyer by the ta payer n that case and the recept for the substtute power of
attorney ssued to hm. (These recepts are furnshed f requested when the
powers of attorney are fed.)
Powers of ttorney and nroment Requred of gents and ttorneys
andng Matters by Correspondence.
I. Where recognton s desred through correspondence wth the Department,
enroment and power of attorney requrements must be met by attorneys or
agents even though no actua appearance s made before the Department If a
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406
proper power of attorney Is fed authorzng ony one of the foowng acts by the
attorney or agent, enroment w not be requred:
uthorty to sgn but not to prosecute any cam of the ta payer.
uthorty to nspect or receve copes of returns where ecutve order or
reguatons permt such acton by agent.
The. Commssoner reserves the rght to wthhod makng the above e ceptons
n any specfc case.
If the power of attorney authorzes the attorney or agent to do one or both
of the above acts and some other act or acts, enroment w be consdered neces-
sary, notwthstandng that the agent or attorney does not e pect to use a of
the power conferred upon hm.
Specfc uthorty Requred n nson ct Cases.
power of attorney authorzng an attorney or agent to represent a ta payer
before the ureau of Interna Revenue n connecton wth ncome ta matter
w not be recognzed by the ureau as evdence of an attorney s or agent s
authorty to act as representatve for a contractor or subcontractor In connec-
ton wth e cess proft abty under secton 3 of the nson ct (4 Stat., 503),
as amended, as apped to Navy contracts and contracts for arcraft for te
rmy, and to subcontracts made wth respect to such contracts. In such cases
a separate power of attorney must be secured specfcay authorzng the attor-
ney or agent to appear n behaf of hs cent
Letters rrangng Conferences to dvse of Requrements.
II. Letters arrangng conferences w apprse the ta payer or hs represent-
atve of the requrements as to powers of attorney, the necessty of beng
enroed to practce before the Department, and to whom he shoud appy for
enroment, uness It s known that the addressee s aware of the requrements
Owng to the e pense nvoved, t w not be the practce, e cept n rare cases,
to ncorporate the above requrements In teegrams. Where suffcent tme
ntervenes between the date of the teegram and the conference the teegram
w be confrmed by etter and conference requrements stated.
Practtoners Must Conduct Themseves n an thca Manner.
III. ttorneys or agents representng ta payers before the ureau are
e pected at a tmes to conduct themseves In an ethca mauner, and w be
hed strcty accountabe for the wthhodng of known matera Informaton or
for any deberatey fase or mseadng statement
whoever sha knowngy and wfuy fasfy or concea or cover
up by any trck, scheme, or devce a matera fact, or make or cause to be made
any fase or frauduent statements or representatons, or make or use or cause
to be made or used any fase b, recept, voucher, ro, account, cam, certf-
cate, affdavt, or deposton, knowng the same to contan any frauduent or
fcttous statement or entry, n any matter wthn the |ursdcton of any
department or agency of the Unted States or of any corporaton n whch the
Unted States of merca s a stockhoder sha be fned not more than 10,000
or mprsoned not more than ten years, or both. (Secton SO, Tte 1 , Unted
States Code.)
ny person who wfuy ads or asssts n, or procures, counses, or advses
the preparaton or presentaton under, or n connecton wth any matter arsng
under, the nterna revenue aws, of a fase or frauduent return, affdavt,
cam, or document, sha (whether or not such fasty or fraud s wth the
knowedge or consent of the person authorzed or requred to present such
return, affdavt cam, or document) be guty of a feony, and, upon convcton
thereof, be fned not more than 10,000, or mprsoned for not more than fve
years, or both, together wth the costs of prosecuton. (Secton 3793(b) of
the Interna Revenue Coda)
or gross msconduct the Commssoner may refuse to recognze any person
as an attorney or agent n any partcuar case.
ttemptng to nfuence the conduct of any offca or empoyee of the ureau
n any case or other proceedng pendng before the ureau by the use of threats,
fase accusatons, duress, or by the offer of any speca nducement or promse
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467
Msc.
of advantage, or by the bestowng of gfts or favors upon offcas or empoyees
before whom an attorney or agent Is appearng, s consdered grounds for
dsbarment from practce before the Treasury Department
Whoever sha promse, offer, or gve, or cause or procure to be promsed,
offered, or gven, any.money or other thng of vaue, or sha make or tender
any contract, undertakng, obgaton, gratuty, or securty for the payment of
money, or for the devery or conveyance of anythng of vaue, to any offcer of
the Unted States, or to any person actng for or on behaf of the Unted States
In any offca functon, , wth ntent to nfuence hs decson or acton
on any queston, matter, cause, or proceedng whch may at any tme be pendng,
or whch may by aw be brought before hm n hs offca capacty, or n hs
pace of trust or proft, or wth ntent to nfuence hm to commt or ad n
commttng, or to coude n, or aow, any fraud, or make opportunty for the
commsson of any fraud, on the Unted States, or to nduce hm to do or omt
to do any act n voaton of hs awfu duty, sha be fned not more than three
tmes the amount of money or vaue of the thng so offered, promsed, gven,
made, or tendered, or caused or procured to be so offered, promsed, gven, made,
or tendered, and mprsoned not more than three years. (Secton 91, Tte 1 ,
Unted States Code.)
ffect of Prevous Connecton Wth the Treasury Department.
I . No enroed attorney or agent sha be permtted to appear before the
Treasury Department n connecton wth any matter to whch such attorney or
agent gave persona consderaton or as to the facts of whch he ganed persona
knowedge whe n the servce of the Treasury Department. Lkewse no such
enroed attorney or agent sha ad or assst another n any such matter, and
no attorney or agent sha receve assstance n any such matter from one
formery n the servce of the Treasury Department who possesses such persona
knowedge.
No former offcer, cerk, or empoyee of the Treasury Department sha act as
attorney or agent, or as the empoyee of an attorney or agent, In any matter or
controversy pendng n such Department durng the perod of hs empoyment
theren wthn two years after the termnaton of such empoyment uness he
sha frst obtan the wrtten consent thereto of the Secretary of the Treasury
or hs duy authorzed representatve. Ths consent w not be granted uness t
appears (1) that such empoyment s not prohbted by Tte 5, secton 99, Unted
States Code, or other aw, or by the reguatons of the Treasury Department (2)
that the appcant was not, durng the perod of two years Immedatey precedng
the date of appcaton, empoyed n the partcuar secton (departmenta or
fed) n whch was pendng the matter or controversy, to hande whch consent
Is sought. In the event that the appcant formery occuped an admnstratve
poston, such as head of a bureau, unt, dvson, or secton, or was empoyed
as a revewer or conferee or n an advsory capacty, such appcant w be
requred to fe an affdavt to the effect that he has no knowedge of the facts
Invoved n such matter or controversy whch was ganed by hm whe he was
empoyed In the Department, and that he s not now assocated wth, and w
not be assocated wth any former empoyee who has ganed knowedge of the
case whe empoyed by the Treasury Department. The statements contaned
In such affdavt sha not be suffcent f dsproved by an e amnaton of the
fes and records pertanng to the case. ppcatons for consent shoud be
drected to the Commttee on nroment and Dsbarment on orm 901 and
shoud state the former connecton wth the Department of the appcant and
dentfy the matter or controversy n whch the appcant desres to appear.
The appcant sha be prompty advsed as to hs prvege to appear n the
partcuar matter or controversy, and ths notce sha be fed by hm n the
record of the case.
Instructons fob ecuton of Power of ttorney n Speca Cases Whch
Must e Met n ddton to Genera Requrements.
. Dssoved partnershp. power of attorney to act wth respect to matters
nvovng the affars of a dssoved partnershp must be sgned by a of the
former partners. In case some of the partners are dead, ther ega repre-
sentatves must sgn n ther stead. (See paragraph III.) If, however,
under the aws of the partcuar State, the survvng partners at the tme of
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46
the e ecuton of the power of attorney hare e cusve rght to the contro and
possesson of the frm s assets for the purpose of wndng up ts affars, ther
sgnatures aone w be suffcent If ony the survvng partners sgn the
power of attorney, a copy of the pertnent provsons of the State aw under
whch they cam authorty, e cusve of the ega representatves of the deceased
partners, shoud be noted and ctaton gven thereto.
I. Dssoved corporatons. If a qudatng trustee, or trustee under ds-
souton, has been apponted, or If a trustee derves authorty under a statute
of the State n whch the corporaton was organzed, the power of attorney
shoud be e ecuted by such trustee. If there s more than one trustee, a
must on uness t s estabshed that ess than a have authorty to act n
the premses. The power of attorney must be accompaned by a copy of the
nstrument under whch the trustee derves hs authorty, propery authentcated,
or f the authorty s derved under a State statute, the statute shoud be cted
and quoted, and an affdavt by a thrd party, settng forth the fact
requred by the statute as a precedent to the vestng of the authorty n
sad trustee must be furnshed. It must aso appear n the case of any
trustee that hs authorty has not been termnated. If there Is no trustee,
then a power of attorney e ecuted before a notary pubc by a suffcent number
of Indvduas to make up a representaton of a ma|orty n the votng stock
of the corporaton at the date of dssouton w be accepted for purposes of
conference and correspondence reatng to the ta abty n the partcuar
case. Such nstrument must show the tota number of outstandng shares of
votng stock at the date of dssouton and the number hed by each sgnatory
to the power of attorney. The nstrument must aso contan postve averment
as to the none stence of any trustee, and the date of dssouton must appear.
II. Insovent ta payer. certfcate from the court havng ursdcton
over the nsovent shoud be furnshed showng the appontment and quafca-
ton of the trustee or recever, and It shoud appear that the authorty has not
termnated. In cases pendng before a dstrct court of the Unted States
an authentcated copy of the order approvng the bond of te trustee w
meet ths requrement. If an attorney has been apponted under authorty
of court for the trustee or recever, a copy of the court order appontng such
attorney (where he s to represent the trustee) shoud be furnshed. If no
attorney has been apponted, the trustee or recever shoud e ecute the power
of attorney, the acknowedgment or wtnessng thereof to be the same as n
the case of an ndvdua, and the above-descrbed evdence showng the appont-
ment of the trustee or recever furnshed therewth. If the trustee or recever
does not wsh to appont an attorney, he w be recognzed upon estabshng
hs authorty n the manner above descrbed.
III. Deceased ta payer. The e ecutor or admnstrator shoud e ecute
the power of attorney, whch must be accompaned by a short-form certfcate
(or authentcated copes of etters testamentary or etters of admnstraton)
showng that hs authorty s n fu force and effect at the tme such evdence
s submtted. The e ecutor or admnstrator w be recognzed n hs own
rght f he does not wsh to appont an attorney or agent, upon submsson of
the above-descrbed court certfcate, and such e ecutor or admnstrator s
not requred to be enroed to practce. In the event that the e ecutor has
been dscharged and a trustee under the w s actng, the power of attorney
must come from the trustee, and evdence of the dscharge of the e ecutor and
of the appontment of the trustee must be submtted wth the power of attorney.
In such cases, where the e ecutor s dscharged and the estate s dstrbuted
to the resduary egatees, the power of attorney must come from the resduary
egatee or egatees, and be accompaned by a statement from the court certfyng
to the dscharge of the e ecutor and namng the resduary egatees and nd-
catng the proper share to whch each s entted. In the event tnt the decodenr
ded ntestate and the admnstrator had been dscharged or none was ever
apponted, the power of attorney must come from the dstrbutees and be
accompaned by evdence of the dscharge of the admnstrator, f one bad
been apponted, and affdavts and such other evdence as can be adduced
tendng to show the reatonshp to the deceased of the sgnatores to the
power of attorney and the rght of each of them to the respectve shares camed
under the aw of the domce of the deceased.
I . Guardans and other fducares apponted by a court of record. -The
power of attorney shoud be e ecuted by the fducary and must be accom-
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469
(Msc.
paned by a court certfcate or court order showng that such fducary has
been apponted and that hs appontment has not been termnated.
. Trustee under deed, decaraton, etc. Powers of attorney must be e e-
cuted by the trustee and be accompaned by documentary evdence of the
futhorty of the trustee to act. Such evdence may be ether a copy of the
trust nstrument, propery certfed, or a certfed copy of e tracts from the
trust Instrument, showng
a. Date of nstrument.
6. That t s or s not of record n any court
c. The benefcares.
d. The appontment of the trustee, the authorty granted, and such other
nformaton as may be necessary to show that such authorty e tends to edera
ta matters.
e. That the trust has not been termnated, and that the trustee apponted
thereby s st actng.
Sef-servng affdavts by the trustee n ths connecton are not acceptabe.
In the event that the trustee apponted n the orgna trust nstrument s no
onger actng and has been repaced by another trustee, documentary evdence
of the appontment of the new trustee must be submtted. In cases where there
are more than one trustee apponted, a must |on, uness t Is shown that ess
than a have authorty to act.
I. Checks n payment of refunds. The ureau Is not bound to dever any
check n payment of refund of nterna-revenue ta es, penates, or nterest to a
representatve of any ta payer actng under authorty evdenced by a power of
attorney. owever, t w be the genera pocy of the ureau to ma such
checks In care of an enroed attorney or agent who has fed power of attorney
from the prncpa, specfcay authorzng hm to receve but not to Indorse
such check, provded that such power of attorney sha have been fed n suf-
fcent tme for the secton or dvson preparng the certfcate of overassess-
ment to show thereon the mang address, as care of the attorney or agent.
Where an attorney or agent has more than one address, request to ma the check
to another address than Is shown In the power of attorney w not be granted
uness the address shown n the power of attorney Is no onger that of the
attorney or agent In the event that a power of attorney s fed specfcay
authorzng more than one attorney or agent to receve checks on the ta payer s
behaf, and such attorneys or agents have dfferent addresses, the ureau w
not ma the check In care of any of the attorneys or agents named In the power
of attorney but w ma the check drect to the ta payer, uness a statement
Is furnshed, sgned by a of the attorneys or agents named n the power of
attorney, requestng that the check be maed n care of one of ther number.
urthermore, t w be the pocy of the ureau not to ma checks n payment
of refunds to an attorney or agent who hods authorty to receve such check
by reason of a substtute power of attorney obtaned from the attorney or
agent desgnated by the ta payer.
Where there s a contest between members of a dssoved frm or between
two or more attorneys or agents actng under the same power of attorney as to
whch one s entted to prosecute a matter pendng before the ureau or to
receve a draft, warrant, or check, the cent ony sha thereafter be recognzed,
uness the members or survvors of the dssoved frm, or the contestng attorneys
or agents, fe an agreement sgned by a desgnatng whch of them sha be
entted to prosecute such matter or to receve the sad draft warrant, or check.
In no case sha the devery of a fna draft, warrant, or check to the cent
be deayed more than CO days by reason of faure to fe such agreement.
Deveres of a checks n payment of refunds w be made by or through the
offce of the coector to whom the ta was pad.
Requrements ppcabe to ed Offces.
II. The foregong conference and practce requrements appy to a offces
In the Interna Revenue Servce.
Guy T. evebnq, Commssoner.
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470
L GISL TION.
193M. -100s5
. R. 6C35. PU LIC, NO. 370, S NTY-SI T CONGR SS. C PT R
6(56, IRST S SSION.
n ct to amend the Soca Securty ct, and for other purposes.
e t ennrtcd bp the Senate and ouse of Representatves of the nud
States of merca n Congress assenbed. That ths ct may be cted as the
Soca Securty ct mendments of 1939.

TITL I M NDM NTS TO T INT RN L R NU COD .
Sec. 601. Secton 1400 of the Interna Revenue Code s amended to read as
foows:
In addton to oer ta es, there sha be eved, coected, and pad upon
the ncome of every ndvdua a ta equa to the foowng percentages of te
wages (as defned n secton 1426(a)) receved by hn after December 31,1936.
wth respect to empoyment (as defned n secton 1426(b)) after such date:
(1) Wth respect to wages receved durng the caendar years 1930,
1940, 1941, and 1942, the rate sha be 1 per centum.
1944, and 1945, the rate sha be 2 per centum.
1947, and 194 , the rate sha be 2 per centum.
(4) Wth respect to wages receved after December 31, 194 , the rae
sha be 3 per centum.
Sec. 602. (a) Secton 1401(c) of the Interna Revenue Code s amended to
read as foows:
(c) d|ustments. If more or ess than the correct amount of ta mposed
by secton 1400 s pad wth respect to any payment of remuneraton, proper
ad|ustments, wth respect both to the ta and the amount to be deducted, sta
be made, wthout nterest, n such manner and at such tmes as may be pre-
scrbed by reguatons made under ths subchapter.
(b) Such secton 1401 s further amended by addng at the end thereof the
foowng new subsecton:
(d) Speca refund. If by reason of an empoyee renderng servce far
more than one empoyer durng any caendar year after the caendar year 193ft
the wages of the empoyee wth respect to empoyment durng such year e ceed
3,000, the empoyee sha be entted to a refund of any amount of ta , wth
respect to such wages, mposed by secton 1400, deducted from such wages and
pad to the coector, whch e ceeds the ta wth respect to the frst 3,000 of
such wages pad. Refund under ths secton may be made n accordance wth
the provsons of aw appcabe n the case of erroneous or ega coecton o
the ta e cept that no such refund sha be made uness (1) the empoyee
makes a cam, estabshng hs rght thereto, after the caendar year n whch
the empoyment was performed wth respect to whch refund of ta s camed,
and (2) such cam s made wthn two years after the caendar year n whch
the wages are pad wth respect to whch refund of ta s camed. No nterest
sha be aowed or pad wth respect to any such refund.
Sec. 603. Part I of Subchapter of Chapter 9 of the Interna Revenue Code
s amended by addng at the end thereof the foowng new secton:
Sec. 1403. Recepts fob mpoyees.
(a) Requrement very empoyer sha furnsh to each of hs empoyees
a wrtten statement or statements, n a form sutabe for retenton by
empoyee, showng the wages pad by hm to the empoyee after December 31.
1939. ach statement sha cover a caendar year, or one, two, three, or fom
caendar quarters, whether or not wthn the same caendar year, and shsW
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show the name of the empoyer, the name of the empoyee, the perod covered
by the statement, the tota amount of wages pad wthn such perod, and the
amount of the ta mposed by secton 1400 wth respect to such wages. ach
statement sha be furnshed to the empoyee not ater than the ast day of the
second caendar month foowng the perod covered by the statement, e cept
that, f the empoyee eaves the empoy of the empoyer, the fna statement
sha be furnshed on the day on whch the ast payment of wages s made to
the empoyee. The empoyer may, at hs opton, furnsh such a statement to
any empoyee at the tme of each payment of wages to the empoyee durng
any caendar quarter, n eu of a statement coverng such quarter and, u
such case, the statement may show the date of payment of the wages, n eu
of the perod covered by the statement
(b) Penaty fob aure to -knsh. ny empoyer who wfuy fas to
furnsh a statement to an empoyee n the manner, at the tme, and showng
the nformaton, requred under subsecton (a), sha for each such faure be
sub|ect to a cv penaty of not more than 5.
foows:
In addton to other ta es, every empoyer sha pay an e cse ta , wth
respect to havng ndvduas n hs empoy, equa to the foowng per-
centages of the wages (as defned n secton 1420(a)) pad by hm after
December 31, 1936, wth respect to empoyment (as defned n secton 1426(b))
after such date:
(1) Wth respect to wages pad durng the caendar years 1939, 1940, 1941,
and 1942, the rate sha be 1 per centum.
(2) Wth respect to wages pad durng the caendar years 1943, 1944, and
1945, the rate sha be 2 per centum.
(3) Wth respect to wages pad durng the caendar years 1946, 1947, and
194 , the rate sha be 21/. per centum.
(4) Wth respect to wages pad after December 31, 194 , the rate sha be
3 per centum.
foows:
Sec. 1411. d|ustment of Ta .
If more or ess than the correct amount of ta Imposed by secton 1410 s
pad wth respect to any payment of remuneraton, proper ad|ustments wth
respect to the ta sha be made, wthout nterest, n such manner and at such
tmes as may be prescrbed by reguatons made under ths subchapter.
Sec. 606. ffectve anuary 1, 1940, secton 1426 of the Interna Revenue
Code Is amended to read as foows:
(a) Wages. The term wages means a remuneraton for empoyment,
ncudng the cash vaue of a remuneraton pad n any medum other than
cash e cept that such term sha not ncude
(1) That part of the remuneraton whch, after remuneraton equa to
3,000 has een pad to an ndvdua by an empoyer wth respect to
empoyment durng any caendar year, s pad to such ndvdua by such
empoyer wth respect to empoyment durng such caendar year
(2) The amount of any payment made to, or on behaf of, an empoyee
under a pan or system estabshed by an empoyer whch makes provson
for hs empoyees generay or for a cass or casses of hs empoyees
(ncudng any amount pad by an empoyer for nsurance or annutes,
or nto a fund, to provde for any such payment), on account of ( ) retre-
ment, or ( ) sckness or accdent dsabty, or (C) medca and hospta-
zaton e penses n connecton wth sckness or accdent dsabty, or
(D) death, provded the empoyee () has not the opton to receve,
nstead of provson for such death beneft, any part of such payment or,
f such death beneft s nsured, any part of the premums (or contrbutons
to premums) pad by hs empoyer, and () has not the rght, under the
provsons of the pan or system or pocy of nsurance provdng for such
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472
death beneft, to assgn such beneft, or to receve a cash consderaton
eu of such beneft ether upon hs wthdrawa from the pan or systea
provdng for such beneft or upon termnaton of such pan or system e
pocy of nsurance or of hs empoyment wth such empoyer
(3) The payment by an empoyer (wthout deducton from the remuner-
aton of the empoyee) ( ) of the ta mposed upon an empoyee under
secton 1400 or ( ) of any payment requred from an empoyee under a
State unempoyment compensaton aw or
(4) Dsmssa payments whch the empoyer Is not egay requred to
make.
(b) mpoyment. The term empoyment means any servce per-
formed pror to anuary 1, 1940, whch was empoyment as defned In ths
secton pror to such date, and any servce, of whatever nature, perform
after December 31, 1939, by an empoyee for the person empoyng hm, rre-
spectve of the ctzenshp or resdence of ether, ( ) wthn the Unted State ,
or ( ) on or n connecton wth an mercan vesse under a contract of servce
whch s entered nto wthn the Unted States or durng the performance ot
whch the vesse touches nt a port In the Unted States, If the empoyee s
empoyed on and n connecton wth such vesse when outsde the Unted
States, e cept
(1) grcutura abor (as defned n subsecton (h) of ths secton)
(2) Domestc servce In a prvate home, oca coege cub, or oca
chapter of a coege fraternty or sororty
(3) Casua abor not n the course of the empoyer s trade or basnet
(4) Servce performed by an Indvdua n the empoy of hs son, dau|b-
ter, or spouse, and servce performed by a chd under the age of 21 n
the empoy of hs father or mother
(5) Servce performed on or n connecton wth a vesse not an mer-
can vesse by an empoyee, f the empoyee s empoyed on and n connecton
wth such vesse when outsde the Unted States
(6) Servce performed n the empoy of the Unted States Government,
or of an Instrumentaty of the Unted States whch s ( ) whoy owned
by the Unted States, or ( ) e empt from the ta mposed by secton
1410 by vrtue of any other provson of aw
(7) Servce performed n the empoy of a State, or any potca a
dvson thereof, or any nstrumentaty of any one or more of the fore-
gong whch s whoy owned by one or more States or potca subdvaoM
and any servce performed n the empoy of any nstrumentaty of one or
more States or potca subdvsons to the e tent that the nstrumentaty
s, wth respect to such servce, mmune under the Consttuton of te
Unted States from the ta mposed by secton 1410
( ) Servce performed n the empoy of a corporaton, communty
chest, fund, or foundaton, organzed and operated e cusvey for regous,
chartabe, scentfc, terary, or educatona purposes, or for the pre-
venton of cruety to chdren or anmas, no part of the net earnngs of
whch nures to the beneft of any prvate sharehoder or ndvdua, nnd
no substanta part of the actvtes of whch s carryng on propaganda
or otherwse attemptng, to nfuence egsaton
(9) Servce performed by an ndvdua as an empoyee or empoyee
representatve as defned In secton 1532
(10) ( ) Servce performed n any caendar quarter n the empoy
any organzaton e empt from ncome ta under secton 101, f
() the remuneraton for such servce does not e ceed 45. or
() such servce s n connecton wth the coecton of dues or
premums for a fraterna benefcary socety, order, or assocaton, and
s performed away from the home offce, or s rtuastc servce In
connecton wth any such socety, order, or assocaton, or
() such servce s performed by a student who s enroed and
s reguary attendng casses at a schoo, coege, or unversty
( ) Servce performed n the empoy of an agrcutura or hortcutura
organzaton e empt from ncome ta under secton 101(1)
(C) Servce performed n the empoy of a vountary empoyees benefc-
ary assocaton provdng for the payment of fe, sck, accdent, or other
benefts to the members of such assocaton or ther dependents, f (
part of ts net earnngs nures (other than through such payments) to f e
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beneft of any prvate sharehoder or Indvdua, and () 5 per centum or
more of the ncome conssts of amounts coected from members for the soe
purpose of makng such payments and meetng e penses
(D) Servce performed n the empoy of a vountary empoyees bene-
fcary assocaton provdng for the payment of fe, sck, acedent, or other
benefts to the members of such assocaton or ther dependents or ther
desgnated benefcares, f () admsson to membershp n such assocaton
Is mted to ndvduas who are offcers or empoyees of the Unted States
Government, and () no part of the net earnngs of such assocaton nures
(other than through such payments) to the beneft of any prvate share-
boder or ndvdua
( ) Servce performed n any caendar quarter n the empoy of a
schoo, coege, or unversty, not e empt from ncome ta under secton
101, f such servce s performed by a student who s enroed and s regu-
ary attendng casses at such schoo, coege, or unversty, and the remuner-
aton for such servce does not e ceed 45 (e cusve of room, board, and
tuton)
(11) Servce performed n the empoy of a foregn government (ncud-
ng servce as a consuar or other offcer or empoyee or a nondpomatc
representatve)
(12) Servce performed n the empoy of an nstrumentaty whoy
owned by a foregn government
( ) If the servce s of a character smar to that performed n
foregn countres by empoyees of the Unted States Government or of
an nstrumentaty thereof and
( ) If the Secretary of State sha certfy to the Secretary of the
Treasury that the foregn government, wth respect to whose nstru-
mentaty and empoyees thereof e empton s camed, grants an equv-
aent e empton wth respect to smar servce performed n the foregn
country by empoyees of the Unted States Government and of nstru-
mentates thereof
(13) Servce performed as a student nurse n the empoy of a hospta
or a nurses tranng schoo by an ndvdua who s enroed and s reguary
attendng casses n a nurses tranng schoo chartered or approved pur-
suant to State aw and servce performed as an nterne n the empoy of
a hospta by an ndvdua who has competed a four years course n a
medca schoo chartered or approved pursuant to State aw
(14) Servce performed by an ndvdua n (or as an offcer or member
of the crew of a vesse whe t s engaged n) the catchng, takng, har-
vestng, cutvatng, or farmng of any knd of fsh, shefsh, Crustacea,
sponges, seaweeds, or other aquatc forms of anma and vegetabe fe
(ncudng servce performed by any such ndvdua as an ordnary nc-
dent to any such actvty), e cept ( ) servce performed n connecton
wth the catchng or takng of samon or habut, for commerca purposes,
and ( ) servce performed on or n connecton wth a vesse of more than
10 net tons (determned n the manner provded for determnng the regster
tonnage of merchant vesses under the aws of the Unted States) or
(15) Servce performed by an Indvdua under the age of 1 n the
devery or dstrbuton of newspapers or shoppng news, not ncudng
devery or dstrbuton to any pont for subsequent devery or dstrbuton.
(c) Incuded and cuded Servce. If the servces performed durng one-
haf or more of any pay perod by an empoyee for the person empoyng hm
consttute empoyment, a the servces of such empoyee for such perod sha
be deemed to be empoyment but f the servces performed durng more than
one-haf of any such pay perod by an empoyee for the person empoyng hm
do not consttute empoyment, then none of the servces of such empoyee for
such perod sha be deemed to be empoyment. s used n ths subsecton the
term pay perod means a perod (of not more than 31 consecutve days) for
whch a payment of remuneraton s ordnary made to the empoyee by the
person empoyng hm. Ths subsecton sha not be appcabe wth respect to
servces performed n a pay perod by an empoyee for the person empoyng
hm, where any of such servce s e cepted by paragraph (9) of subsecton (b).
(d) mpoyee. The term empoyee ncudes an offcer of a corporaton.
(e) State. The term State ncudes aska, awa, and the Dstrct of
Coumba.
09196 40 16
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(f) Person. The term person moans an Indvdua, a trust or estate,
partners-hp, or a corporaton.
(g) mercan esse. The term mercan vesse means any vesse docu-
mented or numbered under the aws of the Unted States and ncudes anv
vesse whch s nether documented or numbered under the aws of the Unted
States nor documented under the aws of any foregn country, If ts crew s
empoyed soey by one or more ctzens or resdents of the Unted States or
corporatons organzed under the aws of the Unted States or of any State
(h) grcutura Labor. The term agrcutura abor Incudes a servce
performed
(1) On a farm, n the empoy of any person, n connecton wth cut-
vatng the so, or n connecton wth rasng or harvestng any agrcutura
or hortcutura commodty, ncudng the rasng, shearng, feedng, carng:
for, tranng, and management of vestock, bees, poutry, and fur bearng
anmas and wdfe.
(2) In the empoy of the owner or tenant or other operator of a farm, n
connecton wth the operaton, management, conservaton, mprovement, or
mantenance of such farm and ts toos and equpment, or n savagng
tmber or cearng and of brush and other debrs eft by a hurrcane, If the
ma|or part of such servce s performed on a farm.
(3) In connecton wth the producton or harvestng of mape srup or
mape sugar or any commodty defned as an agrcutura commodty n
secton 15(g) of the grcutura Marketng ct, as amended, or In con-
necton wth the rasng or harvestng of mushrooms, or n connecton wth
the hatchng of poutry, or n connecton wth the gnnng of cotton, or n
connecton wth the operaton or mantenance of dtches, canas, reservors,
or waterways used e cusvey for suppyng and storng water for farmng
purposes.
(4) In handng, pantng, dryng, packng, packagng, processng, frert
ng, gradng, storng, or deverng to storage or to market or to a carrer for
transportaton to market, any agrcutura or hortcutura commodty
but ony f such servce Is performed as an Incdent to ordnary farmng
operatons or, n the case of fruts and vegetabes, as an Incdent to the
preparaton of such fruts or vegetabes for market. The provsons of ths
paragraph sha not be deemed to be appcabe wth respect to servce per-
formed In connecton wth commerca cannng or commerca freezng or n
connecton wth any agrcutura or hortcutura commodty after ts
devery to a termna market for dstrbuton for consumpton.
s used n ths subsecton, the term farm ncudes stock, dary, poutry,
frut, fur-bearng anma, and truck farms, pantatons, ranches, nurseres,
ranges, greenhouses or other smar structures used prmary for the rasug
of agrcutura or hortcutura commodtes, and orchards.
Sec. 607. Subchapter of Chapter 9 of the Interna Revenue Code s amended
by addng nt the end thereof the foowng new secton:
Set. 1432. Ths subchapter may be cted as the edera Insurance Contrbu-
tons ct .
Sec. 60 . Secton 1600 of the Interna Revenue Code s amended to read as
foows:
very empoyer (as defned n secton 1607(a)) sha pay for the caendar
year 1039 and for each caendar year thereafter an e cse ta , wth respect to
havng ndvduas n hs empoy, equa to 3 per centum of the tota wages (as
defned n secton 1607(b)) pad by hm durng the caender year wth respect
to empoyment (as defned n secton 1607(c)) after December 31, 193 .
foows:
Sec. 1601. Crfdts ganst Ta .
(a) Contrbutons to State Unempoyment unds.
(1) The ta payer may, to the e tent provded n ths subsecton and
subsecton (c), credt aganst the ta mposed by secton 1600 the amount
of contrbutons pad by hm nto an unempoyment fund mantaned durng
the ta abe ypnr under the unempoyment compensaton aw of a State
whch Is certfed for the ta abe year as provded In secton 1603.
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(2) The credt sha be permtted aganst the ta for the ta abe year
ony for the amount of contrbutons pad wth respect to such ta abe year.
(3) The credt aganst the ta for any ta abe year sha be permtted
ony for contrbutons pad on or before the ast day upon whch the ta -
payer s requred under secton 1604 to fe a return for such year e cept
that credt sha be permtted for contrbutons pad after such ast day
but before uy 1 ne t foowng such ast day, but such credt sha not
e ceed 90 per centum of the amount whch woud have been aowabe as
credt on account of such contrbutons had they been pad on or before
Such ast day. The precedng provsons of ths subdvson sha not appy
to the credt aganst the ta of a ta payer for any ta abe year If such ta -
payer s assets, at any tme durng the perod from such ast day for fng
a return for such year to une 30 ne t foowng such ast day, both dates
ncusve, are n the custody or contro of a recever, trustee, or other
fducary apponted by, or under the contro of, a court of competent
|ursdcton.
(4) Upon the payment of contrbutons nto the unempoyment fund of a
State whch are requred under the unempoyment compensaton aw of that
State wth respect to remuneraton on the bass of whch, pror to such pay-
ment nto the proper fund, the ta payer erroneousy pad an amount as
contrbutons under another unempoyment compensaton aw, the payment
nto the proper fund sha, for purposes of credt aganst the ta , be deemed
to have been made at the tme of the erroneous payment. If, by reason of
such other aw, the ta payer was entted to cease payng contrbutons wth
respect to servces sub|ect to such other aw, the payment Into the proper
fund sha, for purposes of credt aganst the ta , be deemed to have been
made on the date the return for the ta abe year was fed under sec-
ton 1604.
(5) Refund of the ta (ncudng penaty and nterest coected wth
respect thereto, f any), based on any credt aowabe under ths secton,
may be made n accordance wth the provsons of aw appcabe n the
case of erroneous or ega coecton of the ta . No nterest sha be
aowed or pad on the amount of any such refund.
(b) ddtona Cbedt. In addton to the credt aowed under subsec-
ton (a), a ta payer may credt aganst the ta mposed by secton 1600 for any
ta abe year an amount, wth respect to the unempoyment compensaton aw
of each State certfed for the ta abe year as provded n secton t 02 (or wth
respect to any provsons thereof so certfed), equa to the amount, f any, by
whch the contrbutons requred to be pad by hm wth respect to the ta abe
year were ess than the contrbutons such ta payer woud have been requred to
pay f throughout the ta abe year he had been sub|ect under such State aw
to the hghest rate apped thereunder n the ta abe year to any person havng
ndvduas n hs empoy, or to a rate of 2.7 per centum, whchever rate s ower.
(c) Lmt on Tota Credts. The tota credts aowed to a ta payer under
ths subchapter sha not e ceed 90 per centum of the ta aganst whch such
credts are aowabe.
Sec. 610. (a) Secton 1602 of the Interna Revenue Code s amended to read
as foows:
Sec. 1602. Condtons of ddtona Credt owance.
(a) State Standards. ta payer sha be aowed an addtona credt
under secton 1601(b) wth respect to any reduced rate of contrbutons per-
mtted by a State aw, ony f the oard fnds that under such aw
(1) No reduced rate of contrbutons to a pooed fund or to a partay
pooed account, s permtted to a person (or group of persons) havng nd-
vduas n hs (or ther) empoy e cept on the bass of hs (or ther)
e perence wth respect to unempoyment or other factors bearng a drect
reaton to unempoyment rsk durng not ess than the three consecutve
years mmedatey precedng the computaton date
(2) No reduced rate of contrbutons to a guaranteed empoyment ac-
count s permtted to a person (or a group of persons) havng ndvduas n
hs (or ther) empoy uness ( ) the guaranty of remuneraton was fufed
n the year precedng the computaton date and ( ) the baance of such
account amounts to not ess than 2 per centum of that part of the pay ro
or pay ros for the three years precedng the computaton date by whch
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476
contrbutons to such account were measured: and (C) such contrbutons
were payabe to such account wth respect to three years precedng the
computaton date
(3) Such ower rate, wth respect to contrbutons to a separate reserve
account, Is permtted ony when ( ) compensaton has been payabe from
such account throughout the precedng caendar year, and ( ) sueb account
amounts to not ess than fve tmes the argest amount of compensaton par
from such account wthn any one of the three precedng caendar years,
and (C) such account amounts tp not ess than 7y2 per centum of the tota
wages payabe by hm (pus the tota wages payabe by any other em-
poyers who may be contrbutng to such account) wth respect to empoy-
ment In such State n the precedng caendar year.
(4) ffectve anuary 1, 1042, paragraph (3) of ths subsecton
(3) No reduced rate of contrbutons to a reserve account s pennng
to a person (or group of persons) havng ndvduas n hs (or ther)
empoy uness ( ) compensaton has been payabe from such aceonat
throughout the year precedng the computaton date, and ( ) the baant
of such account amounts to not ess than ve tmes the argest amount o
compensaton pad from such account wthn any one of the three year
precedng such date, and (C) the baance of such account amounts to M
ess than 2 per centum of that part of the pay ro or pay ros fur te
three years precedng such date by whch contrbutons to such account
were measured, and (D) such contrbutons were payabe to such account
wth respect to the three years precedng the computaton date.
(b) Certfcaton by the oard Wth Respect to ddtona Cbeb:t
owance.
(1) On December 31 n each ta abe year, the oard sha certfy t
the Secretary of the Treasury the aw of each State (certfed wth respect
to such year by the oard as provded In secton 1603) wth respect t
whch It fnds that reduced rates of contrbutons were aowabe wth
respect to such ta abe year ony In accordance wth the provsons of
subsecton (a) of ths secton.
(2) If the oard fnds that under the aw of a snge State (certfa
by the oard as provded In secton 1603) more than one type of fund
account s mantaned, and reduced rates of contrbutons to more than one
type of fund or account were aowabe wth respect to any ta abe year,
and one or more of such reduced rates were aowabe under condtons
not fufng the requrements of subsecton (a) of ths secton, the oard
sha, on December 31 of such ta abe year, certfy to the Secretary of the
Treasury ony those provsons of the State aw pursuant to whch reduce1
rates of contrbutons were aowabe wth respect to such ta abe vest
under condtons fufng the requrements of subsecton (a) of ths sec
ton, and sha, n connecton therewth, desgnate the knd of fund or
account, as defned In subsecton (c) of ths secton, estabshed by the
provsons so certfed. If the oard fnds that a part of any reduced m
of contrbutons payabe under such aw or under such provsons s re-
qured to be pad nto one fund or account and a part nto another fund
or account, the oard sha make such certfcaton pursuant to ths para-
graph as t fnds w assure the aowance of addtona credts ony
respect to that part of the reduced rate of contrbutons whch s aow
under provsons whch do fuf the requrements of subsecton (a)
ths secton. .
(3) The oard sha, wthn 30 days after any State aw s submtted
to It for such purpose, certfy to the State agency ts fndngs wth respect W
reduced rates of contrbutons to a type of fund or account, as defne ,n
subsecton (c) of ths secton, whch are aowabe under such State a
ony n accordance wth the provsons of subsecton (a) of ths secton-
, fter makng such fndngs, the oard sha not wthhod ts certfcate
to the Secretary of the Treasury of such State aw, or of the provson
thereof wth respect to whch such fndngs were made, for any ta.wf
year pursuant to paragraph (1) or (2) of ths subsecton uness, a.w
reasonabe notce and opportunty for hearng to the State |eW
oard fnds the State aw no onger contans the provsons specM
subsecton (a) of ths secton or the State has, wth respect to such us-
abe year, faed to compy substantay wth any such provson.
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477
Msc.
(c) Defntons. s used n ths secton
(1) Reserve account. The term reserve account means a separate
account n an unempoyment fund, mantaned wth respect to a person
(or group of persons) havng Indvduas n hs (or ther) empoy, from
whch account, uness such account s e hausted, s ad a and ony
compensaton payabe on the bass of servces performed for such person
(or for one or more of the persons comprsng the group).
(2) Pooed fund. The term pooed fund means an unempoyment
fund or any part thereof (other than a reserve account or a guaranteed
empoyment account) nto whch the tota contrbutons of persons con-
trbutng thereto are payabe, n whch a contrbutons are mnged and
undvded, and from whch compensaton s payabe to a ndvduas
egbe for compensaton from such fund.
(3) I artay pooed account. The term partay pooed account
means a part of an unempoyment fund n whch part of the fund a con-
trbutons thereto are mnged and undvded, and from whch part of the
fund compensaton s payabe ony to Indvduas to whom compensaton
woud be payabe from a reserve account or from a guaranteed empoyment
account but for the e hauston or termnaton of such reserve account or
of such guaranteed empoyment account. Payments from a reserve account
or guaranteed empoyment account nto a partay pooed account sha
not be construed to be nconsstent wth the provsons of paragraph (1)
or (4) of ths subsecton.
(4) Guaranteed empoyment account. The term guaranteed em-
poyment account means a separate account, n an unempoyment fund,
mantaned wth respect to a person (or group of persons) havng nd-
vduas n hs (or ther) empoy who, n accordance wth the provsons of
the State aw or of a pan thereunder approved by the State agency.
( ) guarantees n advance at east 30 hours of work, for whch
remuneraton w be pad at not ess than stated rates, for each of 40
weeks (or f more, one weeky hour may be deducted for each added
week guaranteed) n a year, to a the ndvduas who are n hs (or
ther) empoy n, and who contnue to be avaabe for sutabe work
n, one or more dstnct estabshments, e cept that any such ndvdu-
a s guaranty may commence after a probatonary perod (ncuded
wthn the 11 or ess consecutve weeks mmedatey foowng the frst
week n whch the ndvdua renders servces), and
( ) gves securty or assurance, satsfactory to the State agency,
for the fufment of such guarantes, from whch account, uness such
account s e hausted or termnated, s pad a and ony compensaton,
payabe on the bass of servces performed for such person (or for
one or more of Lhe persons comprsng the group), to any such nd-
vdua whose guaranteed remuneraton has not been pad (ether pur-
suant to the guaranty or from the securty or assurance provded for
the fufment of the guaranty), or whose guaranty s not renewed and
who s otherwse egbe for compensaton under the State aw.
(5) Year. The term year means any 12 consecutve caendar months.
(6) aance. The term baance , wth respect to a reserve account
or a guaranteed empoyment account, means the amount standng to the
credt of the account as of the computaton date e cept that, f subsequent
to anuary 1, 1940, any moneys have been pad nto or credted to such
account other than payments thereto by persons havng ndvduas n
ther empoy, such term sha mean the amount n such account as of the
computaton date ess the tota of such other moneys pad nto or credted
to such account subsequent to anuary 1, 1940.
(7) Computaton date. The term computaton date means the date,
occurrng at east once In each caendar year and wthn 27 weeks pror
to the effectve date of new rates of contrbutons, as of whch such rates
are computed.
( ) Reduced rate. The term reduced rate means a rate of contrbu-
tons ower than the standard rate appcabe under the State aw, and
the term standard rate means the rate on the bass of whch varatons
therefrom are computed.
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47
Sec. 611. Paragraphs (1), (3), and (4) of secton 1603(a) of the Intern
Revenue Code are amended to read as foows:
(1) compensaton s to be pad through pubc empoyment off -
or such other agences as the oard may approve
(3) money receved n the unempoyment fund sha (e cept for re-
funds of sums erroneousy pad nto such fund and e cept for refunds pa-:
n accordance wth the provsons of secton 1606(b)) mmedatey upon s t
recept be pad over to the Secretary of the Treasury to the credt of ft
Unempoyment Trust und estabshed by secton 904 of the Soca Secur
ct (49 Stat 640 U. S. C, 1934 ed., Tte 42, sec. 1104)
(4) money wthdrawn from the unempoyment fund of the Sta
sha be used soey n the payment of unempoyment compensaton, a-
eusve of e penses of admnstraton, and for refunds of sums erroneo3 r
pad nto such fund and refunds pad n accordance wth the provson
of secton 1606(b)
Sec. 612. Secton 1604(b) of the Interna Revenue Code s amended to m
as foows:
(b) tenson of Tme fob ng. The Commssoner may e tend the tte
for fng the return of the ta mposed by ths subchapter, under seh m -
and reguatons as he may prescrbe wth the npprova of the Secretary, k:
no such e tenson sha be for more than 90 days.
Sec. 613. Secton 1006 of the Interna Revenue Code s amended to read u
f oow :
Sec. 1606. Interstate Commerce and edera nstrt|me. -tate .
(a) No person requred under a State aw to make payments to an unes
poyment fund sha be reeved from compance therewth on the ground th
he s engaged n nterstate or foregn commerce, or that the State aw
not dstngush between empoyees engaged n nterstate or foregn comnertt
and those engaged n ntrastate commerce.
(b) The egsature of any State may requre any nstrumentaty of th
Unted States (e cept such as are ( ) whoy owned by the Unted Stat
or ( ) e empt from the ta mposed by secton 1600 by vrtue of any otter
provson of aw), and the ndvduas n ts empoy, to make contrbutons :|
an unempoyment fund under a State unempoyment compensaton aw appro
by the oard under secton 1603 and (e cept as provded n secton 5240 f.
the Revsed Statutes, as amended, and as modfed by subsecton (c) of tn-
secton) to compy otherwse wth such aw. The permsson granted n thy
subsecton sha appy (1) ony to the e tent that no dscrmnaton s
aganst such nstrumentaty, so that f the rate of contrbuton s unform upt
a other persons sub|ect to such aw on account of havng Indvduas n thf
empoy, and upon a empoyees of such persons, respectvey, the contrbut
requred of such nstrumentaty or the ndvduas n ts empoy sha not
at a greater rate than s requred of such other persons and such empoy
and f the rates are determned separatey for dfferent persons or casses o
persons havng ndvduas n ther empoy or for dfferent casses of empoy
the determnaton sha be based soey upon unempoyment e perence
other factors bearng a drect reaton to unempoyment rsk, and (2)
f such State aw makes provson for the refund of any contrbutons requre
under such aw from an nstrumentaty of the Unted States or ts empoy
for any year n the event sad State s not certfed by the oard under seen
1603 wth respect to such year.
(c) Nothng contaned n secton 5240 of the Revsed Statutes, as amend ,
sha prevent any State from requrng any natona bankng assocaton s
render returns and reports reatve to the assocaton s empoyees, ther re-
muneraton and servces, to the same e tent that other persons are reqnm
to render ke returns and reports under a State aw requrng contrbute
to an unempoyment fund. The Comptroer of the Currency sha, upon
of a copy of any such return or report of a natona bankng assocaton ft
and upon request of, any duy authorzed offca, body, or commsson of
State, cause an e amnaton of the correctness of such return or report
be made at the tme of the ne t succeedng e amnaton of such assoctf 1
and sha thereupon transmt to such offca, body, or commsson a corn -
statement of hs fndngs respectng the accuracy of such returns or repor|
(d) No person sha be reeved from compance wth a State unempoT
compensaton aw on the ground that servces were performed on U 1
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479
Msc.
premses owned, hed, or possessed by the Unted States, and any State sha
hare fu |ursdcton and power to enforce the provsons of such aw to the
same e tent and wth the same effect as though such pace were not owned,
hed, or possessed by the Unted States.
Sec. 614. ffectve anuary 1, 1940, secton 1607 of the Interna Revenue
Code s amended to read as foows:
(a) mpoyer. The term empoyer does not Incude any person uness
on each of some 20 days durng the ta abe year, each day beng n a dfferent
caendar week, the tota number of ndvduas who were empoyed by hm
n empoyment for some porton of the day (whether or not at the same
moment of tme) was or more.
(b) Wages. The term wages means a remuneraton for empoyment,
ncudng the cash vaue of a remuneraton pad n any medum other than
cash e cept that such term sha not ncude
(1) That part of the remuneraton whch, after remuneraton equa to
3,000 has been pad to an ndvdua by an empoyer wth respect to
empoyment durng any caendar year, s pad to such ndvdua by
such empoyer wth respect to empoyment durng such caendar year
(2) The amount of any payment made to, or on behaf of, an empoyee
under a pan or system estabshed by an empoyer whch makes provson
for hs empoyees generay or for a cass or casses of hs empoyees
(ncudng any amount pad by an empoyer for nsurance or annutes,
or nto a fund, to provde for any such payment), on account of ( )
retrement, or ( ) sckness or accdent dsabty, or (C) medca and
hosptazaton e penses n connecton wth sckness or accdent dsabty,
or (D) death, provded the empoyee () has not the opton to receve,
nstead of provson for such death beneft, any part of such payment or,
f such death beneft s nsured, any part of the premums (or contrbu-
tons to premums) pad by hs empoyer, and () has not the rght, under
the provsons of the pan or system or pocy of nsurance provdng for
such death beneft, to assgn such beneft, or to receve a cash consderaton
n eu of such beneft ether upon hs wthdrawa from the pan or system
provdng for such beneft or upon termnaton of such pan or system
or pocy of nsurance or of hs empoyment wth such empoyer
(3) The payment by an empoyer (wthout deducton from the remu-
neraton of the empoyee) ( ) of the ta mposed upon an empoyee under
secton 1400 or ( ) of any payment requred from an empoyee under a
State unempoyment compensaton aw or
(4) Dsmssa payments whch the empoyer s not egay requred to
make.
(c) mpoyment. The term empoyment means any servce performed
pror to anuary 1, 1940, whch was empoyment as defned n ths secton pror
to such date, and any servce, of whatever nature, performed after December
31, 1939, wthn the Unted States by an empoyee for the person empoyng
hm, rrespectve of the ctzenshp or resdence of ether, e cept
(1) grcutura abor (as defned n subsecton (1))
(2) Domestc servce n a prvate home, oca coege cub, or oca
chapter of a coege fraternty or sororty
(3) Casua abor not n the course of the empoyer s trade or busness
(4) Servce performed as an offcer or member of the crew of a vesse
on the navgabe waters of the Unted States
(5) Servce performed by an ndvdua In the empoy of hs son,
daughter, or spouse, and servce performed by a chd under the age of 21
n the empoy of hs father or mother
(6) Servce performed n the empoy of the Unted States Government
or of an nstrumentaty of the Unted States whch s ( ) whoy owned
by the Unted States, or ( ) e empt from the ta mposed by secton 1600
by vrtue of any other provson of aw
(7) Servce performed n the empoy of a State, or any potca sub-
dvson thereof, or any nstrumentaty of any one or more of the foregong
whch s whoy owned by one or more States or potca subdvsons and
any servce performed n the empoy of any nstrumentaty of one or more
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States or potca subdvsons to the e tent that the nstrumentaty U,
wth respect to such servce, mmune under the Consttuton of the Unted
States from the ta mposed by secton 1600
( ) Servce performed n the empoy of a corporaton, commnnt|
chest, fund, or foundaton, organzed and operated e cusvey for regous,
chartabe, scentst, terary, or educatona purposes, or for the preven-
ton of cruety to chdren or anmas, no part of the net earnngs of whoh
nures to the beneft of any prvate sharehoder or ndvdua, and no sub-
stanta part of the actvtes of whch Is carryng on propaganda, or
otherwse attemptng, to nfuence egsaton
(9) Servce performed by an ndvdua as an empoyee or empoyee
representatve as defned n secton 1 of the Raroad Unempoyment In-
surance ct
(10) ( ) Servce performed In any caendar quarter n the empoy
of any organzaton e empt from ncome ta under secton 101, f
() the remuneraton for such servce does not e ceed 45, or
() such servce s n connecton wth the coecton of dues or
premums for a fraterna benefcary socety, order, or assocaton, and
s performed away from the home offce, or s rtuastc servce n
connecton wth any such socety, order, or assocaton, or
() such servce s performed by a student who s enroed and
s reguary attendng casses at a schoo, coege, or unversty
( ) Servce performed n the empoy of an agrcutura or hortcutura
organzaton e empt from ncome ta under secton 101(1)
(C) Servce performed n the empoy of a vountary empoyees bene-
fcary assocaton provdng for the payment of fe, sck, accdent, or other
benefts to the members of such assocaton or ther dependents, f ( nf
part of ts net earnngs nures (other than through such payments) to toe
beneft of any prvate sharehoder or Indvdua, and () So per centum
or more of the ncome conssts of amounts coected from members for the
soe purpose of makng such payments and meetng e penses
(D) Servce performed n the empoy of a vountary empoyees bene-
fcary assocaton provdng for the payment of fe, sck, accdent, or otter
benefts to the members of such assocaton or ther dependents or ther
desgnated benefcares, f () admsson to membershp n such assoca-
ton s mted to ndvduas who are offcers or empoyees of the Unted
States Government, and () no part of the net earnngs of such assocate
nures (other than through such payments) to the beneft of any prvate
sharehoder or ndvdua
( ) Servce performed n any caendar quarter n the empoy of a
schoo, coege, or unversty, not e empt from ncome ta under secton
101, f such servce s performed by a student who s enroed and s res-
uary attendng casses at such schoo, coege, or unversty, and the
remuneraton for such servce does not e ceed 45 (e cusve of room,
board, and tuton)
(11) Servce performed n the empoy of a foregn government (ncud-
ng servce as a consuar or other offcer or empoyee or a nondpomatc
represents ve)
(12) Servce performed n the empoy of an Instrumentaty whoy
owned by a foregn government
( ) If the servce s of a character smar to that performed n
foregn countres by empoyees of the Unted States Government or of
an nstrumentaty thereof and
( ) If the Secretary of State sha certfy to the Secretary of the
Treasury that the foregn government, wth respect to whose n|rru-
mentaty e empton s camed, grnnts an equvaent e empton wth
respect to smar servce performed n the foregn country by empoye s
of the Unted States Government and of nstrumentates thereof:
(13) Servce performed as a student nurse n the empoy of a hospta
or a nurses tranng schoo by an ndvdua who s enroed and s regu-
ary attendng casses n a nurses tranng schoo chartered or approved
pursuant to State aw and servce performed as an nterne n the empoy
of a hospta by an ndvdua who has competed a four years course n
medca schoo chartered or approved pursuant to State aw
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(14) Servce performed by an ndvdua for a person as an Insurance
agent or as an nsurance soctor, f a such servce performed by such
ndvdua for such person s performed for remuneraton soey by way of
commsson or
(15) Servce performed by an ndvdua nnder the age of eghteen n
the devery or dstrbuton of newspapers or shoppng news, not ncudng
devery or dstrbuton to any pont for subsequent devery or dstrbuton.
(d) Incuded and cuded Servce. If the servces performed durng
one-haf or more of any pay perod by an empoyee for the person empoyng
hm consttute empoyment, a the servces of such empoyee for such perod
sha be deemed to be empoyment but f the servces performed durng more
than one-haf of any such pay perod by an empoyee for the person empoyng
hm do not consttute empoyment, then none of the servces of such empoyee
for such perod sha be deemed to be empoyment. s used n ths subsecton
the term pay perod means a perod (of not more than 31 consecutve days)
for whch a payment of remuneraton s ordnary made to the empoyee by
the person empoyng hm. Ths subsecton sha not be appcabe wth respect
to servces performed n a pay perod by an empoyee for the person empoyng
hm, where any of such servce s e cepted by paragraph (9) of subsecton (c).
(e) State gency. The term Sate agency means any State occr, board,
or other authorty, desgnated under a St.te aw to admnster the unempoy-
ment fund n such State.
(f) Unempoyment und. The term unempoyment fund means a speca
fund, estabshed under a State aw and admnstered by a State agency, for
the payment of compensaton. ny sums standng to the account of the State
agency n the Unempoyment Trust und estabshed by secton 904 of the
Soca Securty ct, as amended, sha be deemed to be a part of the unem-
poyment fund of the State, and no sums pad out of the Unempoyment Trust
und to such State agency sha cease to be a part of the unempoyment fund
of the State unt e pended by such State agency. n unempoyment fund
sha be deemed to be mantaned durng a ta abe year ony f throughout
such year, or such porton of the year as the unempoyment fund was n
e stence, no part of the moneys of such fund was e pended for any purpose
other than the payment of compensaton (e cusve of e penses of admns-
traton) and for refunds of sums erroneousy pad nto such fund and refunds
pad n accordance wth the provsons of secton 1606(b).
(g) CoNTRnunoNS. The term contrbutons means payments requred by
a State aw to be made Into an unempoyment fund by any person on account
of havng ndvduas n hs empoy, to the e tent that such payments are
made by hm wthout beng deducted or deductbe from the remuneraton of
ndvduas n hs empoy.
(h) Compknsatcon. The term compensaton means cash benefts pnyabe
to ndvduas wth respect to ther unempoyment.
() mpoyee. The term empoyee ncudes an offcer of a corporaton,
(|) State. The term State ncudes aska, awa, and the Dstrct
of Coumba.
(k) Person. The term person means an ndvdua, a trust or estate,
a partnershp, or a corporaton.
(1) grcutura Labor. The term agrcutura abor ncudes a servce
performed
(1) On a farm, n the empoy of any person, n connecton wth cut-
vatng the so, or n connecton wth rasng or harvestng any agrcutura
or hortcutura commodty, ncudng the rasng, shearng, feedng, carng
for, tranng, and management of vestock, bees, poutry, and fur-bearng
anmas and wdfe.
(2) In the empoy of the owner or tenant or other operator of a farm,
In connecton wth the operaton, management, conservaton, mprovement,
or mantenance of such farm and ts toos and equpment, or n savagng
tmber or cearng and of brush and other debrs eft by a hurrcane, f
the ma|or part of such servce s performed on a farm.
(3) In connecton wth the producton or harvestng of mape srup or
mape sugar or any commodty defned as an agrcutura commodty n
secton 15(g) of the grcutura Marketng ct, as amended, or n con-
necton wth the rasng or harvestng of mushrooms, or n connecton wth
the hatchng of poutry, or n connecton wth the gnnng of cotton, or
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4 2
In connecton wth the operaton or mantenance of dtches, canas, r r-
vors, or waterways used e cusvey for suppyng and storng water fa
farmng purposes.
(4) In handng, pantng, dryng, packng, packagng, processn:
freezng, gradng, storng, or deverng to storage or to market or to
carrer for transportaton to market, any agrcutura or hortcut r|:
commodty but ony f such servce s performed as an ncdent to ordnary
farmng operatons or, n the case of fruts and vegetabes, as an nek:
to the preparaton of such fruts or vegetabes for market The prorek
of ths paragraph sha not be deemed to be appcabe wth respect
servce performed n connecton wth commerca cannng or commerr
freezng or n connecton wth any agrcutura or hortcutura commod
after ts devery to a termna market for dstrbuton for consumpton
s used n ths subsecton, the term 1 farm ncudes stock, dary, pontn.
frut, fur-bearng anma, and truck farms, pantatons, ranches, nurscrfe
ranges, greenhouses or other smar structures used prmary for the rasn:
of agrcutura or hortcutura commodtes, and orchards.
Sec. 615. Subchapter C of Chapter 9 of the Interna Revenue Code s amen :
Sec. 1611. Ths subchapter may be cted as the edera Unemponfctf
Ta ct .

TITL III M NDM NTS TO TITL I O T SOCI L S CURITY CT.

Sec 02. Tte I of such ct s further amended by addng at the end thew
the foowng new sectons:
DISCLOSUR OP IN ORM TION IN POSS SSION O O RD.
Rfc. 1106. No dscosure of any return or porton of a return (ncudng I
formaton returns and other wrtten statements) fed wth the Commssons
of Interna Revenue under Tte III of the Soca Securty ct or the f
Insurance Contrbutons ct or under reguatons made under authorty tberecf
whch has been transmtted to the oard by the Commssoner of Interr
Revenue, or of any fe, record, report, or other paper, or any nfornut
obtaned at any tme by the oard or by any offcer or empoyee of the Item
n the course of dschargng the dutes of the oard, and no dscosure of Mf
such fe, record, report, or other paper, or nformaton, obtaned at any tn
by any person from the oard or from any offcer or empoyee of the osr
sha Ik made e cept as the oard may by reguatons prescrbe. ny pets
who sha voate any provson of ths secton sha be deemed guty of
msdemeanor and, upon convcton thereof, sha be punshed by a fne
e ceedng 1,000, or by mprsonment not e ceedng one year, or both.
P N LTY OR R UD.
Sec. 1107. (a) Whoever, wth the ntent to defraud any person, sha nut
or cause to be made any fase representaton concernng the requrements of 0e
ct, the edera Insurance Contrbutons ct, or the edera T|nenpon
Ta ct, or of any rues or reguatons ssued thereunder, knowng such ft
resentatons to be fase, sha be deemed guty of a msdemeanor, and,
convcton thereof, sha be punshed by a fne not e ceedng 1,000, of
Imprsonment not e ceedng one year, or both. .
(b) Whoever, wth the ntent to ect nformaton as to the date of bo
empoyment, wages, or benefts of any ndvdua (1) fasey represents tc W
oard that he s such ndvdua, or the wfe, parent, or chd of such n6W
or the duy authorzed agent of such Indvdua, or of the wfe, parent, or a
of such ndvdua, or (2) fasey represents to any person that he s an enpW|
or agent of the Unted States, sha be deemed guty of a msdemeanor,
upon convcton thereof, sha be punshed by a fne not e ceedng 1,000, or W
Imprsonment not e ceedng one year, or both.
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TITL I MISC LL N OUS PRO ISIONS.

Sec. 902. (a) ganst the ta Imposed by secton 901 of the Soca Securty
. ct for the caendar year 1036, 1937, or 193S, any ta payer sha be aowed
credt for the amount of contrbutons, wth respect to empoyment durng such
year, pad by hm nto an unempoyment fund under a State aw
(1) efore the s teth day after the date of the enactment of ths ct
(2) On or after such s teth day, wth respect to wages pad after the
forteth day after such date of enactment
(3) Wthout regard to the date of payment, f the assets of the ta payer
are, at any tme durng the ffty-nne-day perod foowng such date of enact-
ment, In the custody or contro of a recever, trustee, or other fducary
apponted by, or under the contro of, a court of competent |ursdcton.
(b) Upon the payment of contrbutons nto the unempoyment fund of a
State whch are requred under the unempoyment compensaton aw of that
State wth respect to remuneraton on the bass of whch, pror to such payment
nto the proper fund, the ta payer erroneousy pad an amount as contrbutons
under another unempoyment compensaton aw, the payment nto the proper
fund sha, for purposes of credt aganst the ta mposed by secton 901 of the
Soca Securty ct for the caendar years 1936, 1937, and 193 , respectvey, be
deemed to have been made at the tme of the erroneous payment. If, by reason
of such other aw, the ta payer was entted to cease payng contrbutons wth
respect to servces sub|ect to such other aw, the payment Into the proper fund
sha, for purposes of credt aganst the ta , be deemed to have been made on
the date the return for the ta abe year was fed under secton 905 of the
Soca Securty ct.
(c) The provsons of the Soca Securty ct n force pror to ebruary 11,
1939 (e cept the provsons mtng the credt to amounts pad before the date
of fng returns) sha appy to aowance of credt under subsectons (a), (b),
and (h), and the terms used n such subsectons sha have the same meanng
as when used n Tte I of the Soca Securty ct pror to such date. The
tota credt aowabe aganst the ta mposed by secton 901 of such ct for
the caendar years 1936, 1937, and 193 , respectvey, sha not e ceed 90 per
centum of such ta .
(d) efund of the ta (ncudng penaty and Interest coected wth respect
thereto, f any), based on any credt aowabe under subsectons (a), (b), and
(h), may be made n accordance wth the provsons of aw appcabe In the
case of erroneous or ega coecton of the ta . No Interest sha be aowed
or pad on the amount of any such refund.
(e) Notwthstandng the provsons of secton 1601(a)(2) of the Interna
Revenue Code, as amended, credt sha be permtted under such secton 1001,
aganst the ta for the ta abe year n whch remuneraton s pad for servces
rendered durng a pror year, for the amounts of contrbutons wth respect to
such remuneraton whch have not been credted aganst the ta for any pror
ta abe year. Credt sha be permtted under ths subsecton ony aganst the
ta for the years 1940, 1941, and 1942, and ony for contrbutons wth respect
to remuneraton for servces rendered after December 31, 193 .
(f) No ta sha be coected under Tte III or I of the Soca Securty
ct or under the edera Insurance Contrbutons ct or the edera Unem-
poyment Ta ct, wth respect to servces rendered pror to anuary 1, 1940,
whch are descrbed n subparagraphs (11) and (12) of sectons 142((b) and
1607(c) of the Interna Revenue Code, as amended, and any such ta heretofore
coected (ncudng penaty and nterest wth respect thereto. If any), sha be
refunded n accordance wth the provsons of aw appcabe n the case of
erroneous or ega coecton of the ta . No nterest sha be aowed or pad
on the amount of any such refund. No payment sha be made under Tte
II of the Soca Securty ct wth respect to servces rendered pror to anuary
1, 1940, whch are descrbed n subparagraphs (11) and (12) of secton 209(b)
of such ct, as amended.

(h) Notwthstandng the provson of secton 907(f) of the Soca Securty
ct mtng the term contrbutons to payments requred by a State aw,
credt sha be permtted aganst the ta mposed by secton 901 of such ct for
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the caendar year 1936 or 1937, for so ranch of any payments made as contr-
butons for such year Into the unempoyment fund of a State whch are hed by
the hghest court of such State not to be requred payments under the unem-
poyment compensaton aw of such State f they are not returned to the ta -
payer. So much of such payments as are not so returned sha be consdered to
be contrbutons for the purposes of secton 903 of such ct. The perods of
mtatons prescrbed by secton 3312(a) of the Interna Revenue Code sha
not begn to run, n the case of the ta for such year of any ta payer to whoa
any such payment s returned, unt the ast such payment s returned to te
ta payer.
() No part of the ta mposed by the edera Unempoyment Ta ct or t|
Tte I of the Soca Securty ct. whether or not the ta payer s entted to
a credt aganst such ta , sha be deemed to be a penaty or forfeture wthn
the meanng of secton 57| of the ct entted n ct to estabsh a unform
system of bankruptcy throughout the Unted States, approved uy 1, 1S9S, as
amended.
Sec )3. Secton 1430 of the Interna Revenue Code s amended by strkn
out 3702 and nsertng n eu thereof 3661.
Sec. 904. ffectve anuary 1, 1940, secton 142 of the Interna Revenue O
s amended by strkng out paragraphs (9) and (10) and nsertng n m
thereof paragraph (9).
Sec. 905. (a) No servce performed at any tme durng the caendar year I S
by any ndvdua sha, by reason of the ndvdua havng attaned the ape of
65. be e cepted from empoyment as defned n secton 1426(b) of Subchapter
of Chapter 9 of the Interna Revenue Code. Paragraph (4) of such secto
(whch e cepts such servce from empoyment) s repeaed as of the effectve
date thereof, and paragraph (4) of secton 11(b) of the Soca Securty ct s
repeaed as of anuary 1, 1939. The ta on empoyees mposed by secton 1400
of such subchapter and the ta on empoyers mposed by secton 1410 of such sub-
chapter, and the provsons of aw appcabe to such ta es, sha appy wth
respect to remuneraton pad after December 31, 193 , for servce whch, b|
reason of the enactment of ths secton, consttutes empoyment as so defned.
(b) Notwthstandng any other provson of aw, no empoyer sha be abe
for the ta on any empoyee, mposed by secton 1400 of such subchapter (uness
the empoyer coects such ta from the empoyee), wth respect to servce per-
formed before the date of enactment of ths ct whch consttutes empoyment
by reason of the enactment of ths secton, e cept to the e tent that the empoyer
has under hs contro at any tme on or after the nneteth day after such date
amounts of remuneraton earned at any tme by the empoyee.

Sec. 909. Subsecton (h) of secton 5 of the ome Owners Loan ct of 19
as amended, s amended by nsertng after the words Unted States, where
they frst appear n such subsecton, the foowng: (e cept the ta es mposed
by sectons 1410 and 1600 of the Interna Revenue Code wth respect to wa_ffs
pad after December 31,1939, for empoyment after such date).
Sec. 910. (a) The provsons of secton 213(f) of the Revenue ct of 19
sha appy wthout regard to the e cepton theren provded, f (1) the ta p .rer
n the determnaton referred to n such e cepton s a corporaton, (2) such
determnaton s by a decson of the oard of Ta ppeas or of a court, (31
under the aw appcabe to the ta abe year n whch the e change occurred,
the bass of the property, acqured upon the e change from the ta payer by the
party assumng a abty of the ta payer or acqurng the property sub|ect
to a abty, s the cost to such party of the property acqured upon the ewh.mce
and (4) the ta payer n pursuance of the pan of reorganzaton effected a
compete qudaton mmedatey subsequent to the e change.
(b) No overpayment determned to have been made for any ta abe |tsr
by reason of the provsons of paragraph (a) of ths secton sha be refunded
or credted uness a cam for refund s fed wthn the perod of mtatons
otherwse provded by aw for fng a cam for refund for such ta abe year,
or wthn one year from the date of enactment of the Revenue ct of 1
whchever of such perods e pres the ater. No Interest sha be aowed or
pad on the amount of any overpayment refunded or credted by reason of the
provsons of ths secton.
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4 5
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Sec. 911. Subsecton (d) of sect on C02 of the Revenue ct of 103C, as amended,
(reatng to foor stocks ad|ustment) s amended by strkng out anuary 1,
1937, and nsertng n eu thereof anuary 1, 1940.
pproved, ugust 10, 1939.
1939-39-1002
PU LIC, NO. 259, S NTY-SI T CONGR SS. (C PT R 417, IRST
S SSION . r. 674G .)
n ct To amend certan provsons of the Merchant Marne
and Shppng cts, to further the deveopment of the mercan
merchant marne, and for other purposes.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, .
Sec. 7. Tte of such ct, as amended, s amended by addng
at end thereof a new secton to read as foows:
Sec. 510. .
(e) No gan sha be recognzed to the owner for the purpose of edera
ncome ta es In the case of a transfer of an obsoete vesse to the Commsson
under the provsons of ths secton. The bass for gan or oss upon a sae
or e change and for deprecaton under the appcabe edera ncome-ta
aws of a new vesse acqured as contempated n ths secton sha be the
same as the bass of the obsoete vesse or vesses e changed for credt upon the
acquston of such new vesse, ncreased n the amount of the cost of such
vesse (other than the cost represented by such obsoete vesse or vesses) and
decreased n the amount of oss recognzed upon such transfer.

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COMMITT R PORTS.
1939-40-10044
T PU LIC S L RY T CT O 1939.
ouse of Representatves Report No. 26, Seventy-s th Congress, rst Sesson.
ebruary 7, 1939.
Mr. Doughton, from the Commttee on Ways and Moans, submtted the fo-
owng report to accompany . R. 3790 :
The Commttee on Ways and Means, to whom was referred the b ( . R.
3790) reatng to the ta aton of the compensaton of pubc offcers and em-
poyees, havng had the same under consderaton, report t back to the
ouse wthout amendment and recommend that the b do pass.
The need for such a b was set forth by the Presdent n hs message
dated pr 25, 193 , and agan n hs message dated anuary 19, 1939. In
these messages he ponted out that a far and effectve ncome ta ought to
sub|ect compensaton of those who earn ther vehood from government
to the same burdens as compensaton from prvate empoyment. In hs message
of anuary 19, 193 , he aso ponted out that, n the nterest of equty and
|ustce, mmedate egsaton s requred to prevent recent |udca decsons from
operatng n such a retroactve fashon as to Impose ta abty for past
years on State, oca, and other empoyees who, n good fath, beeved ther
compensaton for such years was e empt from edera ta .
The b sub|ects to edera ncome ta for ta abe years begnnng after
December 31, 190 , the compensaton of a State and oca offcers and em-
poyees grants consent to the States to ta the compensaton receved after
December 31, 193 , by edera offcers and empoyees and, n accordance wth
the Presdent s message, reeves from edera ncome ta aton for ta abe
years commencng pror to anuary 1, 1939, the compensaton of certan State
and oca offcers and empoyees.
or many years the e empton from edera ncome ta es of State and
oca offcers and empoyees has aroused wdespread pubc crtcsm and ds-
approva. Smary, the e empton of the compensaton of edera offcers and
empoyees from ncome ta es mposed under the authorty of the varous
States has been wdey condemned.
These e emptons, whch arc not provded e pressy n the Consttuton, have
been thought to be requred by the decsons of the Supreme Court, based upon
the mpcatons of the Consttuton. Severa recent decsons of the Supreme
Court, partcuary at the October, 1937, term, have consdered the sub|ect of
ntergovernmenta ta mmuntes. These decsons make t cear that many
of the assumptons heretofore entertaned as to the scope of these ta mmun-
tes are erroneous. They ndcate that there s no consttutona ob|ecton to the
nondscrmnatory ta aton, under the edera ncome ta , of the compensaton
of offcers and empoyees of the varous States and ther potca subdvsons,
agences, and nstrumentates. Ths vew s fortfed by the opnon of the
Supreme Court n the case of nvcrng v. crhardt (304 U. S., 405 (193 ) Ct.
D. 1343, C. . 193 -1, 246 ). comprehensve study of the ta aton of State
and oca offcers and empoyees made by the Department of ustce Indcates
that such ta aton of compensaton s consttutona.
Ths b therefore provdes n a cear and unequvoca manner for such ta a-
ton. If there are any possbe doubts as to the vadty of ths ta aton, the
b thus enabes the ssue to be squarey presented to the Supreme Court.
The vadty of the appcaton of ncome ta es mposed under the authorty
of the varous States to the compensaton of offcers and empoyees of the
edera Government, however, may be governed by other consderatons. There
are certan ndcatons n the case of McCuoch v. Maryand (4 Wheat., 316
(1 19)), whch were repeated n the Gerhardt case, that whe State and oca
offcers and empoyees may be sub|ected to edera ncome ta , edera offcers
and empoyees may not, wthout the consent of the Unted States, be sub|ected
to ncome ta aton under the authorty of the varous States. Your commttee
beeves that t s essenta to a far souton of the probem presented by nter-
governmenta ta Immuntes that edera offcers and empoyees shoud, ke
(4 7)
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4
other ndvduas, be sub|ect to Income ta aton under the authorty of the
States. The b, therefore, contans an e press consent to such ta aton. The
provsons heretofore referred to appear n Tte I of the b.
Informaton presented to the commttee ndcates that n the year 1937 there
were appro matey 2,600,000 State and oca offcers and empoyees an
1,200,000 edera offcers and empoyees and that the State and edera pa
ros were 3,600,000,000 and 1,900,000,000, respectvey. The commttee has
been nformed that the average eve of saares pad by State and oca govern-
ments s comparatvey ow so that the ncuson of the compensaton of snrt
empoyees n gross ncome sub|ect to the edera ncome ta s not e pect
to resut n the addton of more than 16,000,000 annuay to the edera
revenues. Inasmuch as there s consderabe dversty n the provsons of the
varous State ncome ta aws, t s e tremey dffcut to estmate the probabe
effect on State revenues of the mposton of State ncome ta es upon compen-
saton receved by edera offcers and empoyees.
s a consequence of the Gerhardt decson of the Supreme Court t now
appears that a consderabe number of State and oca offcers and empoye
who heretofore beeved n good fath that they were not sub|ect to edera
ncome ta aton may now be requred to pay edera ncome ta for past
years. If no returns were fed by such persons, ths abty may e tend back
for a perod of more than 12 years. Snce these persons, as a cass, are de-
pendent upon ther saares for support, and are not prepared to meet such s
henvy abty, your commttee beeves that reef shoud be gven to such
offcers and empoyees. Tte II of the b therefore provdes that asse-snOTt
of ta aganst such offcers and empoyees for pror years sha not he made ar.
aso provdes for refunds of ta pad.
Proper restrctons are nserted n the b to nsure that the mtatons rpen
assessment and provsons for refund n Tte II w not appy n the case of
those groups of State and oca empoyees whose abty for edera rocone
ta was estabshed some years ago. Snce these empoyees have been repark
payng edera ncome ta and therefore were n no way surprsed by the
recent decsons of the Court, your commttee beeves that t woud be mproper
to reeve such empoyees of ther tn abty for past years.
The scope of the reef granted by Tte II and the method of affordng sort
reef theren provded have been devsed as an ntegra part of the conp
treatment of the probem wth respect to both the future and the past. In r w
of ths nterreaton between Ttes I and II, t s mperatve that the b be
passed In ts entrety. ny separaton of Tte I woud requre a ree amnstra
of the scope and functonng of Tte II. Moreover, your commttee reaze
that the reef accorded n Tte II w render moot certan cases now per 1 -
whch, f they were aowed to proceed to fna decson, woud sette mportar
phases of the probem of ntergovernmenta ta mmuntes. The dsadvar.tas
of such abandonment of pendng tgaton, however, are outweghed by the M
that future ta aton of a State and oca saares s ceary estabshed by the
e press egsaton n Tte I.
descrpton of the provsons of the b n deta now foows:
Tte I. Prospectve Ta aton of Pubc mpoyees.
Secton 1: Secton 1 of the b amends secton 22(a) of the Revenue rt
193 (whch defnes gross ncome) by provdng e pressy that there sha|
ncuded n gross ncome, saares, wages, or compensaton for persona serr.ee
as an offcer or empoyee of a State, or any potca subdvson thereof, or anT
agency or nstrumentaty of any one or more of the foregong. Under ths
amendment the wages, saares, and compensaton of a offcers and empto
of the respectve States and of ther potca subdvsons and agences aw
nstrumentates, wthout e cepton, are ncuded n gross ncome. The conv
mttee recognzes that the anguage of secton 22(a) as t prevousy e st
was broad enough to Incude n gross ncome the compensaton of sneb our
and empoyees. The Treasury Department, however, beevng the compensate
of some of these offcers and empoyees to be consttutonay e empt has, am
recenty, by admnstratve acton treated ther compensaton as nonta w_
Ths admnstratve acton, foowed by repeated reenactment of the ststntor.
provsons wthout change, mght ead to the contenton that Congress by so
reenactment had e empted such State and oca offcers and empoyees.
contenton woud ony serve to confuse the ssue of the consttutonaty
future ta aton of a State and oca offcers and empoyees. To emnate
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4 9
Msc.
possbty of such confuson, therefore, your commttee recommends amend-
ment of the Revenue ct of 193 to nsert the proposed anguage so that there
can be no doubt whatever of the ntenton of Congress that a State and oca
offcers and empoyees, wthout e cepton, sha be sub|ect to edera ncome ta
for ta abe years begnnng after December 31, 193 . It s not to be nferred
from ths amendment, however, that those groups of State and oca offcers and
empoyees from whom edera ncome ta es have prevousy been coected were
not sub|ect to ta under the anguage of secton 22(a) n earer Revenue cts
or n the Revenue ct of 193 as It e sted pror to the amendment proposed
n the b.
The b contans no e press provson sub|ectng edera offcers and em-
poyees to edera ta aton for the reason that such a provson s unnecessary.
The unform constructon of the defnton of gross ncome In a Revenue cts
has been that they are sub|ect to ta and ther abty to edera ta s
estabshed beyond queston.
Secton 2: Secton 116(b) of the Revenue ct of 193 provdes for the e emp-
ton from edera ncome ta of compensaton of teachers n educatona
nsttutons empoyed by aska or awa, or any potca subdvson thereof.
Snce a teachers empoyed by the States w be sub|ect to edera ncome ta
under secton 1 of the b, It s beeved proper to emnate the e empton
referred to so that teachers n the Terrtores of aska and awa w be
sub|ect to ta to the same e tent as teachers In the varous States. Secton 2,
therefore, provdes that secton 116(b) of the Revenue ct of 193 sha not
appy to any ta abe year begnnng after December 31, 193 .
Secton 3: In order to factate recproca ta aton as between State and
edera Governments, your commttee beeves that the Unted States shoud
e pressy consent to the ta aton of the compensaton of ts offcers and em-
poyees. Secton 3 of the b therefore provdes that the Unted States consents
to the ta aton of compensaton receved after December 31, 193 , for persona
servce as an offcer or empoyee of the Unted States, any Terrtory or posses-
son or potca subdvson thereof, the Dstrct of Coumba, or any agency or
nstrumentaty of any one or more of the foregong, by any duy consttuted
ta ng authorty havng |ursdcton to ta such compensaton, If such ta aton
does not dscrmnate aganst such offcer or empoyee because of the source
of such compensaton.
It w be noted that the consent e tends to ta aton not ony by the State
but aso by other duy consttuted ta ng authortes, of the compensaton of
edera offcers and empoyees. Under ths provson f any oca governmenta
unts have authorty to and do mpose ncome ta es, ta may be mposed upon
such compensaton sub|ect to the |ursdcton of such unts.
The consent s not ntended to operate, nor coud It operate, as a consent to
any ta aton to whch as ndvduas these offcers and empoyees are entted
to ob|ect ether under the provsons of the edera Consttuton or of the
consttutons or statutes of the respectve States. or e ampe, the conseut
has no effect upon the rghts of an offcer of the edera Government to ob|ect
that the mposton of a State ta upon hm s Invad under the fourteenth
amendment. Thus he may urge that a partcuar ta s nvad as to hm
because of an unreasonabe cassfcaton, or the ack of geographca |ursdc-
ton to ta , or for other reasons. Smary, the consent has no effect upon
the rghts whch such offcers and empoyees possess as ndvduas under the
varous State consttutons and aws. To protect the edera Government
aganst the unkey possbty of State and oca ta aton of compensaton of
edera offcers and empoyees whch s amed at, or threatens the effcent
operaton of, the edera Government, the consent s e pressy confned to
ta aton whch does not dscrmnate aganst such offcers or empoyees because
of the source of ther compensaton. Inasmuch as secton 1 reatng to State
and oca offcers and empoyees appes ony wth respect to years begnnng
after December 31, 193 , secton 3 consents to ta aton of edera offcers and
empoyees ony wth respect to compensaton receved after December 31, 193 .
Tte II. Retroactve Reef to Certan State and Loca Offcebs and
mpoyees.
Ths tte affords reef to empoyees of States of the Unon and ther oca
governments who have not been payng edera ncome ta and n many cases
have not even fed returns, but who may, under everng v. Gerhardt, be
sub|ect to edera ncome ta for past years. owever, there are certan
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490
groups of State and oca empoyees, partcuary those engaged n propretor)
functons (such as the operaton of State quor stores), who have for a num-
ber of years reguary pad edera ta because ther abty was fuy estab-
shed at an earer date. It woud be unfar and nequtabe to reeve t-
group of empoyees from ta abty whch was n no way a surprse to them
and whch they pad wthout queston. It s therefore undesrabe to reeve,
n banket fashon, a State and oca offcers and empoyees from abty (
ncome ta n earer years. Snce the groups who shoud not be reeved tune
reguary pad ther ncome ta and t has been currenty assessed, whe thc-e
who have been surprsed by the Gcrhardt case and who shoud be gven rek
have, n most cases, not pad ther ta and have not been assessed, the genera
pan of Tte II s to provde that assessments prevousy made sha not bt
dsturbed but that no new assessments sha be made.
Tte II appes uny to State and oca offcers and empoyees and not to
other persons havng deangs wth State and oca governments, sne the
ta abty of the compensaton of such other persons has ong been recognzed
Such persons are generay hed to be ndependent contractors for purposes of
edera ncome ta aton. Ther abty for such ta has been ceary e
shed snce the case of Metcaf d ddy v. Mtche (1926) (2 59 U. S., o IT. D.
3 24, C. . -, 21 (1920) ) and they are not offcers and empoyees wthn the
meanng of ths b.
Secton 201: Secton 201 appes to edera ncome ta (ncudng nterest
addtons to ta , and addtona amounts), for ta abe years begnnng pror t
anuary 1, 103 , attrbutabe to compensaton for persona servce as an offcer
or empoyee of a State or any potca subdvson thereof, or any agency or
nstrumentaty of any one or more of the foregong.
Subsecton (a) provdes that ncome ta attrbutabe to the compensaton of
such offcers and empoyees for years begnnng pror to anuary 1, 193S. wht
was not assessed pror to anuary 1, 1039, sha not be assessed and no proceed
ng n court for the coecton thereof sha be begun or prosecuted.
Subsecton (b) provdes that f any such ncome ta for such years Is
assessed after December 31, 193 , the assessment sha be abated and an
amount coected n pursuance thereof sha be credted or refunded n the sase
manner as n the case of an ncome ta erroneousy coected. Ths urovsoD
thus authorzes the refund of any ta assessed aganst State and oca offcers
and empoyees for any ta abe year begnnng pror to anuary 1, ISSs- f
assessment s made after 193 .
In a reatvey sma number of cases State and oca offcers and empoyees
who are n a respects anaogous to the groups gven reef under secton
201 (a) and (b) have pad ther ta but have contested ther abty by W
of cam for refund rather than by contestng a defcency asserted agan-
them. It woud be nequtabe to deny reef to these peope who have pa 1
ther ta es and at the same tme grant reef to smary stuated persons ven
have not pad ther ta es. Secton 201(c) therefore provdes for credt
refund to such persons of ncome ta . for any ta abe year begnnng pror t
anuary 1, 193 , attrbutabe to compensaton receved as a State or oca offcer
or empoyee, f the ta has been coected on or before the date of enactuten:
of the b, n the foowng cases:
(1) where a cam for refund of such amount was fed before anuary
10, 1939 (the date of the Presdent s message), and was not dsaowed on
or before the date of the enactment of ths b
(2) where such cam was so fed but has been dsaowed and the tme
for begnnng sut wth respect thereto has not e pred on the date of the
enactment of ths b
(3) where a sut for the recovery of such amount s pendng on the date
of the enactment of ths b and
(4) where a petton to the oard of Ta ppeas has been fed v
respect to such amount and the oard s decson has not become fna beto1
the date of the enactment of ths b.
It s beeved that the foregong cases ncude vrtuay a State and oca
offcers and empoyees who are entted to reef from abty and who have
pad ther ta . In genera, subsecton (c) does not ncude those State arw
oca offcers and empoyees who are not entted to reef, such as those engaged
n propretary functons, because, ther abty havng been prevousy ceary
estabshed, they have not fed cams for refund or otherwse asserted ther
rghts n any of the ways descrbed n ths subsecton.
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491
Secton 202: s has been stated, secton 201 appes ony wth respect to
Income ta for ta abe years begnnng pror to anuary 1, 193 . Your com-
mttee beeves, however, that t s far and equtabe to reeve State and oca
offcers and empoyees n the groups whch are entted to reef from ncome
ta abty for ta abe years commencng durng 193 . Secton 202 accom-
pshes ths resut wthout at the same tme reevng from abty the groups
of State and oca offcers and empoyees, such as those engaged n propretary
functons, whose abty for edera ncome ta was ong prevousy estab-
shed. It provdes that a State or oca offcer or empoyee who dd not ncude
hs compensaton receved as such n hs return for a ta abe year begnnng
durng 1937, sha not ncude n gross ncome for a ta abe year begnnng n
193 compensaton receved as such an offcer or empoyee. Obvousy, f an
Indvdua dd not fe a return be dd not ncude hs compensaton n hs return.
Under ths provson a person who, for the frst tme, becomes durng 193 an
offcer or empoyee of a State or potca subdvson or agency or nstrumen-
taty thereof w be e empt from ncome ta for hs ta abe year begnnng n
193 wth respect to hs compensaton receved as such. Ths secton aso pro-
vdes that athough a State or oca offcer or empoyee ncuded hs compensa-
ton n gross ncome for a ta abe year begnnng durng 1937, be sha be
e empt from ta for the ta abe year begnnng durng 193 , f he s entted
under secton 201 to obtan credt or refund of the ta pad for the ta abe year
begnnng durng 1937.
Secton 203: Sectons 201 and 202 afford reef to vrtuay a State and
oca offcers and empoyees equtaby entted thereto for ta abe years be-
gnnng pror to 1939. It s possbe, however, that there may be a few cases,
not ascertanabe at ths tme, whch are not covered by these sectons. or
e ampe, a pubc-schoo teacher may have pad ta on hs compensaton for
the ta abe year 1937 and, athough ntendng to contest hs abty therefor,
had not fed cam for refund before anuary 19, 1939 (and therefore s not
gven reef by secton 201). Snce those pubc empoyees who dd not pay ta
are reeved from abty by sectons 201 and 202, smar reef shoud be
granted n the case of the teacher who pad hs ta . Lkewse, an empoyee
of the Port of New York uthorty who pad ta wth respect to hs compensa-
ton, but who had not fed cam for refund before anuary 19, 1939, shoud
be gven reef. Secton 203, therefore, authorzes the Commssoner, under
reguatons prescrbed by hm wth the approva of the Secretary, to grant
reef by way of credt or refund. Such credt or refund under ths secton
Is to be made ony f the State or oca offcer or empoyee fes a cam therefor
after anuary 1 , 1939, and the Commssoner fnds that dsnowance of the
cam woud resut n the appcaton of the doctrnes n the case of cvermg
v. Gerhardt e tendng the casses of offcers and empoyees sub|ect to edera
ta aton. Such reef may be granted by the Commssoner wth respect to
cams for refund for a ta abe year begnnng durng 193 as we as a
ta abe years pror thereto, sub|ect to the quafcaton of secton 204.
Secton 204: Secton 204 provdes that the cams for refund, suts, or pet-
tons to the oard referred to n the precedng sectons are sub|ect to the
statute of mtatons propery appcabe thereto.
Secton 205: Ths secton provdes that compensaton as used n sectons,
201, 202, and 203 sha not ncude compensaton to the e tent that t s pad
drecty or ndrecty by the Unted States or any agency or nstrumentaty
thereof.
Secton 206: Ths secton provdes that the terms used n the b sha have
the same meanng as when used In Tte I of the Revenue ct of 193 .
Secton 207: Ths secton provdes for the separabty of the ttes of the
b.
1939-40-10045
PU T/TC S L RY T CT O 1939.
Senate Report No. 112, Seventy-s th Congress, rst Sesson. Caendar No. 11 .
ebruary 24, 1939.
Mr. rown, from the Commttee on nance, submtted the foowng report
to accompany . R. 3790 :
The Commttee on nance, to whom was referred the b ( . R. 3790) reatng
to the ta aton of the compensaton of pubc offcers and empoyees, havng con-
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492
Sdered the same, report favoraby thereon wth amendments and recommend that
the b ns amended do pass.
desre to obttn the end toward whch ths egsaton Is drected has been
fet generay snce the adopton of the graduated Income ta . It has been wdey
conceded that a far and effectve ncome ta ought to sub|ect the compensaton of
pubc offcers and empoyees to the same genera burden of ta aton as s borne
by prvate ctzens.
The need for ths egsaton was emphaszed by the Presdent In hs messa-re
dated pr 25, 193 , and agan n hs message dated anuary 19, 1939. In add-
ton to pontng out the equty nvoved In sub|ectng the future saares of those
who earn ther vehood n governmenta servce to the Income-ta aws of the
Naton and of the severa States, the Presdent, In hs message dated anuary 19.
1930, drew attenton to the requrement of mmedate egsaton to prevent recent
udca decsons from operatng n such a retroactve fashon as to mpose tar
abty for past years on State, oca, and other empoyees who, n good fath,
beeved ther compensaton for such years was e empt from edera ta .
Tte I of the b sub|ects to edera ncome ta for ta abe years begnnng
after December 31, 193 , the compensaton of a State and oca offcers and em-
poyees and grants consent to the States to ta the compensaton receved after
December 31, 193 , by edera offcers and empoyees. Tte II, n accordance wth
the Presdent s message, reeves from edera ncome ta aton for ta abe years
commencng pror to anuary 1, 1939, the compensaton of such State and oca
offcers and empoyees as were affected by recent Court decsons.
The scope of the reef granted by Tte n and the method of affordng such
reef theren provded have been devsed as an ntegra part of the compete
treatment of the probem wth respect to both the future and the past. In vew
of ths nterreaton between Ttes I and II, It s mperatve that the b be
passed n ts entrety. ny separaton of Tte I woud requre a ree amnaton of
the scope and functonng of Tte II. Moreover, your commttee reazes that
the reef accorded In Tte II w render moot certan cases now pendng whch.
If they were aowed to proceed to fna decson, woud sette Important phases of
the probem of Intergovernmenta ta Immuntes. The dsadvantages of such
abandonment of pendng tgaton, however, are outweghed by the fact that
future ta aton of a State and oca saares Is ceary estabshed by the e press
egsaton In Tte I.
The entre probem of Intergovernmenta Immunty, wth respect to ncome
ta aton, has been under the scrutny of the Speca Commttee on Ta aton of
Governmenta Securtes and Saares under the charmanshp of Mr. rown.
Ths commttee was estabshed by Senate Resouton 303 (Seventy-ffth Con-
gress, thrd sesson) and conssts of three members of the Commttee on nance
(Mr. yrd, Mr. Townsend, and Mr. rown) and three members of the Commt-
tee on the udcary (Mr. Logan, Mr. ustn, and Mr. Mer).
Consderabe testmony, both wrtten and ora, has been presented to ths
speca commttee at hearngs begnnng on anuary 1 , 1939, and endng ebru-
ary 16, 1939. Many brefs and memoranda were receved on varous phases of
the probem of ntergovernmenta ta mmuntes. owever, ths matera, as
we as the ora testmony deat amost e cusvey wth the queston of the
ta aton of bond nterest. That commttee Is not yet prepared to make a recom-
mendaton wth regard to ths queston. Smary, your commttee e presses
no opnon upon the ta aton of Interest from governmenta securtes. It
beeves, as does the speca commttee, that the probems Invoved n the two
phases of ths queston present separate and dstnct economc and ega aspects
and that the Supreme Court may uphod the present b on grounds dfferent
from those appcabe to the ta aton of bond nterest
Lega authortes, both for and aganst the Presdent s proposa, agree that
there s a rea and substanta dstncton between the two. Ths was brought
out by questons propounded by the charman of the speca commttee to wt-
nesses appearng at the hearng. or e ampe, Mr. psten, representng the
attorneys genera of the varous States, In response to such a queston, stated:
The ta aton of saares may not mpede the actua operaton of the Gov-
ernment, and, as has been ponted out by Mr. ustce Stone, t does not foow
that the ta aton of the saary of an offca woud mean the nonperformance
of bs servces, and t does not mean that the State woud ose revenues, or that
you woud have to ncrease hs saary.
The ta aton of nterest on bonds takes an entrey dfferent, turn, and has
an effect on the borrowng power of the State. So, you have there a bass fur
dstncton.
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493
Msc.
urther evdence of the e stence of such a dstncton s shown from the
ma|orty opnon n ames v. Dravo Contractng Co. (302 U. S., 134), decded
December 6, 1937. Whe ths case deat wth the compensaton of ndependent
contractors, t ceary draws a dstncton between compensaton for servces
and bond Interest. Sneakng for the ma|orty of the Court, Mr. Chef ustce
ughes sad:
There s no neuctabe ogc whch makes the doctrne of mmunty wth
respect to Government bonds appcabe to the earnngs of an ndependent con-
tractor renderng servces to the Government. That doctrne recognzes the
drect effect of a ta whch woud operate on the power to borrow before t s
e ercsed (Poock v. armers Loan f Trust Co., supra) and whch woud
drecty affect the Government s obgaton as a contnung securty. ta con-
sderatons are there nvoved respectng the permanent reatons of the Gov-
ernment to nvestors n ts securtes and ts abty to mantan ts credt
consderatons whch are not found n connecton wth contracts made from tme
to tme for the servces of ndependent contractors .
CONOMIC SP CTS.
t the present tme, edera empoyees are sub|ect to edera Income ta es,
but are e empt from State ncome ta es. State and oca empoyees, on the
other hand, are sub|ect to State ncome ta es, but are e empt from edera
ncome ta es, uness engaged n propretary functons. Persons n prvate
empoyment are sub|ect to both edera and State ta es. The number of pubc
offcers and empoyees has grown rapdy durng the past few years. Com-
bned edera, State, and oca empoyees for the year 1937 amounted to
3, 00,000 and receved compensaton n the tota amount of 5,500,000,000. Ths
combned number represents 12 per cent of the number of persons recevng
wages and saares, 13 per cent of the tota wages and saares receved, and
appro matey 9 per cent of the natona ncome.
There were appro matey 2,600,000 State and oca empoyees n 1937,
representng a tota annua pay ro for that year of 3,600,000,000. Many of
these empoyees have saares beow the persona e emptons aowed for n-
come-ta purposes. It s estmated that for 1937, 1,000,000 or 40 per cent
receved 1,000 or ess and appro matey 2,300,000 or 90 per cent receved
2,500 or ess. Thus, 90 per cent of State and oca empoyees, f marred,
woud not be sub|ect to the edera ncome ta . In addton, the b woud not
resut n mposng any further burden upon the arge number of these State
and oca empoyees who are engaged n propretary functons and are, therefore,
sub|ect to the e stng edera ncome ta .
rom the standpont of revenue, the e empton of State and oca empoyees
from the edera Income ta s of mnor mportance. It s estmated that the
tota edera revenue to be derved from ta ng such empoyees as are now
e empt w not amount to more than 16,000,000 annuay. owever, there
are ndvdua cases of speca ta prvege whch show the unfarness and
nequtes produced by ths e empton. In State and oca governments, there
are appro matey 16,000 empoyees wth annua saares of over 5,000, n-
cudng 1,300 wth saares of over 10,000. In case of some of the hgher
offcers, the saares reach 20,000, 25,000, and even arger amounts. It seems
unfar to e tend such ta e empton to ths cass of our ctzens when a mnor
cerk, bookkeeper, or mechanc empoyed by a prvate busness concern s e -
pected to pav Income ta es to both edera and State Governments. The bene-
ft from ta -e empt saares s especay great f the recpents have other
ncome, snce, n such case, the saary woud be sub|ect to surta n brackets
accordng to the amount of the tota ncome. These pubc empoyees are
ctzens of the Unted States and t seems hard to beeve that requrng them
to pay the same ta es that a other ctzens pay w nterfere wth the func-
tons they perform on behaf of State and oca governments.
The same stuaton appes wth respect to the edera empoyees. They, too,
shoud contrbute to the support of ther State and oca governments, whch
confer upon them the same prveges and benefts whch are accorded to per-
sons engaged n prvate occupatons. Ltte nformaton has been receved as
to the revenue to be derved by the State and oca governments from the ta a-
ton of edera empoyees. The dversty n the structures of the varous State
ncome ta es, couped wth the dffcutes of estmatng the number of edera
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494
empoyees wthn the ta ng |ursdcton, precude accurate estmate. In T
there were appro matey 1.200,000 edera empoyees recevng 1,900,000,000
In annua compensaton. though a saary dstrbuton for the entre group s
not avaabe, nformaton furnshed wth respect to 400,000 reguar fu-tnr
cv-servce empoyees show that appro matey 6 per cent of that group receved
ess than 1,000 and 2 per cent ess than 2,500, annuay. On the aven f.
edera empoyees woud very possby pay hgher State Income ta es than
State and oca empoyees woud pay edera ncome ta es. Ths Is ndnt
by the fact that the persona e emptons accorded by State ncome ta es sp-
n many cases, beow those provded by the edera aw and aso by the fan
that edera saares n the ow and mdde saary range group are generay
hgher than those pad by State and oca governments. It s beeved hat the
empoyees shoud share n the cost of ther State and oca governments to tb
same e tent as prvate empoyees.
The unfarness of ths ta e empton becomes more apparent wth the n
creased number of States whch are adoptng persona Income ta es. t Ok
present tme, 31 States mpose persona Income ta es on wages and saares, and
the edera Government receves 23 per cent of Its revenue from the ncome ta
Mnny of these empoyees who formery shared n the cost of ther State m
oca governments through the payment of property ta es and other ndrect
ta es have been reeved of abty where the ncome ta has been substtuted
for other forms of ta aton.
mpoyees of governments receve a the benefts of government whch ftfr
feow ctzens do, and consequenty they shoud aso bear ther far share of t
costs. The emnaton of the ta e empton prvege woud not menace tt
operatons of governmenta unts, but ts e stence does threaten the progressw
ncome ta prncpe of from each accordng to hs abty to pay. Moreover
t dscrmnates among persons havng the same actua ncome and offers t
government no measurabe compensatng advantages. The unfar coaseqnem
of ta -e empt saares when |udged by present standards of soca |ustce requre
that they be prompty aboshed by egsaton If ths can be done under te
Consttuton.
CONSTITUTION L SP CTS.
The commttee has gven partcuar attenton to the consttutona probem
nvoved n the proposa to ncude In the edera ncome ta the saares pad
by States and ther oca subdvsons to ther offcers and empoyees. There
no correspondng probem wth respect to the State ta aton of the saares pad
to edera offcers and empoyees, snce Congress apparenty has power to wave
any mmunty whch mght attach to ts empoyees.
It Is recognzed that there s some doubt as to whether Congress ba
the power to sub|ect to the edera ncome ta the saares of the governor
or other offcers of a State performng functons whch coud not be performed
by a prvate ndvdua. owever, your commttee beeves that there t
suffcent probabty that the measure w be hed consttutona to |ustfy ts
enacment.
Such a course of acton has had the approva of the Supreme Court a
vans v. Gore (1920) (253 U. S., 245 C. . 3, 93 (1920)1), the Supreme Conn
hed unconsttutona a provson n the Revenue ct of 1919 ta ng the saares
of edera |udges then n offce, notwthstandng the specfc prohbton n
rtce III of the Consttuton aganst dmnshng the compensaton of |udges
durng ther term of offce.
Speakng for the ma|orty, Mr. ustce an Devanter caed attenton to te
fact that Congress had regarded the provson as of uncertan consttutonaty
and had ntended the queston shoud be submtted to and setted by te
Supreme Court The opnon ctes the ouse and Senate reports, as we s
the statement of the charman of the ouse commttee n askng the adopton
of the provson who sad n part that every man who has a doubt about
ths can very we vote for t and take the advce that ths q
ton ought to be rased by Congress, the ony power that can rase t,
order that t may be tested n the Supreme Court, the onv power that can
decde t (56 Cong. Rec, 10370, quoted n 253 U. S. at 24 , n. 1).
Ths b w present a cear-cut ssue for determnaton by the Supreme
Court
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The doctrne of ntergovernmenta Immunty does not come from the anguage
of the Consttuton tsef, but stems from the decson of the Court n the
famous case of McCuoch v. Maryand (4 Wheat, 16) (1 19). Marynnd had
enacted egsaton desgned to penaze the ank of the Unted States n the
operaton of branches n Maryand. The egsaton provded that f any bank
estabshed a branch offce wthout State authorty, any notes ssued thereby
must be n specfed denomnatons and must be prnted on stamped paper
purchased at prescrbed rates from the treasurer of the Western Shore. The
bank coud escape ths requrement ony by the payment, n advance, of 15,000.
The Court hed ths egsaton nvad on the ground that the States were
poweress to hnder or obstruct the functons of the edera Government.
The pan was so devsed as to make It appcabe ony to the ank of the
Unted States, as that bank was the ony bank that had estabshed branches
In the State wthout State authorty. Thus, ts effect was to appy n a ds-
crmnatory manner toward the ank of the Unted States. It shoud be noted
that the Court dd not rest Its decson on dscrmnaton and that the
Court subsequenty re|ected the argument that ths case protected edera
nstrumentates ony from dscrmnaton and not from genera ta aton.
owever, Mr. ustce Stone, speakng for the ma|orty In cverng v. er-
hardt (304 U. S., 405) (193 ) Ct D. 1343, C. . 193 -1, 240 , emphaszed
the e stence of dscrmnaton as a vta factor n the McCuoch case.
The ne t case n ths seres of precedents was Dobbns v. Commssoner (16
Pet, 435) (1 42). The facts were that Dane Dobbns, a captan n the Unted
States Revenue Servce, was n command of a Unted States revenue cutter n
the re Staton n Pennsyvana. e was rated and assessed as a ctzen
and resdent of re County for county ta es upon hs offce as captan n such
Unted States servce. The Court hed that the ta was nvad, as t was not
competent for the State egsature to ay a ta on the saary or emouments
of an offcer of the Unted States. Ths decson was |ustfed upon the theory
that a governmenta offcer was a means or nstrumentaty empoyed for
carryng out the egtmate powers of the edera Government wth whch the
States coud not nterfere by ta aton or otherwse, and that such offcer s saary
was nseparaby connected wth the offce that, f the offcer, as such, was
e empt, the saary assgned to hm for hs mantenance whe hodng offce was
aso, for ke reasons, equay e empt.
The Supreme Court, reyng on the McCuoch and Dobbns cases, rued n the
case of Coector v. Day (11 Wa., 113) (1 70), that ths mmunty was recp-
roca n character and that therefore, Congress had no power under the
Consttuton to ay the edera ncome ta upon the compensaton of a State
probate |udge. Ths decson dd not rest upon any consttutona rght of a
State offcer to be e empt from a nondscrmnatory edera ta nor was the
purpose of the mmunty to confer a persona prvege upon the Sate offcer.
The reason for the nvadty of the ta was that t was regarded as burdenng
the functons of State government, the Court gong on to say:
It Is admtted that there s no e press provson n the Consttuton that pro-
hbts the Genera Government from ta ng the means and nstrumentates of
the State, nor s there any prohbtng the States from ta ng the means and n-
strumentates of that Government. In both cases the e empton rests upon
necessary Impcaton and s uphed by the great aw of sef-preservaton as any
government, whose means empoyed n conductng ts operaton s sub|ect to the
contro of another and dstnct government, can e st ony at the mercy of that
government. Of what ava are these means f another power may ta them at
dscreton (Page 127.)
When ths case was decded, t was thought to appy to a State offcers and
empoyees. Later, the Government took the poston that the mmunty doctrne
apped ony to empoyees engaged n the e ercse of essenta governmenta
functons and ths vew was uphed by the Supreme Court. The decson n
Coector v. Day has not been overrued, but the appcaton of ts doctrne has
been consderaby mted by ater decsons.
or e ampe, n everng v. Powers (293 U. S., 214 (1934) Ct. D. 900, C. .
III-2, 213 (1934) ), It was hed that the compensaton of members of the
board of trustees of the oston evated Raway was sub|ect to ta aton by
the edera Government on the ground that such an actvty consttuted a de-
parture from the usua governmenta functons, even though the enterprse was
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496
undertaken for what the States conceve to be a pubc beneft. or the same
reason, empoyees of State quor stores have been hed sub|ect to edera ta -
aton. In Meraf d ddy v. Mtche (269 U. S., 514 (1920) T. D. 3
C. . -, 21 (1926) ), the Supreme Court hed that consutng engneers
engaged to advse State and potca subdvsons wth reference to water and
sewerage pro|ects were not State s offcers or empoyees but ndependent contrac-
tors and, therefore, sub|ect to the edera net ncome ta . nd n the Draw
ease (302 U. S., 134), the Court even hed that the compensaton of an nde-
pendent contractor, workng for the edera Government n West rgna, was
sub|ect to the State s 2 per cent gross recepts ta . owever, t shoud be noted
that the edera Government conceded that the ta , even though t ncreased
ts costs, dd not hnder or mpede ts functon.
To the same effect s the case of Sas Mason Co. v. Washngton (302 D. S,
1 6) (1937), hodng that a gross recepts ta mposed by the State coud 1
apped to the amounts receved by a contractor performng, under contract wth
the edera Government, work on the Grand Couee Dam n Washngton.
Then, n 1937. n rush v. Commssoner (300 U. S., 352) Ct. D. 1212, C. .
1937-1, 217 the Court found that the mantenance of the New York water
suppy system was an essenta governmenta functon, and that the edera
ncome ta coud not be apped to the compensaton of an engneer empoyed
In ths actvty. owever, under the Treasury reguatons there appcabe, the
saares of State and oca offcers and empoyees engaged In essenta |rorern-
menta functons were specfcay e empt, and, as the Government dd not cha-
enge ths reguaton, the pertnent queston was not before the Court The
Court n everng v. Gerhardt (304 U. S., 405 Ct. D. 1343, C. . 193 -1, 246 ),
confned the decson n the rush ease to that Treasury reguaton.
The ne t case of mportance was that of everng v. Thcrre (303 . S..
21 ) (193 ) Ct. D. 1316, C. . 193 -1, 243 . ere the empoyees nvoved were
attorneys or qudators, apponted by State comptroers, or ke offcers, for
work n the qudaton of cosed fnanca nsttutons. Ther compensaton
came from the assets of the cosed nsttuton beng qudated, athough toe
work was carred on by statutory authorty under a department of the State
government and was under the drecton and contro of State offcers. Ther
compensaton was hed to be sub|ect to the edera ncome ta .
nay, we reach the Gerhardt case (403 U. S., 405) (193 ) whch hed that
empoyees of the New York Port uthorty were sub|ect to the edera ncome
ta . The reasonng of the Court n the Gerhardt case Indcates that f a State
s performng a functon whch coud have been undertaken by a prvate person,
the empoyees of the State engaged n the performance of such functon are not
mmune from the edera ta ng power. Under ths theory t seems that schoo
teachers, State hospta empoyees, and other empoyees performng functons
whch are not ndspensabe to the e stence of the State government are sub|ect
to the edera ncome ta . urthermore, the Court ndcates that t has never
rued e pressy on the precse queston whether the Consttuton grants nnw-
nty from edera ncome ta to the saares of State empoyees performng at
the e pense of the State servces of the character ordnarycarred on by pr-
vate ctzens. Ths eaves open the queston as to whether or not a stenog-
rapher, a bookkeeper, or a person who s not an offcer of a State or potca
subdvson s entted to e empton from the edera ncome ta .
The reasonng of the Court n the Gerhardt case may be summarzed as
foows: y grantng mmunty beyond the necessty of protectng the State,
the burden of the mmunty s thrown upon the Natona Government wth
beneft ony to a prveged cass of ta payers. Whe the State mght possby
be affected by the ta , the burden on the State s so specuatve and uncertan
that f aowed t woud restrct the edera ta ng power wthout affordng
any correspondng tangbe protecton to the State government The ta payer
are ctzens of the Unted States, and bound to contrbute to ts support-
ven f the States shoud have to rase ther saares, the ta does tot
curta any of those functons whch have been thought htherto to be essen-
ta to ther contnued e stence as States. To nsure ts contnued e stence,
It s not ordnary necessary to confer on the State a compettve advantage
over prvate persons.
The Court n the Gerhardt case dd not overrue Coector v. Day, whch
nvoved the saary of an offcer engaged n the performance of an ndspens-
abe functon of the State whch coud not be deegated to prvate IndrdtuI
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497
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owever, the Gerhardt case certany narrowed the appcaton of the m-
munty rue. The ony bass for the mmunty doctrne s the protecton
whch t, affords the contnued e stence of the State. It s beeved that
there s consderabe support for the proposton that the Court w overrue or
dstngush Coector v. Day, and hod that a nondscrmnatory edera net
ncome ta appyng to a ctzens, pubc as we as prvate, w not burden
the functons of State or oca governments. The reasons why the Court may
not now fee obged to foow Coector v. Day are as foows:
1. In Coector v. Day, the Court hed the edera ncome ta , enacted
durng the Cv War, unconsttutona as apped to the saary of a |udge of a
State court. The Cv War Income Ta cts provded a qute mted number
of deductons from gross ncome. The so-caed net ncome ta there enacted,
accordngy, rather cosey appro mated a ta upon gross ncome. The ta
woud, therefore, much more probaby be apped to each doar of the saary
pad udge Day than woud be the case under modern ncome-ta egsaton.
The mportance of ths dstncton s we ustrated by the recent decson
of the Court n ae v. State oard (302 U. S., 95 (1937)). There the Court
sad, n reference to a net ncome ta mposed by the State, that t was not
necessary In voaton of the State statute e emptng Us bonds from ta aton.
mong other reasons for ths, Mr. ustce Cardozo sad, was that
The returns from hs occupaton and nvestments are thrown nto a pot,
and after deductng payments for debts and e penses as we as other tems,
the amount of the net yed s the base on whch hs ta w be assessed.
2. The Cv War Income cts were a novety n fsca egsaton. The
ordnary burdens of government were met argey, n the case of the edera
Government, through e cse ta es and, n the case of the State governments,
through property as we as e cse ta es. aced by the emergency of the
Cv War, the Congress drected the ta at ncome. The feeng of the State
offcers who were ta ed and of the |udges who consdered ts vadty must
have been measuraby nfuenced by the e ceptona nature of the ta . To ta
ncome receved from a State woud seem much ke ta ng the State tsef.
To-day, however, the Court has sad, n reaton to a cam for tu mmunty
on the part of an empoyee of the New York Port uthorty, that: The
effect of the mmunty f aowed woud be to reeve respondents of ther
duty of fnanca support to the Natona Government ( evcrng v. Ger-
hardt, 304 U. S., 405 supra ).
3. The statute construed In Coector v. Day afforded no recproca rght to
the States to ta the saares of edera empoyees. In ths respect, t mght
be sad to be dscrmnatory aganst the States. The proposed egsaton docs
permt the States to ta edera saares.
4. Coector v. Day was decded n 1 70. Snce that tme, the Supreme Court
has not nvadated a edera net ncome ta on a State offcer or empoyee,
wth the possbe e cepton of the rush case, whch was paced upon the faure
of the Government to chaenge a Treasury reguaton, snce amended, whch
e empted saares pad n connecton wth an essenta governmenta functon.
5. The reasonng contaned n the decsons referred to as narrowng the
appcaton of the doctrne ad down n Coector v. Day, cted supra, ceary
ndcates that the determnaton of whether or not such a ta unduy burdens
State functons s as much an economc as a ega queston. ust when a
nondscrmnatory ncome ta , ad by one government upon the compensaton
of the empoyees of another governng body, becomes a restranng or hamper-
ng nfuence s a matter of practca effect and susceptbty to economc
measurement.
In ths connecton, Mr. ustce Stone, speakng for the ma|orty of the Court
In the Gerhardt case, and n referrng to the prncpe emphaszed n these
cases whch mt the mmunty doctrne, sad:
The other prncpe e empfed by those cases where the ta ad upon nd-
vduas affects the State ony as the burden s passed on to It by the ta payer,
forbds recognton of the mmunty when the burden on the States s so specua-
tve and uncertan that f aowed t woud restrct the edera ta ng power
wthout affordng any correspondng tangbe protecton to the State govern-
ment even though the functon be thought Important enough to demand m-
munty from a ta upon the State tsef, t s not necessary protected from
a ta whch may we be substantay or entrey absorbed by prvate persons,
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49
nd further:
The State and Natona Governments must co-e st. ach mnst be sup-
ported by ta aton of those who are ctzens of both. The mere fact that te
economc burden of such ta es may be passed on to a State government and
thus ncrease to some e tent, here whoy con|ectura, the e pense of ts opera-
ton, nfrnges no consttutona mmunty. Such burdens are but nnnn
ncdents to the organzaton wthn the same terrtory of two governments,
eac possessed of the ta ng power.
It shoud be kept n mnd that the proposa before us provdes ony for m-
dscrmnatory ta aton of the compensaton of pubc empoyees and s recp-
roca In nature. Thus, whatever burden mght be passed on to one governmea
because of the ta aton of ts empoyees compensaton by another governmenta
unt woud, n a measure at east, be offset by the converse appcaton of the
proposa.
It s beeved that the b w afford to the Court a proper opportunty to
redefne and carfy the mts to whch governments may go n sub|ectng t
compensaton of pubc empoyees to ta aton.
6. Some of the members of your commttee beeve that, even f these arft-
ents are not convncng to the Court, the egsaton mght nevertheess be
uphed under the pan anguage of the s teenth amendment gvng Congre
the power to ta ncome from whatever source derved. Language substan-
tay dentca to that phrase has been used n pror Revenue cts. The
Department of ustce study, page 152, ponts out:
the same words n substantay dentca phrasng were used n the Cv War
Income ta aws and n the Income Ta ct of 1 94. In each nstance thft
were used to ncude ncome from a sources. In the Cv War cts the word-
ncuded ncome from the so-caed mmune sources, as shown by the decss
n Coector v. Day. These words, as used n the ct of 1 94, ncuded nteres
from State and muncpa bonds, as shown by the decson n the Poock ca
The words ncome from a sources, used n the Corporate cse Ta n of
1909, embraced nterest from State and muncpa bonds as shown by the dv-
son n nt v. Stone Tracy Co.
Some menton may aso be made of the fact that Governor ughes opp e
the ratfcaton of the s teenth amendment, because ths anguage gave ttf
power to ta muncpa securtes. Senators orah and Root dsputed ths
nterpretaton n the amendment, and consderabe pubc attenton was drect
to ths Issue In the course of the ratfcaton of the amendment. ra st
quarter of the messages of the State governors, recommendng ratfcaton o:
re|ecton of the s teenth amendment, dscussed the nterpretaton paced npa
t by Governor ughes. Most of these governors ether agreed wth the nter-
pretaton of Governor ughes or stated that they were not sure whether Gov-
ernor ughes or Senator orah was correct, but that the amendment shook
nonetheess, be ratfed. rom ths evdence, t can not be sad that the country
ratfed the amendment wthout the knowedge of the ughes nterpretaton.
It s true that the Supreme Court n severa cases, notaby n vov
Gore (253 U. S., 245), has sad that the s teenth amendment dd not e tend
the ta ng power of the Congress, but merey removed the need for app f)
ment. ut n ths case the reasonng was not necessary to reach the decss
of the Court, and the scope of the s teenth amendment was not contested of
counse for the Government.
Ths dscusson of the scope of the s teenth amendment. It may be repeat
s not necessary the vew of the fu commttee, but merey the vews of s
of ts members. .
In concuson, |our commttee beeves that whatever opnons may be hed
as to the consttutonaty of ths proposa, there are reasons for bdetng that
the Supreme Court may uphod the egsaton. It s the aw of the Surr f
Court that ts opnon upon the constructon of the Consttuton Is aways op
to dscusson and that ts udca authorty depends atogether uwn the tort
of the reasonng by whch t s supported. The Passenger Cafc, 2S3 p-|
Taney, C. ., at 473.) The Court has recenty demonstrated that, to cW
Mr. ustce randes n hs dssentng opnon n urnet v. Coronado 0
Gas Co. (10 2) (2 5 T . S., 393, at 405), t bows to the essons of epff|
ence and the force of better reasonng, recognzng that the process of tra aw
error, so frutfu n the physca scences s approprate aso n the |ud
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functon. It was In ths dssentng opnon that ustce randcs sted 30
occasons upon whch the Supreme Court had overrued earer decsons. In
the recent case of everng v. Mountan Producers Corporaton (193 ) (303
U. S., 376 Ct D. 1321, C. . 193 -1, 343 ), the vew e pressed by ustce
randes n hs dssentng opnon n the Coronado O Gas Co. case was
adopted by the Supreme Court and that case, as we as the earer case of
Gespe v. Okahoma (257 U. S., 501 (1921)), were specfcay overrued.
descrpton of the provsons of the b n deta now foows:
TITL I. PROSP CTI T TION O PU LIC MPLOY S.
Secton 1: Secton 1 of the b amends the defnton of gross Income so as to
ncude n t saares, wages, or compensaton for persona servces as an
offcer or empoyee of the State, or any potca subdvson thereof, or any
agency or nstrumentaty of any one or more of the foregong. Under the
amendment, the wages, saares, and compensaton of a offcers and empoyees
of the respectve States and of ther potca subdvsons and agences and
nstrumentates, wthout e cepton, are to be ncuded n gross ncome for
ta abe perods begnnng after December 31, 193 . Whether or not the anguage
of secton 22(a) as t e sts n the present aw s broad enough to ncude n
gross ncome the compensaton of such offcers and empoyees s not beeved
by the commttee to be an mportant ssue. The commttee beeves that t s
desrabe to amend the statute to remove a doubts, so that any presentaton
of the consttutona queston wth respect to ta aton of Government empoyees
w not be fettered by any probem of statutory constructon.
It s not to be nferred from ths amendment, however, that those groups of
State and oca offcers and empoyees from whom edera ncome ta es have
prevousy been coected were not sub|ect to ta under the anguage of secton
22(a) n earer Revenue cts or n the evenue ct of 193 .
The commttee amendment to the secton s purey technca. fter the b
passed the ouse, the new Interna Revenue Code became aw. It supersedes
the 193 Revenue ct for ta abe years begnnng n 1939 and thereafter. The
commttee amendment makes the necessary change so that the Code rather
than the 193 ct s amended.
The b contans no e press provson sub|ectng edera offcers and em-
poyees to edera ta aton for the reason that such a provson s unnecessary.
The unform constructon of the defnton of gross ncome n a Revenue cts
has been that they are sub|ect to ta and ther abty to edera ta s
estabshed beyond queston.
Secton 2: Secton 2 emnates the e empton from edera ncome ta of
compensaton of teachers n educatona nsttutons empoyed by aska or
awa, or any potca subdvson thereof. Snce a teachers empoyed by
the States w be sub|ect to edera Income ta under secton 1 of the b,
t s beeved proper to emnate the e empton referred to so that teachers
n the Terrtores of aska and nawa w be sub|ect to ta to the same
e tent as teachers n the varous States. The commttee amendment mnkes the
change n aw appcabe to the new Code rather than the 193 ct.
Secton 3: In order to factate recproca ta aton as between State and
edera Governments, your commttee beeves that the Unted States shoud
e pressy consent to the ta aton of the compensaton of ts offcers and em-
poyees. Secton 3 of the b therefore provdes that the Unted States consents
to the ta aton of compensaton receved after December 31, 193 , for persona
servce as an offcer or empoyee of the Unted States, any Terrtory or posses-
son or potca subdvson thereof, the Dstrct of Coumba, or any agency
or nstrumentaty of any one or more of the foregong, by any duy consttuted
ta ng authorty havng ursdcton to ta such compensaton, f such ta aton
does not dscrmnate aganst such offcer or empoyee because of the source
of such compensaton.
It w be noted that the consent e tends to ta aton not ony by the State
bnt aso by other duy consttuted ta ng authortes of the compensaton of
edera offcers and empoyees. Under ths provson f any oca governmenta
unts have authorty to and do mpose ncome ta es, ta may be mposed upon
such compensaton sub|ect to the |ursdcton of such unts.
The consent s not ntended to operate, nor coud t operate, as a consent to
any ta aton to whch as ndvduas these offcers and empoyees are entted
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to ob|ect ether under the provsons of the edera Consttuton or of the con-
sttutons or statutes of the respectve States. or e ampe, the consent na
no effect upon the rghts of an offcer of the edera Government to ob|ect tha
the mposton of a State ta upon hm s nvad under the fourteenth amend-
ment. Thus he may urge that a partcuar ta s nvad as to hm because of
an unreasonabe cassfcaton, or the ack of geographca |ursdcton to ta,
or for other reasons. Smary, the consent has no effect upon the rghts whe
such offcers and empoyees possess as ndvduas under the varous State con
sttutous and aws. To protect the edera Government aganst the unkey
possbty of State and oca ta aton of compensaton of edera offcers and
empoyees whch s amed at, or threatens the effcent operaton of, the edera
Government, the consent s e pressy confned to ta aton whch does not d -
crmnate aganst such offcers or empoyees because of the source of ther com-
pensaton. Inasmuch as secton 1, reatng to State and oca offcers and
empoyees, appes ony wth respect to years begnnng after December 31,193S.
secton 3 consents to ta aton of edera offcers and empoyees ony wth
respect to compensaton receved after December 31, 11)3 .
TITL IT. R TRO CTI R I TO C RT IN ST T ND LOC I. O IC RS ND MPLOTf
Ths tte affords reef to empoyees of States of the Unon an , ther oca
governments who have not been payng edera ncome ta and n many ca
have not even fed returns, but who may, under cverng v. Ocrhardt, be sub-
|ect to edera ncome ta for past years. owever, there are certan group
of State and oca empoyees, partcuary those engaged n propretary functon
(such as the operaton of State quor stores, muncpa power pants, etc.).
who have for a number of years reguary pad edera ta because ther
abty was fuy estabshed at an earer date. It woud be unfar and
nequtabe to reeve ths group of empoyees from ta abty whch was n
no way a surprse to them and whch they pad wthout queston. It s there-
fore undesrabe to reeve, n banket fashon, a State and oca offcers and
empoyees from abty for ncome ta n earer years. Snce the groups who
shoud not be reeved have reguary pad ther ncome ta and t has been
currenty assessed, whe those who have been surprsed by the Gerhardt cas
and who shoud be gven reef have, In most cases, not pad ther ta and have
not been assessed, the genera pan of Tte II s to provde that assessment
prevousy made sha not be dsturbed but that no new assessments sha he
made.
Tte II appes ony to State and oca offcers and empoyees and not to other
persons havng deangs wth State and oca governments, snce the ta abty of
the compensaton of such other persons has ong been recognzed. Such persons
are generay hed to be ndependent contractors for purposes of edera ncome
ta aton. Ther abty for such ta has been ceary estabshed snce the
case of Mctcaf ddy v. Mtche (1926) (269 U. S., 514), and they are no:
offcers and empoyees wthn the meanng of ths b.
Secton 201: Secton 201 appes to edera ncome ta (ncudng nterest,
addtons to ta , and addtona amounts), for ta abe years begnnng prfo
to anuary 1, 193 , attrbutabe to compensaton for persona servce as U
offcer or empoyee of a State or any potca subdvson thereof, or an
agency or nstrumentaty of any one or more of the foregong.
Subsecton (a) provdes that ncome ta attrbutabe to the compensaton of
such offcers and empoyees for years begnnng pror to anuary 1,
whch was not assessed pror to anuary 1, 1939, sha not be assessed sm
no proceedng n court for the coecton thereof sha be begun or prosecuted.
Subsecton (b) provdes that If any such ncome ta for such years s
assessed after December 31, 193 , the assessment sha be abated and any
amount coected n pursuance thereof sha be credted or refunded In t
same manner as n the case of an ncome ta erroneousy coected. Ths
provson thus authorzes the refund of any ta assessed aganst State and
oca offcers and empoyees for any ta abe year begnnng pror to anuary 1
193 , f assessment s made after 193 .
In a reatvey sma number of cases State and oca offcers and empoyes
who are n a respects anaogous to the groups gven reef under secoo11
201 (a) and (b) have pad ther ta but have contested ther abty by war
of cam for refund rather than by contestng a defcency asserted p st
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them. It woud be Inequtabe to deny reef to these peope who have pad
ther ta es and at the same tme grant reef to smary stuated persons who
have not pad ther ta es. Secton 201(c) therefore provdes for credt or
refund to such persons of ncome ta , for any ta abe year begnnng pror
to anuary 1, 193 , attrbutabe to compensaton receved as a State or oca
offcer or empoyee, f the ta has been coected on or before the date of
enactment of the b, n the foowng cases:
(1) where a cam for refund of such amount was fed before anuary
19, 1939 (the date of the Presdent s message), and was not dsaowed
on or before the date of the enactment of ths b
(2) where such cam was so fed but has been dsaowed and the tme
for begnnng sut wth respect thereto has not e pred on the date of the
enactment of ths b
(3) where a sut for the recovery of such amount s pendng on the date
of the enactment of ths b and
(4) where a petton to the oard of Ta ppeas has been fed wth
respect to such amount and the oard s decson has not become fna
before the date of the enactment of ths b.
It s beeved that the foregong cases ncude vrtuay a State and oca
offcers and empoyees who are entted to reef from abty and who have
pud ther ta . In genera, subsecton (c) does not ncude those State and
oca offcers and empoyees who are not entted to reef, such as those
engaged n propretary functons, because, ther abty havng been prevousy
ceary estabshed, they have not fed cams for refund or otherwse asserted
ther rghts n any of the ways descrbed n ths subsecton.
Secton 202: s has been stated, secton 201 appes ony wth respect to
ncome ta for ta abe years begnnng pror to anuary 1, 193 . Your com-
mttee beeves, however, that t s far and equtabe to reeve State and
oca offcers and empoyees n the groups whch are entted to reef from
ncome-ta abty for ta abe years commencng durng 193 . Secton 202
accompshes ths resut wthout at the same tme reevng from abty the
groups of State and oca offcers and empoyees, such as those engaged n pro-
pretary functons, whose abty for edera ncome ta was ong prevousy
estabshed. It provdes that a State or oca offcer or empoyee who dd not
Incude hs compensaton receved as such In hs return for a ta abe year
begnnng durng 1937, sha not ncude n gross ncome for a ta abe year
begnnng n 193 compensaton receved as such an offcer or empoyee. Ob-
vousy, If an ndvdua dd not fe a return he dd not ncude hs compensa-
ton n hs return. Under ths provson a person who, for the frst tme, be-
comes durng 193 an offcer or empoyee of a State or potca subdvson or
agency or nstrumentaty thereof w be e empt from ncome ta for hs ta -
abe year begnnng n 193 wth respect to hs compensaton receved as such.
Ths secton aso provdes that athough a State or oca offcer or empoyee
ncuded hs compensaton n gross ncome for a ta abe year begnnng durng
1937, he sha be e empt from ta for the ta abe year begnnng durng 193 ,
f he s entted under secton 201 to obtan credt or refund of the ta pad for
the ta abe year begnnng durng 1937.
Secton 203: Sectons 201 and 202 afford reef to vrtuay a State and oca
offcers and empoyees equtaby entted thereto for ta abe years begnnng
pror to 1939. It s possbe, however, that there may be a few cases, not
ascertanabe at ths tme, whch are not covered by these sectons. or e -
ampe, a pubc-schoo teacher may have pad ta on hs compensaton for the
ta abe year 1937 and, athough Intendng to contest hs abty therefor, had
not fed cam for refund before anuary 19, 1939 (and therefore s not gven
reef by secton 201). Snce those pubc empoyees who dd not pay ta
are reeved from abty by sectons 201 and 202, smar reef shoud be
granted n the case of the teacher who pad hs ta . Lkewse, an empoyee
of the Port of New York uthorty who pad ta wth respect to hs compen-
saton, but who had not fed cam for refund before anuary 19, 1939, shoud
be gven reef. Secton 203, therefore, authorzes the Commssoner, under
reguatons prescrbed by hm wth the approva of the Secretary, to grant reef
by way of credt or refund. Such credt or refund under ths secton s to be
made ony f the State or oca offcer or empoyee fes a cam therefor after
anuary 1 , 1939, and the Commssoner fnds that dsaowance of the cam
woud resut n the appcaton of the doctrnes n the case of everng v.
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502
Ocrhardt e tendng the casses of offcers and empoyees sub|ect to edera
ta aton. It shoud be noted that ncuded n the casses of empoyees to whoa
the Commssoner may gve reef under ths secton w be empoyees of the
type nvoved n the case of evcrng v. TherreU (303 D. S., 21 ), snce the
decson n the Gerhardt case carfed and restated the bass for the abty for
such persons for edera ncome ta . Such reef may be granted by the
Commssoner wth respect to cams for refund for a ta abe year begno
durng 103 as we as a ta abe years pror thereto, sub|ect to the quafca-
ton of secton 204.
Secton 204: Secton 204 provdes that the cams for refund, suts, or pet-
tons to the oard referred to n the precedng sectons are sub|ect to the
statute of mtatons propery appcabe thereto.
Secton 205: Ths secton provdes that compensaton as used n sectnm
201, 202, and 203 sha not Incude compensaton to the e tent that t s pa
drecty or ndrecty by the Unted States or any agency or nstrumentaty
thereof. The effect of ths defnton Is to grant reef not ony n the ordna
case n whch the compensaton of the offcer or empoyee s pad n the fore:
of a saary but aso n cases where compensaton s derved from fees. Ia a
number of States, State and oca offcers receve ther compensaton n the fore
of charges nnd fees whch are coected from tgants, banks, and others wth
respect to whom the offcer e ercses a State functon such as that of a mastc
In chancery or n qudator of a bank or Insurance company. They are |ust as
truy State and oca offcers as f they were pad a saary and the reef s
therefore made appcabe to them.
Secton 206: Ths secton provdes that the terms used n the b sha hare
the same meanng as when used In Tte I of the Revenue ct of 193 . The com-
mttee amendment to the secton makes the meanng of terms used n the
Interna Revenue Code appcabe.
Secton 207: Ths secton provdes for the separabty of the ttes of the b
1939-40-m
T TION O T COMP NS TION O PU LIC O IC RS OT
MPLOY S.
ouse of Representatves Report No. 390, Seventy-s th Congress, rst Sesson
pr 10, 1030.
Mr. Doughton, from the commttee of conference, submtted the roowa
conference report to accompany . R. 3790 :
The commttee of conference on the dsagreeng votes of the two ouses -
the amendments of the Senate to the b ( . R, 3790) reatng to the ta atwr
of the compensaton of pubc offcers and empoyees, havng met, after fe.
and free conference, have agreed to recommend and do recommend to ther
respectve ouses as foows:

ST T M NT O T M N G RS ON T P RT O T OUS .
The managers on the part of the ouse at the conference on the dsaer
ng votes of the two ouses on the amendments of the Senate to the b ( R
3790) reatng to the tn aton of the compensaton of pubc offcers and em
poyees, submt the foowng statement In e panaton of the effect of the act
agreed upon by the conferees and recommended n the accompanyng confer-
ence report:
mendment No. 1: The Senate amendment s cerca and the ouse recede
mendments Nos. 2, 3, 4, and 10: The Senate amendments make the changes
n e stng aw proposed by the b amendments to the new Interna eventf
Code rather than to the Revenue ct of 193 . The ouse recedes.
mendment No. 5: The Senate amendment provdes that the compensan
of |udges of courts of the Unted States who took offce on or before ute
1932, sha be ncuded n gross ncome for edera ncome-ta purposes for W
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abe years begnnng after December 21, 193 . The present aw sub|ects to
edera ncome ta aton the compensaton of so-caed consttutona |udges
takng offce after une 6, 1932, and the compensaton of so-caed egsatve
|udges whether apponted on, before, or after une 6, 1932. The amendment
adds to the cass of ta abe |udges ony so-caed consttutona |udges ap-
ponted on or before une 6, 1932, because they are the ony group of |udges
now e empt There s no comparabe provson n the ouse b. The ouse
recedes.
mendment No. 6: The Senate amendment changes a secton number and
the ouse recedes.
mendments Nos. 7 and : The Senate amendments e pressy ncude
wthn the provsons of the ouse b under whch consent was granted to
the ta aton by State and oca ta ng authortes of compensaton of edera
offcers receved after December 31, 193 , Senators and Representatves, and
|udges and offcers of courts. The ouse b had the effect of consentng to
the ta aton of such persons. The conference agreement nserts a carfyng
defnton whch provdes that for the purposes of the b the term offcer
or empoyee ncudes a member of a egsatve body and a |udge or offcer of
a court Ths woud, of course, ncude Senators and Representatves as we
as edera |udges and court offcers and make them sub|ect to State ta aton
to the same e tent as other edera offcers. It woud aso ncude members
of the State egsatures, State |udges, and court offcers, and make them
sub|ect to edera ta aton to the same e tent as other State offcers. The
ouse recedes wth such an amendment on amendment No. 7, and the Senate
recedes on amendment No. .
mendment No. 9: Under the ouse b credt or refund of ta for years
pror to anuary 1, 1939, was to be made n the case of State and oca
offcers who fed cam after anuary 1 , 1939, f the Commssoner found
that to dsaow the cam woud be to appy the doctrne of the Gerhardt case,
whch e tended the casses of such persons sub|ect to edera ncome ta .
The Senate amendment adds the cases of everng v. Therre and Graves v.
O eefc. The effect of the amendment s to permt the same reef to be
gven to the casses of persons as to whom the power to ta was e tended
by these cases as was gven by the ouse b to those casses who by reason
of the doctrnes of the Gerhardt case were brought wthn edera ta ng
power. The ouse recedes.
mendment No. 11: The Senate amendment provdes that State and oca
ta ng authortes sha not coect any ta after the date of the enactment
of the ct on the compensaton receved before anuary 1, 1939, by offcers
and empoyees of the Unted States or ts agences. n e cepton to the
provson permts coecton of ta on such compensaton f the person s an
offcer or empoyee of a corporate agency or nstrumentaty of the Unted
States the ma|orty of the votng stock of whch s not owned by or on behaf
of the Unted States. There Is no comparnbe provson n the ouse b.
The ouse recedes wth an amendment whch embodes the substance of the
Senate amendment wth carfyng changes. The frst change s to make
certan that the Terrtores and possessons ( awa, Puerto Rco, the Php-
pnes, etc.) w not sub|ect edera offcas to ta for years pror to 1939.
The second change s one whch s desgned to defne more precsey the
corporate agences of the Unted States whose empoyees may not bo sub|ected
to ta for back years. Under the conference agreement, n order for the
empoyees to be reeved, the corporaton must be one whch s e empt from
edera ncome ta and aso t must be ether a corporaton the ma|orty
of the stock of whch s owned by the Unted States or a corporaton a ma|or-
ty of the board of drectors of whch may be seected by te Unted States.
It s beeved that the effect of the conference agreement s to eave undsturbed
the ta aton of empoyees of nstrumentates of the Unted States whch
are essentay prvate corporatons en|oyng certan edera prveges who
have heretofore been generay regarded as sub|ect to State ta aton.
mendment No. 12: The Senate amendment provdes that after the Secretary
of the Treasury has determned and procamed that It s the pocy of any
State to coect ta from persons who are offcers or empoyees of the Unted
States or Its agences, on account of compensaton receved by them pror to
anuary 1, 1939, the reef granted by Tte II to the offcers and empoyees of
that State or ts subdvsons or agences sha no onger appy. In makng the
determnaton as to whether or not the State s ta ng edera empoyees,
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ta aton by the State of offcers or empoyees of a corporate agency or Instru-
mentaty a ma|orty of the votng stock of whch s not owned by or on behaf
of the Unted States s to be gnored. Thus, ta ng such persons by the State
w not resut In the dena of reef to State and oca offcers. There s no
comparabe provson n the ouse b. The ouse recedes wth an amend-
ment smar to that made by the conference agreement under amendment So.
11, the effect of whch s to descrbe more precsey the corporate agences o
the Unted States whch are to be dsregarded n ascertanng the pocy ot the
State wth respect to ta ng edera offcas.
mendment No. 13: The Senate amendment provdes that udges of the
Supreme Court and other consttutona udges who took offce on or before
une 6, 1932 (the date of the enactment of the Revenue ct of 1932), sha not
be sub|ect to Income ta under the Revenue ct of 193 or any pror evenne
ct Ths Is a carfyng amendment to make certan that Supreme Court and
crcut and dstrct udges (ncudng the court of appeas and dstrct court
udges of the Dstrct of Coumba) w not be sub|ect to edera ta aton for
years pror to 1939. The ta aton of udges of so-caed egsatve courts s un-
affected by the amendment. There s no comparabe provson n the ouse
b. The ouse recedes.
mendment No. 14: The Senate amendment changes a secton number. The
ouse recedes wth an amendment makng a further change In secton number.
R. L. Dougoton,
Thos. . Cu en,
ohn W. McCoemack,
ebe Cooper,
en T. Treaowat,
rank Crowther,
arod not-son,
Managers on the part of the oute.
1939-30-9926
T R NU ILL, O 1939.
ouse of Representatves Report No. 55, Seventy-s th Congress, rst Sesson.)
une 10, 1939.
Mr. Doughton, from the Commttee on Ways and Means, submtted the foow-
ng report to accompany . R. 6 51 :
The Commttee on Ways and Means, to whom was referred the b ( . .
51) to provde revenue, equaze ta aton, and for other purposes, havng had
the same under consderaton, report t back unanmousy to the ouse wth
amendments and recommend that the b as amended do pass.
The commttee amendments are as foows:
Page 11, nes 1 and 2, strke out In the case of a corporaton, for and
Insert or.
Page 11, ne 21, after M(d)M Insert (1), (2), (3), and (4).
Page 12, strke out nes 6 and 7 and nsert:
(d) (1), (2), (3), and (4)) e ceeds, n the case of a ta payer other than a cor-
poraton, the net ncome (computed wthout such deducton), or, n the case of a
corporaton, the norma-ta net Income (computed wthout such deducton)
Page 13, ne , strke out the perod, Insert a semcoon, and after ne 3
Insert:
(5) Deductons otherwse aowed by aw not attrbutabe to the operaton of
a trade or busness reguary carred on by the ta payer sha (n the case oft
ta payer other than a corporaton) be aowed ony to the e tent of the amount
of the gross Income not derved from such trade or busness.
Page 30, ne 11, strke out wth Interest coupons or n regstered form.
The b has two ma|or ob|ectves. The frst s to remove from the e stng
corporate ncome-ta structure such busness deterrents and ta rrtants as
may be possbe to consder nt ths tme. Its second purpose s to e tend the
temporary e cse ta es and the posta rates.
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505
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Wth regard to ts frst purpose, ths b s a further step n a program begun
by the Revenue ct of 193 . The report of the Commttee on Ways and Means
on the revenue b of 193 , stated the purpose of that b to be
to mprove our e stng revenue system, to remove nequtes, to equaze the
ta burden, and to stmuate busness actvty, and to accompsh ths wthout
reducng the revenue whch woud be obtaned by e stng aw under present
condtons.
Snce the passage of that ct and the correcton of the fauts then apparent
n our ta structure, further nequtes have become evdent and attenton has
been drawn to a number of nstances where our e stng ta aws act as a
deterrent to a free fow of busness actvty. In addton, our e stng aw con-
tans certan ta rrtants whch are reatvey unmportant from the pont
of vew of revenue but are burdensome and rrtatng to ta payers.
In attemptng to rectfy these fauts, however, your commttee has been nar-
rowy restrcted by two very compeng factors. The frst of these s the
eement of tme. Whe the queston of ta revson has been under dscusson
for severa months, the Commttee on Ways and Means and ts Subcommttee on
Interna Revenue Ta aton, have been contnuousy engaged snce ebruary 1
n perfectng amendments to the Soca Securty ct. These changes were
adopted by the ouse as recenty as une 10. These changes, n addton to
berazng soca securty benefts, made substanta ta revsons under whch
busness w be reeved of appro matey 1,710,000,000 n pay-ro ta es durng
the ne t three years. Moreover, snce the present b woud e tend the tem-
porary e cse ta es, the ma|orty of whch e pre under e stng aw on une 30,
and the posta rates, ths egsaton shoud become aw before uy 1 f a
serous oss of revenue s to be averted.
The second urgent restrcton under whch ths revson has been undertaken
s the necessty of accompshng the desred resut wthout n|urng the revenue-
producng capacty of our ta system. t the same tme. It was mperatve
that care be taken to guard aganst the reopenng of the possbty of ta
avodance.
Due to these mtatons, t as been necessary to confne the revson to
those matters, whch n the opnon of your commttee, requre mmedate
correcton.
Your commttee began pubc hearngs on May 27, at whch tme the Secretary
of the Treasury appeared and stressed the desrabty of makng certan changes
In our corporate ncome-ta structure, whch, t was thought, woud encourage
busness actvty and a freer fow of capta nto productve enterprse. e drew
attenton to two types of desrabe changes, the frst of whch he consdered
urgent and recommended that Immedate acton be taken wth respect thereto.
The second type he consdered to te no ess mportant but not so n need of
mmedate remedy as the frst. The hearngs were concuded on une 5, and
the suggested ta proposas were referred to the Subcommttee on Interna
Revenue Ta aton, composed of Mr. Cooper of Tennessee, charman, Messrs.
McCormack of Massachusetts, Dsney of Okahoma, uck of Caforna, Duncan
of Mssour, oehne of Indana, Treadway of Massachusetts, Crowther and Reed
of New York, and Woodruff of Mchgan and Charman Doughton, e offco.
Wth the cooperaton of the Treasury Department, the staff of the ont Com-
mttee on Interna Revenue Ta aton and the Offce of the Legsatve Counse,
the subcommttee met and consdered the proposas before t, reatve to the
corporaton ncome ta . It reported ts fndngs to the fu commttee n the
form of a draft of the present b.
The need for revenue egsaton at ths sesson of Congress arses from sev-
era crcumstances. Some of the msceaneous nterna revenue ta es e pre
une 30, 1939 others e pre uy 31, 1939 the rates of st others w auto-
matcay be reduced on une 30, 1939. In hs udget message of anuary 3,
1939, the Presdent recommended the e tenson of these msceaneous nterna
revenue ta es and stated that the revenue from such ta es or ts
equvaent s necessary for the fnancng of the udget for 1940. urthermore,
the corporaton ncome ta es w e pre and w not appy to any ta abe
year begnnng after December 31, 1939.
usnessmen, economsts, and others, as we as the Secretary and the TTnder
Secretary of the Treasury, have caed the commttee s nttenton to the fact
that some features of the present ta structure nterfere wth the fu operaton
of busness and dscourage ndustra enterprse. Snce the Government needs
209190 40 17
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506
addtona revenue and snce, In the ong run, ths need can be best met on|
through ncreased busness actvty and ncreased natona ncome, your com-
mttee fees that every effort shoud be made to afford a egtmate am
necessary Incentves to prvate enterprse.
Whe one purpose of the b as reported s to stmuate busness actvty, the
commttee has sought to accompsh ths wthout endangerng the productvty
of the e stng ta structure. ccordng to the best nformaton the commttee
has been abe to secure, t appears reasonaby certan that the revenues of the
Government w not be reduced apprecaby under the present bL
The representatons made to the commttee by varous wtnesses appearns
before t covered a wde range of ta sub|ects. The b now reported, however,
ncorporates ony those revsons whch appear to be partcuary urgent. The
tme at the dsposa of your commttee durng the present sesson of Gougress s
nadequate to afford suffcent study to permt a compete revson of the revenue
structure.
SUMM RY OW C NG S IN T STRUCTUR .
The b makes the foowng changes In the corporate ta structure:
1. Corporatons are permtted to carry over ther net operatng busness osses
for a perod of two years. Ths provson w take effect wth respect to ta -
abe years begnnng after December 31, 1939. owever, a corporaton whch
has sustaned a net operatng busness oss In 1939 w be permtted to earr|
over such operatng net oss n reducton of ts Income for 1940 and, f such net
oss s In e cess of ts Income for 1940, to carry over such e cess n reducton
of ts ncome for 1941.
2. Corporatons are gven the rght to Increase ther capta stock ta vaua-
tons for the fsca years endng une 30, 1939, and une 30, 1940, but not to
decrease such vaue for such years. Under the e stng aw, corporatons are
entted to a new decaraton (ether owerng or rasng ther capta stock
vaue) for capta stock ta purposes for the fsca year endng une 30, 1941.
3. In eu of the ta now Imposed upon corporatons wth ncomes above
25,000, there s mposed a fat corporate ta of 1 per cent Ths new rate w
take effect wth respect to ta abe years begnnng after December 31, 1939.
The present corporaton ta contanng the undstrbuted profts ta feature w
be aowed to e pre, as such ta does not appy to ta abe years begnnng after
December 31, 1939.
4. Corporatons wth ncomes of 25,000 or ess are sub|ect to the graduated
rates on sma corporatons provded by e stng aw.
5. notch provson s provded to prevent corporatons from beng heavy
ta ed by reason of havng ncomes sghty n e cess of 25,000. If It were not
for ths notch provson, a corporaton wth an ncome of 25,001 woud have
Its ta ncreased over 900 by reason of havng 1 more n ta abe ncome.
Snce the cassfcaton between arge and sma corporatons s based upon
norma-ta net ncome nstead of net Income, the notch s greaty smpfed as
compared to the one n e stng aw.
6. anks, nsurance companes, Chna Trade ct corporatons, and corpora-
tons In the possessons of the Unted States are ta ed ke other corporadons.
That s, those wth norma-ta net Incomes of 25,000 and ess receve the
beneft of the graduated rates appcabe to sma corporatons, whe those
wth norma-ta net ncomes n e cess of 25,000 are ta ed under the notch or
at a fat rate of 1 per cent, whchever method resuts n the esser ta .
7. oregn corporatons engaged n a trade or busness wthn the Unted
States and mutua Investment companes are ta ed at a fat rate of 1 per cent,
regardess of the amount of ther ncome.
. oregn corporatons not engaged n a trade or busness wthn the Unted
States are ta ed at the rates provded for n e stng aw. Under the e stng
aw, ths type of corporaton s ta ed upon f ed or determnabe ncome at a
rate of 15 per cent, e cept that n the case of dvdends the rate s 10 per cent
In the case of a contguous country, the 10 per cent rate on dvdends may be
reduced by treaty to a rate not ess than 5 per cent Thus, the e stng aw s
contnued n ths b.
9. Corporatons n bankruptcy or recevershp, |ont-stock and banks, ana
renta housng corporatons are treated under the b ke other corporatons.
The speca treatment accorded to them under the e stng aw made necessary
by the undstrbuted-profts ta has been abandoned.
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10. The 2,000 mtaton appcabe to the capta osses of corporatons has
been repeaed e cept wth respect to domestc persona hodng companes and
foregn persona hodng companes. In eu of ths provson, the b aows
capta osses on assets hed for more than 1 months to be apped n fu
aganst ordnary net ncome for the ta abe year n whch the oss was reazed.
In the case of capta osses on assets hed for not more than 1 months, the
b provdes that they may be apped ony aganst capta gans on assets hed
not more than 1 months. If the osses from the sae or e change of such
assets hed for not more than 1 months e ceed the gans from such short-term
transactons the e cess oss f not n e cess of the net ncome, may be carred
over nto the foowng ta abe year and may be apped aganst short-term
capta gans of such year. Ths s the same treatment accorded ndvduas
under e stng aw n the case of short-term capta osses. These provsons
are appcabe ony wth respect to ta abe years begnnng after December 31,
1939.
11. The b aso makes certan admnstratve changes whch afford reef
both to the Government and the ta payer. refy, these are as foows:
(a) corporaton whch estabshes to the satsfacton of the Commssoner
that t s n an unsound fnanca condton may redeem ts bonds, notes, or
other evdence of ndebtedness n e stence on une 1, 1939, at ess than ther
face vaue wthout the recognton of gan f such redempton occurs after the
enactment of the b and n a ta abe year begnnng pror to anuary 1, 1943.
Ths provson w materay ad raroads and other corporatons whose
bonds can be purchased at the present tme at ess than ther face vaue, gvng
them an ncentve to qudate ther ndebtedness. Proper safeguards prevent
the provsons from beng utzed by corporatons n a sound fnanca condton
to drve the prce of ther bonds down n the market.
(6) provson whch permts corporatons to contnue bona fde busness
reorganzatons wthout beng sub|ect to ta aton mmedatey upon such reor-
ganzaton by reason of the assumpton by one corporaton of the debts of the
other n the process of reorganzaton. Ths provson affords reef both to
the Government and to the ta payer. Ths change was made n vew of the
endcr case (303 U. S., 564).
(c) modfcaton of the mtatons on the foregn ta credt to make t
ess dffcut for mercan corporatons to transact busness abroad. The mta-
tons on the aowance of a credt for ta es pad to foregn countres were
paced n the aw to make It certan that the edera Government woud receve
ts fu ta on the ncome from Unted States sources. It was not ntended
for the mercan ta to appy aganst the ncome from foregn sources uness
the foregn ta rate was ess than the ta rate mposed by the Unted States.
Due to a technca change (nserted n the Revenue ct of 1934 and contnued
n subsequent cts) makng the aowance for ntercompany dvdends, and
nterest on Government obgatons sub|ect to surta a credt aganst net n-
come Instead of a deducton from gross ncome, mercan corporatons operatng
abroad do not get a fu credt for the ta es pad to a foregn country on ther
foregn ncome. Ths makes t dffcut for mercan corporatons to compete
abroad wth foregn corporatons. oth the Treasury Department and the
State Department requested that mmedate steps be taken to correct ths
Stuaton. y reason of the nature of the ta mposed by secton 102, reatng
to corporatons mpropery accumuatng ncome to avod surta on ther share-
hoders, t s not beeved that the credt for ta es pad to foregn countres
shoud be permtted to dmnsh such ta , and the b so provdes.
( f) provson amendng the edera en aw to provde that such en
sha not be vad as aganst any mortgagee, pedgee, or purchaser of a nego-
tabe securty for fu consderaton f the mortgagee, pedgee, or purchaser
was wthout knowedge of the e stence of the en. It was nserted to overcome
the effect of the Rosenfed decson (Dstrct Court, astern Dstrct of Mch-
gan, December , 193 ).
(e) provson vadatng a Treasury reguaton of ong standng whch
requred that where a stock dvdend was decared the bass of the orgna
shares be apportoned between those shares and the dvdend stock for com-
putng the gan or oss on the sae thereof. In one case, the Supreme Court
hed that where a ta payer had receved a dvdend of common stock on ts
preferred stock, no part of the cost of the od stock coud be aocated to the
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50
dvdend stock n determnng gan or oss ( onhand v. ererng, M . S.
441). In another case where the converse stuaton was presented, the Con
hed that no part of the cost of the orgna stock coud be aocated to d
dvdend stock and therefore the cost bass of the dvdend stock was tro
( cverng v. Oowran, 320 U. S., 23 Ct. D. 1292, C. . 193 -1, 300 ).
These decsons may affect adversey ether the Government or the ta payer
dependng upon the partcuar stock sod by the ta payer. The b correct
ths stuaton by ratfyng the Treasury reguatons deang wth ths pont
(f) Severa mnor technca changes. One of these makes a speca provso|
n Subchapter , Chapter 2 (reatng to persona hodng companes), so that
the gross ncome of nsurance companes other than fe or mutua whch
specay defned n secton 204 and s n part a net ncome, w be comparafe
for the purposes of Subchapter , to the gross ncome of ordnary corporaro|s
nother change e empts from stamp ta on transfers of worthess stock fan
an e ecutor or admnstrator to a egatee, her, or dstrbutee.
(g) n e empton from the ncome ta s granted to vountary empoye
benefcary assocatons provdng for the payment of fe, sck, accdent
other benefts to members of such assocatons or ther dependents, f so pa
of ther net earnngs nures (other than through such payments) to the bewt:
of any prvate ndvdua or sharehoder and the membershp s composed sok|
of edera offcers or empoyees.
The present aw does not grant an e empton to assocatons of ths character
where more than 15 per cent of the ncome does not consst of amounts coect
for the soe purpose of makng such beneft payments and meetng e penses.
It appears that some of these assocatons, especay n the case of posta
empoyees, by nvestment of a certan part of ther funds are unabe to wrt
the e empton test of e stng aw. Ts change s appcabe to ta abe years
begnnng after December 31, 193 .
12. The b e tends for two years the temporary e cse ta es whch, under
e stng aw, e pre at the end of une or uy of ths year. It aso e tend
for two years the 3-cent posta rate on nonoca frst-cass ma. The b ah
e tends for two years the power of the Presdent to modfy postage rates
other than frst-cass matter.
In the nterest of equty, the commttee, n the b as reported, has reeo
mended an amendment under whch ndvduas and partners are aowed
2-year carry-over of osses. Ths carry-over s substantay the same as ttat
whch was granted to them under the Revenue ct of 192 .
Your commttee has gven consderaton to secton 102, reatng to corporat
mpropery accumuatng surpus. Ths secton was consderaby strengthen
In the Revenue ct of 193 by requrng the ta payer by a cear preponderant
of the evdence to prove the absence of any purpose to avod surta es upon sht -
hoders after t has been determned that the earnngs and profts have b
unreasonaby accumuated. Ths shfts the burden of proof to the ta payer
such cases. So short a tme has eapsed snce the enactment of the Revenue s
of 193 after the fng of returns under such ct that the Treasury has been -
abe to furnsh your commttee wth data as to the effectveness of the cb M
made n the 193 ct. Ths stuaton w be studed and f t deveops that tbf
193 provson s not accompshng the purposes ntended, further effort w t
made to correct the stuaton n the near future.
PL N TION O P INCIP L CII NG S.
1. Corporaton ta rates. The b dvdes corporatons nto two man cass
a. Corporatons wth norma-ta net ncomes of not more than 25,000.
b. Corporatons wth norma-ta net ncomes In e cess of 25,000.
(a) Sma corporatons: Wth respect to the frst cass, the b adopts a
rates under e stng aw appcabe to sma corporatons. The dvdng ne
tween sma and arge corporatons s f ed at 25,000. The rates of ta aPP
cabe to these sma corporatons under the b are as foows:
12 per cent on frst 5,000 of norma-ta net Income.
14 per cent on ne t 15,000 of norma-ta net ncome.
16 per cent on ne t 5,000 of norma-ta net Income.
These corporatons were not sub|ect to any undstrbuted profts ta n r
the Revenue ct of 193 . Ths group comprses about 90 per cent of a corpo
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509
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tons fng ta abe returns. The effectve rate of ta appcabe to such corpora-
tons, as we as the amount of the ta , s shown by the foowng tabe:
ffectve
Net
Ta , 193
rate on net
Income.
ct.
ncome,
193 ct.
Per cent.
500
62.50
12 6
1,000
125.00
12 6
1,600
1 7.50
12 5
2,000
250.00
12.5
2,27
2 4.3
12 5
2,500
312 60
12 6
3,000
375.00
12 5
3,500
437.50
12.5
4,000
500.00
12 6
4,500
562. 50
12.6
5,000
625.00
12 5
6,000
765.00
12
7,000
905.00
12.9
,000
1,045.00
13.1
9,000
1,1 5.00
13.2
10,000
1,325.00
13.3
12,000
1,605.00
2,025. 00
13.4
15,000
13.5
1 ,000
2, 445.00
13.6
20, 000
2,725.00
13.6
22,000
3,045.00
13.
25,000
3, 526.00
14.1
Consderaton was gven to changng ths system of ta ng sma corporatons
by means of a specfc credt of 2,000. owever, t was found that such a pan
woud competey e empt corporatons wth norma-ta net ncome not n e cess
of 2,000 and woud ncrease the ta on corporatons wth norma-ta net n-
comes above 7,000. Other pans were aso consdered but as they had the
effect of ncreasng the ta on these sma corporatons over that n the e stng
aw, t was thought best to contnue the e stng rates. These rates are the
same as those contaned n the ouse b of 193 and were agreed to by the
Senate In conference.
(6) Large corporatons: In the case of corporatons wth norma-ta net In-
comes of more than 25,000, t s proposed to evy a fat corporate ta of 1 per
cent. Under e stng aw, these corporatons are sub|ect to a ta rangng from
16 to 19 per cent, dependng upon the amount of dvdend dstrbuton. y
ths method, a corporaton whch dstrbutes a of Its earnngs w pay a ta
of 16 4 per cent, where a corporaton whch retans a of ts earnngs w pay
a ta of 19 per cent The dfferenta of 2 4 per cent between IO /| and 19
per cent Is referred to as the undstrbuted profts ta . Whe ths ta pro-
duces tte revenue and has tte effect on busness, t has acqured promnence
as a psychoogca rrtant argey because of the wdespread emotona crtcsm
whch has been drected aganst t. Your commttee, therefore, s of the opnon
that ths feature of the corporaton ta shoud be dscontnued upon ts
e praton.
(c) Corporatons wth ncomes sghty n e cess of 25,000: In the case of
corporatons wth net ncomes sghty n e cess of 25,000, t Is deemed advs-
abe to appy a notch provson to prevent undue hardshp. or e ampe, a
corporaton wth a norma-ta net ncome of 25,000 woud pay a ta of 3,525.
If there were no notch provson, the corporaton wth a norma ta net ncome
of 25,001 woud pay a ta of 4,500.1 . Thus a 1 ncrease of ta abe Income
woud resut n an ncrease of ta of 975.1 . y makng the cassfcaton be-
tween sma and arge corporatons depend upon norma ta net ncome, whch
s the net ncome reduced by the credt for ntercompany dvdends, and nterest
on governmenta obgatons sub|ect to surta , your commttee found t possbe
to emnate the compcated features of the notch provson of e stng aw.
The foowng tabe shows that a corporaton w come out of the notch at
31,964:
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510
NOTC PRO ISION.
ates:
rst 5,000, at 12 per cent, 625__
Ne t 15,000, at 14 per cent, 2,100_
Ne t 5,000, at 16 per cent, 00
tow.
_3. 3
Ta on frst 25,000 ncome s 3,525.
Norma ta net ncome over 25,000 proposed rate, 1 per cent
Notch: 3,525 ta on 25,000 pus 32 per cent over 25,000.
Income.
Ta under
notch.
Ta at 1
per cent.
Ta under
notch.
Ta a-
ps
25,001
3,525.32
3,621.00
3, 6 5.00
3, 45. 00
4,165. 00
4,4 5.00
4, 05.00
4,500.1
4,564.00
4,590.00
4, 6 0.00
4, 60.00
5,040.00
5,220.00
30.000
5,125.00
5,445.00
5.(505.00
5,701.00
6,754.00
6,765.00
6,0 5.00
R
,
25,300
31,000
25,500
31.500
26.000
31. 00
27,000
31,064
2 ,000
32.000
29 000
33,000
(d) Speca corporatons: There are certan corporatons whch under
stng aw are accorded speca treatment. Under e stng aw, corporatons to
bankrupcy and recevershp, ont-stock and banks, and renta housng corrs-
ratons are entted to a credt of 2 per cent of ther ad|usted net ncome. Ths
credt had the effect of makng these corporatons e empt from the 2 r r
cent undstrbuted-profts ta feature of the e stng aw. Snce under the
b, the undstrbuted-profts ta has been emnated, these corporatons wt
receve the same treatment as ordnary corporatons.
The foowng corporatons were sub|ect under e stng aw to a fat rate
of ta of 16 per cent, regardess of the amount of ther net ncome: ants.
Chna Trade ct corporatons, nsurance companes, and corporatons n
sessons of the Unted States. Under the b, these corporatons w be snb|eft
to the same rates appcabe to other corporatons, that s, f ther norma-tt
net ncome s 25,000, or ess, they w be sub|ect to the sma corporaton rates.
If ther norma-ta net ncome s above 25,000, they w be sub|ect to the
notch provson or the fat corporaton rate, whchever resuts n the ess
ta .
Mutua nvestment companes under e stng aw are sub|ect to a fat rate
of 16 per cent, regardess of the amount of ther net ncome. owever, the
are not aowed any credt for dvdends receved but do get a credt for dvdends
pad. s to these companes, the e stng aw s not changed e cept that s
rate of 1 per cent s substtuted for the fat rate of 16 per cent.
oregn corporatons engaged n a trade or busness wthn the Unted States
are ta ed under e stng aw at the rate of 19 per cent, regardess of the amount
of ther net ncome. Snce, under the b, the ma mum rate mposed npff
domestc corporatons s 1 per cent, t s necessary to make the rate on te
corporatons 1 per cent, n order not to nterfere wth treaty obgatons. Is
the case of a foregn corporaton not engaged n a trade or busness n t
Unted States, the rate of ta under e stng aw s 15 per cent, e cept 31
n the case of dvdends the rate s 10 per cent and such dvdend rate na.r
be reduced by treaty to a rate not ess than 5 per cent n the case of a contguous
country. The b does not change the rates of ta under e stng aw as to
foregn corporatons not engaged n a trade or busness n the Unted States-
2. Net Ions carry-over. The b, together wth the commttee amendment
permts ta payers to carry over net operatng busness osses for a perod o
two years. Pror to the Revenue ct of 1932, such 2-year carry-over was
owed. No net oss has ever been aowed for a greater perod than two fears
In th Revenue ct of 1932, the 2-year net oss carry-over was reduced to ok
year and n the Natona Industra Recovery ct the net oss carry-over w
entrey emnated. s a resut of the emnaton of ths carry-over, a
ness wth aternatng proft and oss s requred to pay hgher ta es over s
perod of years than a busness wth stabe profts, athough the avera.ee
come of the two frms s equa. New enterprses and the capta goods Idot-
tres are especay sub|ect to wde fuctuatons n earnngs. It s, therefore.
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511
Msc.
beeved that the aowance of a net operatng busness oss carry-over w
greaty ad busness and stmuate new enterprses. Ths net oss carry-over
w appy to net operatng osses occurrng n 1939 and subsequent years. The
1939 net operatng osses may be apped aganst the net ncome for 1940 and,
f n e cess of that net ncome, may be carred over and apped aganst the net
ncome for 1941. Ths affords permanent reef to ta payers as net operatng
osses for any future year may be carred over nto the ne t two succeedng
years. n e ampe w show the necessty for such a provson.
Suppose a corporaton, over the 3-year perod 1939-41, shows the foowng:
Net operatng oss for 1939 2, 000,000
Norma-ta net ncome for 1940 1,000,000
Norna-ta net ncome for 1941 1, 000,000
Lookng at ths 3-year perod, t w be seen that the corporaton has not made
any proft. owever, assumng a fat rate of 1 per cent, t woud be requred
to pay a ta of 360,000 f there were no provson for a net oss carry-over.
Under the b, a corporaton n such a case woud not be requred to pay an
ncome ta .
3. 2,000 capta oss mtaton. Secton 117(d) of e stng aw provdes that
osses from saes or e changes of capta assets sha be aowed ony to the
e tent of 2,000 pus the gans from such e changes. Ths mtaton does not
appy to the oss resutng from the sae by banks or trust companes of bonds
or other evdences of ndebtedness ssued by the Unted States, States, or cor-
poratons, wth nterest coupons or n regstered form, to the e tent that such
oss does not e ceed the par or face vaue of the Instrument It aso does not
appy to osses from the sae or e change of property whch s not a capta
asset. Capta assets do not ncude:
(1) Property whch woud be propery ncuded n nventory f on hand at
the cose of the ta abe year
(2) Property hed by a ta payer prmary for sae to customers n the
ordnary course of hs trade or busness or
(3) Property used n a trade or busness whch s sub|ect to deprecaton.
corporaton whch s reguary engaged n the purchase of goods and the
resae to customers s not sub|ect to ths mtaton wth respect to such goods.
corporaton whch s a deaer n securtes, that s, one whch s a merchant
of securtes, whch buys securtes and ses them to customers, Is not sub|ect
to ths mtaton wth respect to osses from such saes.
corporaton s not sub|ect to ths mtaton wth respect to property whch
s sub|ect to deprecaton. Corporaton purchased a machne In 1936 for
50,000. It had a fe of 10 years, so that the annua deducton woud be
5,000 a year at the end of the ffth year a new machne was nstaed and the
od machne was sod for 7,500. The oss woud be the dfference between
7,500 and 25,000, the deprecated cost, or 17,500. Ths oss s aowed to the
corporaton under the change made n the Revenue ct of 193 . owever, the
2,000 mtaton woud appy to osses on sae of property, not sub|ect to
deprecaton, ncudng osses arsng from the sae of rea property to the e tent
that such oss s aocabe to the and, as dstngushed from deprecabe m-
provements upon the and.
In eu of ths provson of e stng aw, the b provdes the foowng pan.
Gans or osses from the sae or e change of capta assets by corporatons are
dvded nto two groups:
(a) Short-term (hed for not more than 1 months): corporaton whch
sustans a short-term capta oss w be permtted to appy such short-term
capta oss ony aganst short-term capta gans for the same ta abe year and
not aganst other ncome of the corporaton for that year. If there s a net
short-term capta oss In the ta abe year, that s, f the short-term osses
e ceed the short-term gans, the net short-term capta oss (n an amount not
n e cess of the net ncome for such year) may be carred over nto the ne t
ta abe year and apped aganst the short-term capta gans for such year.
(6) Long-term (hed for more than 1 mouths) : In the case of a net ong-
term capta oss, that s, the e cess of the ong-term capta osses over the
ong-term capta gans, a corporaton may appy such ong-term capta net oss
aganst ts other ncome for the same ta abe year n whch the oss was
sustaned.
The capta oss changes have no appcaton to the surta mposed upon
domestc persona hodng companes or to the computaton of the ncome of a
foregn persona hodng company. or the purpose of the surta mposed upon
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Msc.
512
domestc persona hodng companes, osses from saes or e changes of capta
assets sha be aowed, as under e stng aw, ony to the e tent of 2,000 pus
the gans from such saes or e changes. In the case of foregn persona hodng
companes, the e stng aw s aso contnued.
Your commttee s proposa w remove a ta rrtant whch has handcapped
many corporatons. It w have the effect, n genera, of pacng corporatons
more neary on a party wth ndvduas wth respect to capta osses. y the
remova of the 2,000 mtaton, the necessty of aocatng osses between de-
precabe and nondeprecabe property w be emnated. Traders and other
corporatons that buy and se property on ther own account w be entted to
ofTset ther net ong-term osses aganst ther ordnary ncome. The specuator
w be prevented from offsettng specuatve gans aganst ordnary ncome (o
the reason that osses from the sae or e change of property hed for 1 months
or ess can ony be apped aganst gans from the sae or e change of stub
property hed for the same perod. It s beeved that ths provson of the b
w materay ad as a stmuant to busness recovery.
4. Capta-stock taw and access-profts ta . The e stng aw provdes
capta stock ta of 1 per 1,000 upon the decared vaue of the capta stoct
Domestc nsurance companes are e empt from the ta as we as corporatons
whch are e empt from the Income ta . Under secton 601 (f) of the Revenue
ct of 193 , reenacted n secton 1202(a) 1 of the Interna Revenue Code, corpo-
ratons sub|ect to ths ta were gven the rght to decare a new vaue for
capta stock ta purposes every three years begnnng wth the year endng
une 30, 193 . In the case of corporatons sub|ect to the capta stock ta for
the fsca year endng une 30, 193 , a new decaraton of vaue w not be
permtted unt the year endng une 30, 1941. In order to secure a reasonat e
vauaton for capta stock ta purposes, the e stng aw provdes for n
e cess-profts ta computed upon a certan part of the net ncome of the corpo-
raton n e cess of the ad|usted decared vaue. The e cess-profts ta rates
are as foows:
per eat
Net Income n e cess of 10 per cent and not n e cess of 15 per cent of
the ad|usted decared vaue
Net ncome n e cess of 15 per cent of the ad|usted decared vaue
The e cess-profts ta s Imposed wth respect to the ncome-ta ta abe year
of the corporaton endng after the cose of the capta stock ta year.
In commentng upon ths feature of our ta system, the Secretary of the
Treasury n hs appearance before your commttee on May 27, 1939, referred
to t as a ta rrtant wth the foowng statement:
Under the present aw the capta stock ta Is based upon a decared capta
stock vaue whch the ta payer may revse every three years. The decared
vaue may be any fgure that the ta payer desres to submt, regardess of toe
actua vaue of the stock. The e cess-profts ta appes to profts n e cess rf
10 per cent of such a decared vaue. The ta es are thus not reay ta es on
the vaue of capta stock or on e cessve profts. Ther ma|or defect s that
they operate very erratcay. The ta abty they mpose depends on n
ta payer s abty to forecast profts for the ne t three years as we as upon t
amount of profts actuay reazed durng each of the three years. oeca.
of earnngs are partcuary dffcut to make In the case of new busnesses
those wth unstabe ncomes such as the capta goods ndustres, wth t
resut that ta es mposed on such busnesses are at tmes nordnatey h 0-
The revenue from the capta stock ta and the e cess-profts ta by caeD 1
years for the perod 1934 to 193 , Incusve, Is as foows:
Revenue from capta stock ta and e cess-profts ta , by caendar years Mf-
ncusve.
Year.
Capta stm-k.
cess profts.
Tout
1934.
91,0 ,000
93, 7.000
137,0M), 000
140, 91.000
127.467,000
,407,000
7,211000
23,313,000
24.961,000
44,446,000
M, IIS
193S
1936
193
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513
Msc.
It w be seen that the revenue derved from such a ta ranged from
100,000,000 to appro matey 172,000,000 durng the ast three caendar years.
To repea such ta es at ths tme woud force an ncrease n the corporate n-
come-ta rate of appro matey 3 per cent to make up for the oss n revenue.
Moreover, t woud requre the net ncome corporatons to assume abty for
the capta stock ta coected under e stng aw from defct corporatons. It
s, therefore, deemed unwse by your commttee to repea the capta stock
ta and the e cess-profts ta .
s the man hardshp arsng from ths feature of the ta aw s due to the
fact that a corporaton s unabe to forecast ts profts accuratey over a 3-
year perod, It s beeved that the stuaton can be remeded by permttng
those corporatons whch decared a too ow vaue for capta stock ta pur-
poses to ncrease such vaue for the capta stock ta years endng une 30,
3939, and une 30, 1940. Ths w permt corporatons that have been unabe
to forecast ther profts accuratey to be reeved of a arge e cess-profts ta
abty for the e cess-profts ta years endng after une 30, 1939, and une
30, 1940, respectvey. Snce corporatons are entted to a new decaraton for
the capta stock ta year endng une 30, 1941, ths w afford them reef
from any hardshp arsng from an underestmate of profts for at east a
3-yenr perod. That the reef granted by the commttee pan s rea and
substanta s shown by the foowng tabe:
Comparson, capta stock and e cess-profts ta es.
100,000 N T INCOM .
cess-profts ta .
Tota cap-
n t I
Tota e -
ta stock
Decared vaue.
capta-
stock ta .
cess-profts
and e cess-
6 per cent.
12 per cent.
ta .
profts
ta es.
200
600
,400
9,000
9,200
400,000
400
1,200
4, 00
6.000
6.400
600,000
600
1. 00
1,200
3,000
3,600
00
1,200
0
1,200
2,000
200,000 N T INCOM .
1,000
0
0
0
1,000
400.000
400
1,200
16, 00
1 ,000
1 ,400
00.000
600
1, 00
13,200
15,000
16.600
00,000
00
2,400
9.600
12,000
12, 00
1,000,000
1,000
3.000
6.000
9,000
10.003
1,200.000
1,200
3.600
2,400
6,000
7,200
1,400,000
1,400
3,600
0
3,600
5.000
2,000.000
2,000
0
0
0
2,000
300,000 N T INCOM .
600,000
000
1, 00
25,200
27,000
27,600
00.000
00
2,400
21,600
24,000
24, 00
1,000,000..
1,000
3,000
1 ,000
21,000
22,000
1,500.000
1.500
4.500
,000
13.500
16.000
2.000,000
2,000
,000
0
9,000
11,000
500,000 N T INCOM .
3.000
0
0
0
3,000
50,000
50
150
59,100
59,250
59,300
100.000
100
300
5 ,200
5 ,500
6 .600
200.0U0.
200
600
56,400
67,000
67,200
500,000
500
1,500
61,000
62,600
53,000
00,000
00
2,400
45,600
4 .000
4 , 00
I,00 ),000
1.000
3,000
42,000
45,000
46.000
1,500,000
1,500
4,500
33,000
37,600
39,000
2,000,000
2.000
6,000
24,000
30,000
32,000
4.000.000.
4.000
,000
0
6,000
10.000
5,000,000
6,000
0
0
0
5,000
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514
Comparson, capta stock and e cess-profts ta es Contnued.
600,000 N T INCOM .
Decared vaue.
50,000
100.000
200,000 _
.500,000.
00,000
1,000.000
1, 00,000
2.000,000
4,000,000
5,000,000
6,000,000 ,
50
100
200
500
00
1,000
1,500
2,000
4,000
6,000
6,000
cess-profts ta .
6 per cent.
150
300
600
1,500
2,400
3,000
4,500
6,000
12,000
6,000
0
12 per cent,
71,100
70,200
6 ,400
63,000
57,600
54,000
45.000
36,000
0
0
0
Tota e
cess-profts
ta .
71,250
70,600
69. om
61, SOU
60.000
57,000
49,500
42.000
12,000
,000
0
00,000 N T INCOM .
50.000
100.000....
200,000....
500.000....
00.000....
1,000,000..
1,500,000..
2,000,000..
5,000,000..
,000,000..
100
200
500
00
1,000
1.500
2,000
5,000
,000
150
300
600
1,600
2,400
3,000
4,500
6,000
15,000
0
95,100
94,200
92,400
7 ,000
69.000
60,000
6,000
0
95,2.50
94,500
93.000
,500
4,000
1,000
73,500
66.000
21,000
0
95,300
w,m
S .O00
M
a cm
7s.no
6 ,000
56,000
,00)
1,000,000 N T INCOM .
100,000
200.000
500,000
00.000
1,600,000..
2,000,000..
3,000,000..
5,000,000
7,500,000...
10,000,000.
100
200
600
00
1,500
2,000
3,000
6,000
7,500
10,000
300
600
1,500
2,400
4,500
6,000
9,000
15,000
15,000
0
11 , 200
116,400
111,000
105.600
93,000
4,000
66,000
30,000
0
0
11 ,500
117.000
112,500
10 ,000
97,500
90,000
75,000
45.000
tns. )
117,S0
moeo
MM
M, P
Sr 01
7 ,010
S
t so
u,ao
It w be seen that under the foregong tabe a corporaton wth a net Income
of 100,000 whch decared a capta stock vaue of 200,000 s abe to a capta
stock and e cess-profts ta of 9,200. y ncreasng such vaue to 1,000,009,
ts ta abty from ths source may be reduced to 1,000. corporaton
a 1,000,000 net Income and a decared vaue of 100,000 s sub|ect to a tota
capta stock ta and e cess-profts ta abty of 11 ,600. It may reduce
ths abty to an amount as ow as 10,000 by ncreasng ts capta stock
ta vaue. ut, of course, these corporatons w have to pay ordnary cor-
poraton ta es.
6. tenson of e cse ta es and posta rates. Under the provsons of e t-
ng aw, certan temporary e cse ta es w termnate at mdnght, une 30.
1939 certan others w termnate at mdnght, uy 1, 1939: and certan
others w be effectve ony at reduced rates or wth ncreased e emptons
after une 30, 1939. In addton, the posta rate on nonoca frst-cass ma
w bo reduced from 3 cents to 2 cents after une 30, 1939.
If the temporary ta es, the temporary ncrease n rates or decreased e emp-
tons, and the temporary ncreased rate on nonoca frst-cass ma are per-
mtted to apse at ths tme, a oss n revenue of over 600,000,000 w occur.
Ths data w be gven n greater deta hereafter n ths report.
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515
Msc.
These temporary provsons orgnated n the Revenue ct of 1932 and have
been e tended three tmes. The ast e tenson was approved une 29, 1937.
Of those ta es then n effect, the foowng were repeaed by the Revenue ct
of 193 :
(1) Ta on tooth and mouth washes, dentfrces, tooth pastes, and toet
soaps (rate 5 per cent).
(2) Ta on furs (rate 10 per cent).
(3) Ta on phonograph records (rate 10 per cent).
(4) Ta on sportng goods (rate 10 per cent).
(5) Ta on cameras (rate 10 per cent).
(6) Ta on chewng gum (rate 2 per cent).
(7) Ta on brewers wort (rate 15 cents per pound).
Ta on mat srup, and so forth (rate 3 cents per pound).
( ) Ta on saes of produce for future devery (rate 3 cents per 100 n
vaue).
(9) Ta on matches (e cept fancy wooden matches) (rate 2 cents per
thousand).
y the repea of these ta es, a savng estmated by the Treasury at appro -
matey 30,000,000 annuay was made avaabe to the consumers of the com-
modtes upon whch the burden of these ta es fe.
In addton to the temporary e cses repeaed by the Revenue ct of 193 ,
the foowng had aready been repeaed by pror egsaton: (1) Ta on soft
drnks (2) ta on candy (3) ta on boats (4) ta on checks (5) ta on
ewery and (6) ta on grape concentrates. In the ast year n whch these
s ta es were a n effect, the fsca year 1934, they produced an aggregate
revenue n e cess of 55,100,000.
Those temporary provsons whch are st effectve but whch w e pre
In une and uy of ths year, and the estmated revenue to be derved there-
from n 1940 f these provsons are e tended, are shown In the foowng tabe,
prepared by the Treasury Department:
stmated revenue n the fsca year 19. 0 from certan e cse ta es whch ether
automatcay termnate or are sub|ect to automatc rate reductons after
une SO or uy SI, 1939, uness e tended by Congress.
Tot (mrw stmated revenue
-a source. assumng ta es
Stamp ta es are e tended.
Issues of securtes, bond transfers, and deeds of convey-
ance 25,000,000
Stock transfers 29,500,000
Manufacturers e cse ta es
Lubrcatng os 33,400,000
Gasone 210, 500,000
ectrca energy 39,000,000
Tres and nner tubes 3 , 200,000
Toet preparatons 11, 300, 000
utomobe trucks 7,700,000
Passenger automobes and motorcyces 57,000,000
Parts and accessores for automobes ,900,000
Rado sets 6,900,000
Mechanca refrgerators 9,900,000
rearms, shes, and cartrdges 3,400,000
Matches 0
Msceaneous ta es
Teegraph, teephone, rado, and cabe factes, eased
wres, etc 23,600,000
Transportaton of o by ppe ne 11, 00, 000
dmssons to theaters, concerts, cabarets, etc 19,200,000
Import ta es on petroeum, coa, umber, and copper ,400,000
Tota 544, 300,000
ased upon the estmates appearng n the Presdent s udget message of an. 3, 1939.
Source: Treasury Department, Dvson ot Research and Statstcs, une 14, 1939.
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516
Your commttee recommends that these temporary provsons be e tended for
a perod of two years and t aso recommended that the 3-cent rate now appca-
be to nonoca frst-cass ma matter be e tended for a perod of two years.
These temporary provsons are not regarded as Idea Ingredents of our ta
structure, but because ther admnstraton has been perfected, and because onr
economy has been ad|usted to them, t s deemed nadvsabe to sacrfce at ths
tme the revenue they produce.
The temporary ta on frearms, shes, and cartrdges Is made a permanent
ta under the b. The proceeds of ths ta are now avaabe for wdfe
conservaton work and It Is beeved that ths work w be severey hand-
capped f the ta Is aowed to e pre wthn the ne t two years.
Your commttee s sensbe of the genera undesrabty of these ta es, bat
ther e tenson for two years w not precude acton by the Congress to remove
or revse them earer If the condton of the revenue permts. In addton, the
power granted to the Presdent under e stng aw to reduce the rates on non-
oca frst-cass ma matter s e tended for a perod of two years. Thus If the
Presdent fnds that after a survey that condtons so warrant, he can reduce
the 3-cent rate at any tme.
If these temporary provsons were not e tended at ths tme and the oss
was requred to be made up from corporaton ncome ta es, the proposed rate
of 1 per cent woud have to be ncreased to over 2 per cent n order to secure
the same amount of revenue.
In ths connecton, In hs udget message of anuary 3, 1039, the Presdent
recommended:
Temporary msceaneous nterna-revenue ta es. I recommend that the
Congress take steps by sutabe egsaton to e tend the msceaneous nterna-
revenue ta es whch under e stng aw w e pre ne t une and uy, aDd
aso to mantan the current rates of those ta es whch woud otherwse be
reduced ne t une. I consder that the revenue from such ta es or Its equva-
ent Is necessary for the fnancng of the udget for 1940.
Wth regard to the necessty of contnung the 3-cent posta rate, the Presdent,
In the same message, stated:
Posta recepts. The estmates of appropratons for the Posta Servce
ncuded n the 1940 udget are predcated upon the enactment of egsaton to
provde for the contnuance durng the fsca year of the 3-cent postage rate for
frst-cass ma other than for oca devery. Whe the Government coects
more than t spends on frst-cass ma, the Posta Servce s not sef-supportng
because t carres other casses of ma at ess than cost, as shown In the tabuar
footnote on page .
In addton, the foowng etter from the Postmaster Genera ponts ont the
necessty of contnung the 3-cent posta rate:
Post Offce Department,
Washngton, D. C, ebruary 21, 1939.
on. Wt am . ankhkad,
Speaker, ouse of Representatves, Washngton, D. C.
My Dkab Mr. ankhead: The postage rate of 3 cents an ounce now appcabe
to etters and other frst-cass matter maed for other than oca devery w
e pre on une 30, 1939, and the former 2-cent rate w automatcay be restored
n the absence of new egsaton contnung the 3-cent rate.
ccordng to the Department s cost ascertanment, the revenues for the fsca
year 193 woud have been appro matey 95,700,000 ess If the 3-cent rate had
not been In effect durng that year and In that event there woud have been an
estmated net defcency of more than 90,000,000 after takng Into consderaton
the nonposta Items representng certan free servces and subsdes for whch
the Department receves ony a book credt The showng for the fsca year
1939 w be appro matey the same and It Is beeved that wthout egsaton
contnung the 3-cent rate after uy 1, 1939, the Department w be confronted
wth the possbty of a net defcency of around 100,000,000 In the fsca years
1940 and 1941.
In vew of these crcumstances t Is deemed essenta that the present S-cent
rate for frst-cass matter be contnued at east two years onger.
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517
Msc.
There Is hereto attached a draft of a resouton whch s beeved w accom-
psh the desred end, and the enactment thereof or of a smar measure s
recommended.
It has been ascertaned from the ureau of the udget that ths report s In
accord wth the program of the Presdent
ery truy yours,
ambs . arey,
Postmaster Genera.
D T IL D DISCUSSION O C RT IN T C NIC L PRO ISIONS OP T ILL.
Net Operatng Loss Deducton.
Secton 211 of the b, wth the commttee amendments, adds to the Interna
Revenue Code sectons 23(s) and 122, whch provde that n computng net
ncome for the ta abe year ta payers sha be aowed to deduct operatng
osses ncurred n the two precedng ta abe years. Such a deducton s ava-
abe to a ta payers e cept for the purposes of secton 102, reatng to the
surta on corporatons Impropery accumuatng surpus, Suppement P, reatng
to foregn persona hodng companes, Suppement , reatng to mutua nvest-
ment companes, and Subchapter of Chapter 2, reatng to persona hodng
companes.
The net operatng oss deducton s frst avaabe In a ta abe year begnnng
after December 31, 1939.
The net operatng oss deducton s the net operatng oss carry-over reduced
by certan ad|ustments ntended to prevent net osses from beng used as a
deducton by the ta payer where he s not sufferng any economc oss by reason
of the fact that hs ncome contans nonta abe tems (as n the case of per-
centage depeton, e empt nterest on State and oca bonds, and, wth respect
to corporatons, ntercorporate dvdends, and Interest on partay e empt
edera obgatons).
or the purpose of ascertanng the frst, second, or thrd precedng ta abe
year, a fractona part of a year whch s a ta abe year under secton 4 (a),
Is a precedng ta abe year.
The net operatng oss for any ta abe year Is the e cess of deductons aowed
by Chapter 1 over the gross ncome for such year, wth the e ceptons and
mtatons provded by secton 122(d).
The e ceptons and mtatons provded In secton 122(d) are for the purpose
of Insurng that ony an economc oss w be taken nto account. It s provded
that n computng gross ncome, whoy ta -e empt nterest, dmnshed by the
amount of nterest pad or accrued not aowed as a deducton by secton 23(b),
reatng to nterest on ndebtedness ncurred or contnued to purchase or carry
certan ta -e empt obgatons, sha be ncuded, and that n computng net
ncome or a net operatng oss on the bass of such gross ncome
(1) The deducton for depeton sha not e ceed the amount whch woud be
aowabe f computed wthout reference to dscovery vaue or to percentage
depeton under secton 114(b) (2), (3), or (4)
(2) No net operatng oss deducton sha be aowed
(3) The deducton on account of ong-term capta osses sha not e ceed the
amount of the ong-term capta gans, and the deducton on account of short-
term capta osses sha not e ceed the amount of the short-term capta gans
(4) In the case of a ta payer other than a corporaton, aowabe deductons
not attrbutabe to a trade or busness reguary carred on by the ta payer are
aowed ony to the e tent of the gross ncome not derved from the trade or
busness.
The foowng e ampe w ustrate the operaton of the net operatng oss
deducton:
The Corporaton has the foowng tems of ncome and deductons for the
year 1940: Gross ncome as defned In secton 22 of 400,000, Incuded n whch
are ong-term capta gans of 50,000 and short-term capta gans of 25,000
nterest whoy e empt from ta of 35,000 deductons of 600,000. ncuded n
whch are ong-term capta osses of 60,000 and short-term capta osses of
25,000 and a deducton for percentage depeton of 75,000, whch s
70,000 n e cess of what woud be aowabe on cost: nterest of 15,000 pad
on Indebtedness ncurred to purchase ta -free obgatons, not aowed as a
deducton under secton 23(b).
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51
On the bass of these facts the Corporaton has a net operatng oss for te
year 1940 of 100,000, computed as foows:
Gross ncome as defned n secton 22 400,000
Pus:
Ta -e empt Interest 35,000
Less Interest pad 15,000
20,000
Gross ncome ad|usted as requred by secton 122(d) 420,000
Ordnary deductons 600,000
Less:
cess of percentage depeton over cost 70,000
cess of ong-term capta osses over gans 10,000
0,000
520,000
Net operatng oss 100, Oft)
ssume further that for the year 1939 the Corporaton had a net operatng
oss of 30,000, for the year 1941 a net ncome (computed wth the ad|ustments
requred by secton 122(d)) of 75,000, and for the year 1942 a net ncome
(computed wth the ad|ustments requred by secton 122(d)) of 450,000 and
a norma-ta net ncome (computed wthout a net operatng oss deducton) of
445,000. The net operatng oss deducton avaabe to the Corporaton for
the year 1942 s 50,000, computed as foows:
Net operatng oss for 1941 None
Net operatng oss for 1940 100. 000
Net Income for 1941 75,000
Mnus net operatng oss for 1939 30,000
45,000
Net operatng oss for 1940 ad|usted as requred by secton 122 (b) (2) f OM
Net operatng oss carry-over to 1942 55,000
Less:
Net ncome for 1942 450,000
Mnus norma-ta net ncome for 1942 445,000
5,000
Net operatng oss deducton for 1942-
sstrMPToN or Labtes n Ta - ree changes.
It has ong been the pocy n our ncome-ta aw to gve due consderaton
to the e gences of busness n connecton wth corporate reorganzatons
postponng, n certan specfcay descrbed nstances, the recognton of P1D
reazed n such transactons. In genera, f gan s reazed n such a tnua-
acton, nonrecognton of the entre gan s aowed ony where, under the spe-
cfcay defned crcumstances, the ta payer transfers property and receves n
e change therefor stock or securtes n a corporaton whch s a party to the
reorganzaton. If, n addton to such stock or securtes, other property or
money s receved, gan s recognzed to the e tent of such other property or
money. ,
The recent Supreme Court case of Unted States v. ender (303 D. S,
(193 )) has been broady Interpreted to requre that, f a ta payer s abtes
are assumed by another party n what s otherwse a ta -free reorgata ,D
gan s recognzed to the e tent of the assumpton. In typca transactons
changng the form or entty of a busness t s not customary to Uqudate the
abtes of the busness and such abtes are amost Invaraby assumed W
the corporaton whch contnues the busness. Tour commttee therefore beeves
that such a broad nterpretaton as s ndcated above w argey nufy the
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provsons of e stng aw whch postpone the recognton of gan n such cases.
To enabe bona fde transactons of ths type to be carred on wthout the recog-
nton of gan, the commttee has recommended secton 213 of the b.
Secton 213(a) of the b amends secton 112 of the Interna Revenue Code
by addng a new subsecton (k) whch provdes that n transactons otherwse
wthn secton 112(b) (4) or (5), or 112(c) or (d) (n so far as they reate
to e changes under secton 112(b) (4) or (5)) gan sha not be recognzed to
the transferor on account of the assumpton of abtes or the transfer of prop-
erty sub|ect to abty. It Is e pressy provded that ths provson sha not
appy where t appears that the prncpa purpose of the ta payer whose ab-
tes are assumed or who transfers property sub|ect to a abty was a purpose to
avod edera ncome ta on the e change, or f not such purpose, was not a
bona fde busness purpose. In such cases, f a ta payer s abtes are assumed
or he transfers property sub|ect to a abty, the amount of the assumpton or
the amount of such abty sha be consdered as money receved by the ta -
payer upon the e change and gan, to the e tent thereof, w be recognzed. If
n a sut or proceedng a ta payer has the burden of provng that the assumpton
or acquston Is not to be consdered as money receved by hm, such burden
sba be sustaned ony f the ta payer sustans the burden by the cear prepon-
derance of the evdence.
The defnton of reorganzaton as contaned n secton 112(g) of the
Interna Revenue Code s amended by secton 213(b) of the b. Cause ( )
of ths defnton now provdes that n order for the transacton to consttute a
reorganzaton, the acquston of propertes theren descrbed must be n e -
change soey for votng stock. Secton 213(b) provdes that f the corporaton
acqurng the propertes assumes abtes of the party from whom the proper-
tes are acqured, or takes the property sub|ect to a abty, such assumpton
of abtes, or takng sub|ect to a abty, sha be dsregarded n determn-
ng whether the propertes are receved n e change soey for votng stock.
Ths s true whether or not under the provsons of subsecton (k) the
transferor s consdered to have receved money on account of the assumpton of
abty or takng sub|ect to abty.
Secton 213(c) of the b amends secton 112(b)5 of the Interna Revenue
Code to provde the proper rue for determnng whether the stock receved n
an e change by two or more persons s n proporton to hs nterest n the
property pror to the e change n cases nvovng assumpton of abtes.
or ths purpose, the amendment requres that the amount of the abtes
assumed sha be consdered as stock or securtes receved by the transferor.
The rue Is not appcabe f under the amendment provded by secton 213(a)
the assumpton of ndebtedness s consdered as money.
Secton 213(d) of the b amends secton 113(a)6 of the Interna Revenue
Code to provde that n the determnaton of the bass under that secton any
abtes of the ta payer assumed by the transferee or to whch the transferred
property s sub|ect sha be consdered as money receved by the ta payer upon
the e change and hence s appcabe In reducton of the bass of the property
receved by the ta payer on the e change. Ths provson appes whether or
not the assumpton of the abty or the takng sub|ect to the abty s con-
sdered money under secton 112(k). No amendment Is made to secton 113(a)
(7) or ( ), because the payment by the transferee of the abtes assumed, or
to whch the property was sub|ect, does not gve rse to any ncrease or ad|ust-
ment of the bass of the property transferred.
Secton 213(e) of the b provdes that these amendments of the Interna
Revenue Code sha be appcabe to ta abe years begnnng after December
31 193 .
Secton 213 (f), (g), (h), and () of the b contan provsons whch w
acheve, n the case of an e change governed by the Revenue ct of 1924 and
subsequent cts up to and ncudng the 193 ct, a resut smar to that
requred for future years under the amendments to secton 112 of the Interna
Revenue Code.
The amendments to the Code and the retroactve appcaton of smar
provsons to pror Revenue cts taken together estabsh a system under whch
the treatment of recognton of gan and determnaton of bass w be undet
unform equtabe rues for the perods covered. Snce transactons entered
nto under such cts were made under the understandng of the aw that
such assumptons ft, and takng sub|ect to, abtes dd not gve rse to
recognzabe gan, ft Is necessary, n order to prevent hardshp on ta payers
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520
and to prevent ta avodance, to provde retroactvey for the appcaton of the
rues above provded. There s, however, no necessty under the retroactve sub-
sectons that the ta payer prove that the assumpton of, or takng sub|ect to,
abtes was not for ta -avodance purposes or was a bona fde busness
purpose. Moreover, where under a fna determnaton of ta abty, by t
cosng agreement or a decson of the oard of Ta ppeas or a court, f the
decson has become fna or the agreement s made, before the nneteth day
after the date of the enactment of the b, gan was recognzed on account
of assumpton of a abty or takng sub|ect to a abty such determnaton
s not dsturbed and the bass of the transferor and the bass of the transferee
w be ncreased by the amount of gan so recognzed.
Stock Dvdends and Stock Rghts.
Great confuson e sts under the present aw wth respect to the bass for
computng gan or oss upon the sae or e change of stock or stock rghts
acqured n nonta abe dstrbutons and wth respect to the bass for computng
gan or oss upon the sae or e change of stock upon whch such dstrbutons
have been made. The Revenue cts from 1021 to 1934, ncusve, provded
that a stock dvdend shoud not be sub|ect to ta . The unform constructon
apped to such cts was that the bass n the ta payer s hands of the stoes
n respect of whch a dstrbuton In stock or rghts to acqure stock of the
dstrbutng corporaton was made was to be aocated between such stock and the
stock or rghts dstrbuted.
owever, n oshand v. everng (29 U. ., 441) and everttff v. Gokto
(302 U. S., 23 ), the Supreme Court dened the vadty of ths constructon
wth respect to stock, the dstrbuton of whch consttuted ncome wthn the
meanng of the s teenth amendment, and hed that no part of the cost of
the stock n respect of whch the dstrbuton was made Is to be aocated to
the stock or rghts dstrbuted. Under these decsons, the bass of the stock or
rghts dstrbuted s zero, and the bass of the stock n respect of whch the
dstrbuton was made s the same as t woud be If no such dstrbuton had
been made. Ths rue woud, In many cases, produce gross nequtes for ta -
payers and the Government ake. or e ampe, a ta payer mght have sod
the stock n respect of whch the dstrbuton was made n a year wth respect
to whch a cam for refund of ta s barred by the statute of mtatons. If
he computed gan or oss n good fath upon the aocated bass then beeved
appcabe, and If he now wshes to se the stock dstrbuted to hm, to assgn
zero bass to such stock woud precude hm from recoverng ta -free a part of
hs cost. Conversey, f n a pror year wth respect to whch the asserton of
a defcency n ta s barred by the statute he had sod the stock dstrbuted to
hm, computng gan or oss upon an aocated bass, to assgn a fu cost baste
to the stock In respect of whch the dstrbuton was made woud enabe bn
to recover ta -free more than hs cost.
The provsons of the b reatng to stock dvdends and rghts are desgned
to afford a cear and unequvoca statutory bass, wth respect to both past
and future ta abe years, for the rue of aocaton upon whch ta payers,
the Treasury Department, and Congress have ake reed.
Secton 214 adds a new paragraph (19) to secton 113(a) of the Interna
Revenue Code. Subparagraph ( ) of secton 113(a) 19 sets forth the genera
rue of aocaton. In the case of stock n a corporaton or rghts to acqure
such stock, acqured by the ta payer after ebruary 2 , 1913, n a dstrbu-
ton by such corporaton (desgnated n the b as new stock), and n the
case of stock n respect of whch such dstrbuton was made (desgnated s
the b as od stock), the bass of both the od and new stock sha, n the
sharehoder s hands, be determned In ta abe years begnnng after Decem-
ber 31, 193 , by aocatng between the od stock and the new stock the ad-
|usted bass of the od stock. Such aocaton s to be made under reguatons
whch sha be prescrbed by the Commssoner, wth the approva of the Sec-
retary. The defnton of new stock s desgned to Incude stock or rghts
of the dstrbutng corporaton receved n a dstrbuton wth respect to whch
the sharehoder had an opton to receve money or other property nstead of
such stock. Sub|ect to certan e ceptons herenafter descrbed, the rue of
aocaton s appcabe n a cases n wheh the new stock was acqured n
a ta abe year begnnng before anuary 1, 1936. In cases n whch the new
stock was acqured In a ta abe year begnnng after December 31, 1935, the
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rue of aocaton Is ony appcabe If the dstrbuton of the new stock dd
not consttute ncome to the sharehoder wthn the meanng of the s teenth
amendment. If the new stock was acqured n a ta abe year begnnng after
December 31, 1935, and ts dstrbuton dd consttute ncome to the share-
hoder wthn the meanng of the s teenth amendment, t s not e empt,
under secton 115(f) of the evenue ct of 1936 and subsequent cts, from
ta aton as a dvdend upon recept. Under these cts the bass of the
new stock s far market vaue at the tme of dstrbuton, and the bass of
the od stock s ts ad|usted bass wthout aocaton, so the b makes no
provson for aocaton of bass n such case.
Subparagraph ( ) provdes, n genera, that where the new stock conssted
of stock rghts whch were sod n a ta abe year begnnng before anuary 1,
1939, and the entre amount of the proceeds of the sae were ncuded n
gross ncome for such year, the bass of the od stock sha be determned
wthout reference to the rue of aocaton prescrbed by subparagraph ( ).
Ta payers recevng nonta abe stock rghts have for many years been granted
the opton to ncude the entre proceeds of the sae of such rghts n gross
ncome, rather than to aocate to the rghts a part of the bass of the od
stock. Under the b, ths opton w not be avaabe n the case of rghts
sod n ta abe years begnnng after December 31, 193 . Ta payers who n
the past have e ercsed ths opton have n effect assgned a zero bass to such
rghts, and t woud therefore be nequtabe to compe them to reduce the
bass of ther od stock on account of the acquston of such rghts. ow-
ever, where the ta payer has, at any tme before the enactment of the b,
asserted, by cam for refund or credt or otherwse, that any part of the
proceeds of the sae of the rghts shoud be e cuded from gross ncome for
the year of ther sae, the bass of the od stock must be determned n accord-
ance wth the rue of aocaton. If the entre amount of the proceeds of the
sae of the rghts was ncuded n gross ncome for the year of sae, and the
ta payer has not asserted pror to the enactment of the b that such proceeds
shoud be e cuded from gross ncome for such year, then n no event, after
the date of enactment of the b, s any part of such proceeds ever to be
e cuded from gross ncome for such year.
Subparagraph (C) provdes that the rue of aocaton sha not appy f
the new stock was acqured n a ta abe year begnnng before anuary
1, 1936, and there was ncuded as a dvdend, n gross Income for such year,
an amount on account of such stock, whch amount was not, before the date
of enactment of the b, e cuded from gross ncome for such year. Thus,
where the ta payer erroneousy, or as a resut of a court decson, Incuded
the vaue of the new stock n gross ncome as a dvdend n the year of ts
recept, the bass of the od and the new stock are to be determned wthout
reference to the rue of aocaton. In such cases, of course, the bass of the
new stock w be ts far market vaue at the tme of the dstrbuton.
Subparagraph (D) provdes that the rue of aocaton sha not appy f the
new stock or od stock was sod or otherwse dsposed of n a ta abe year be-
gnnng before anuary 1, 1936, and the bass (determned by a decson of a
court or the oard of Ta ppeas, or a cosng agreement, and the decson or
cosng agreement became fna before the nneteth day after the date of enact-
ment of the b) for determnng gan or oss on such sae or other dsposton
was ascertaned by a method other than that of aocaton. Ths provson n-
sures that n the very sma number of cases n whch court decsons or cosng
agreements have requred that other than an aocated bass be used n comput-
ng gan or oss upon the sae or other dsposton of ether od or new stock, the
ta payers nvoved w be enabed to recover ta -free ther fu cost, and no
more than ther fu cost, upon a subsequent sae or other dsposton of od or
new stock whch they may have retaned.
The amendment made to secton 115(d) of the Interna Revenue Code by sec-
ton 214 of the b s merey decaratory of e stng aw. It makes cear that
the bass of od stock sha not be reduced under secton 115(d) by the vaue
of a dstrbuton of stock or rghts whch s e empted by the statute from ta a-
ton as a dvdend whether or not such dstrbuton was out of earnngs or profts
accumuated after ebruary 2 , 1913, or out of earnngs or profts of the ta abe
year. No amendment s made to secton 113(b)(D) snce, f a part of the bass
of the od stock Is aocated to the new stock, no further ad|ustment of the bass
of the od stock on account of the dstrbuton of the new stock woud be proper.
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522
Secton 214(c) of the b aso appes the above rues wth respect to aoca-
ton of the bass of od or new stock for the purposes of the Revenue ct of
393 and the pror Revenue cts. The retroactve provsons of subsecton (d)
are ndspensabe to the adequate functonng of the prospectve reef afforded by
subsecton (a). or e ampe. If the rue of aocaton were ony prescrbed wth
respect to ta abe years begnnng after December 31, 193 , a ta payer who In
193 sod hs new stock and was compeed by the decsons referred to prevousy
to compute gan or oss upon a zero bass w not have recovered hs fu cost
ta -free f n a pror year he had sod hs od stock and had, under the rue then
beeved appcabe, assgned to such od stock an aocated bass. Subsectons
(a) and (d), taken together, form a unfed scheme whereby compete equty s
acheved regardess of when the new or od stock s sod. In genera, an aocated
bass, reed upon n the past by ta payers and the Government ake, s prescrbed
n a cases e cept those n whch a dfferent bass was determned by ad|udca-
ton, or by the ta payer s acton n conformty wth the Treasury reguatons
whch, n speca cases, provded for other than an aocated bass. In these at-
ter cases, under the b the bass of any stock remanng sha be determned
upon the same prncpes as those whch governed the determnaton of the bass
of the stock prevousy sod. Your commttee therefore beeves that secton 214
contans a competey proper and equtabe souton to the confuson now e stng
wth respect to bass n stock dvdend cases.
Dscharge of Indebtedness.
Secton 215(a) amends secton 22(b) of the Interna Revenue Code (reatng
to e cusons from gross Income) by addng a new paragraph (9) coverng n-
come from dscharge of corporate ndebtedness. The new paragraph provdes
that the amount of Income of a corporate ta payer attrbutabe to the dscharge
wthn the ta abe year of ts ndebtedness or ndebtedness for whch t s abe
(as, for e ampe, n the case of a debt arsng from an assumpton of abty of
another corporaton) s to be e cuded from gross ncome, provded (1) the Com-
mssoner s satsfed that such ta payer was at the tme of such dscharge n an
unsound fnanca condton and (2) such ta payer consents to reguatons pre-
scrbed under the new secton 113(b)3 of the Code, reatng to reducton of bass,
n effect at the tme of the fng of the return.
It s not necessary, for the purposes of secton 215, that a corporaton must
estabsh that ts abtes e ceed ts assets or t s unabe to meet ts current
obgatons as they fa due. Under the secton, f a ta payer coud show the
Commssoner that ts obgatons were seng n a free market at prces sub-
stantay beow ther ssue prce and beow the market prce of smar ssues of
smar busnesses, t woud be hghy ndcatve of ts unsound fnanca condton.
If as a resut of the dscharge of ndebtedness there remans unamortzed
premum, the amount of the ncome attrbutabe to such premum s e cuded
from gross ncome and f as a resut of the dscharge of ndebtedness there re-
mans unamortzed dscount, the amount of the deducton attrbutabe to such
dscount must be dsaowed as a deducton. The unamortzed premum and un-
amortzed dscount s to be computed as of the frst day of the ta abe year n
whch the dscharge of ndebtedness took pace.
The reef accorded corporate ta payers under the amendment s mted to
corporate ndebtedness whch s evdenced by a securty, n e stence on une
1, 1939. Under the b and the commttee amendments, a securty s defned
as beng a bond, debenture, note, or certfcate, or other evdence of ndebtedness.
s a coroary to the amendment made by subsecton (a), subsecton (b) adds
a new paragraph (3) to secton 113(b) of the Interna Revenue Code, reatng
to the ad|usted bass of property. The new paragraph provdes that f an
amount s e cuded from gross ncome of a corporate ta payer under the amend-
ment made by subsecton (a), the bass of the ta payer s property hed by t at
any tme durng the ta abe year n whch a dscharge of ndebtedness occurred
sha be sub|ect to reducton.
The Commssoner s gven authorty to prescrbe reguatons, wth the ap-
prova of the Secretary, whch w set forth rues under whch the ad|ustment
to bass sha be made. It s a condton upon the ta payer s recevng the
prvege of e cudng the amount of ncome attrbutabe to the dscharge of
ndebtedness from gross ncome that when fng Its return t consents to the
reguatons, whch are n effect reatng to ad|ustment of bass. The amount
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of such ad|ustment can never e ceed the tota amount e cuded from gross
Income reduced by the deducton for unamortzed dscount dsaowed. ssume,
for e ampe, that the ta payer has outstandng one ssue of bonds sod at a
premum and one ssue of bonds sod at a dscount oth ssues are dscharged
by payment ess than the face vaue of the obgatons. ssume, further, that
under the new secton 22(b) 9 there s e cuded from gross ncome 1,000 attrb-
utabe to ncome arsng from the dscharge there s e cuded from gross ncome
the amount of 100 for unamortzed premum and there s dsaowed a deduc-
ton of . 50 for unamortzed dscount The tota reducton n bass can not
e ceed 1,050.
It s not necessary that the reguatons so prescrbed by the Commssoner
requre a reducton n bass of a the property hed by the ta payer durng the
ta abe year n queston. The Commssoner s permtted not to reduce bass
or to aocate a or a part of the reducton to some property and a part or
none to other property and the amount of reducton to be aocated to a par-
tcuar property may be f ed by hm. Whatever reducton n bass s requred
under the Commssoner s reguatons, t s to be made as of the 1st day of the
ta abe year n whch the dscharge occurred e cept that where property the
bass of whch Is to be reduced s acqured subsequent to such 1st day, then
the ad|ustment s to take effect as of the tme t was acqured by the ta payer
durng the ta abe year.
Wherever a dscharge of ndebtedness s accompshed by the transfer by
the debtor of property n knd, such as by the ssue of Its own stock, the df-
ference between the amount of the obgaton dscharged and the vaue of the
property transferred s the amount whch may be e cuded from gross ncome
and apped n reducton of bass.
The amendments made by secton 215 of the b are appcabe ony to ta abe
years begnnng after December 31, 193 . They are not appcabe to dscharges
of corporate ndebtedness occurrng pror to the date of the enactment of the
b. They are aso not appcabe to a dscharge occurrng n any ta abe year
begnnng after December 31,1942. They kewse do not appy to any dscharge
of corporate ndebtedness occurrng n any proceedng under secton 7T , or
under Chapter or I, of the ankruptcy ct of 1 9 , as amended, snce such
dscharges are governed by other provsons of aw.
Ta Lens on Securtes.
Secton 3672 of the Interna Revenue Code provdes In effect that the ta en
mposed under secton 3670 of the Code sha not be vad as aganst any mort-
gagee, purchaser, or |udgment credtor unt notce thereof has been fed by the
coector n the offce n whch the fng of such notce s authorzed by the aw
of the State or Terrtory n whch the property sub|ect to the en s stuated,
or n the offce of the cerk of the Unted States dstrct court for the |udca
dstrct n whch the property sub|ect to the en s stuated f the State or
Terrtory has not by aw authorzed the fng of such notce n an offce wthn
the State or Terrtory, or n the offce of the cerk of the Dstrct Court of the
Unted States for the Dstrct of Coumba f the property sub|ect to the en Is
stuated n the Dstrct of Coumba. Secton 401 of the b reenacts such secton
(desgnatng t as subsecton (a)) and makes no other than the decaratory one
of e pressy ncudng pedgees wthn the secton.
The chef purpose of secton 401 s to amend secton 3672 by addng a new
subsecton (b) deang wth securtes. It provdes that even though notce of
the ta en mposed by secton 3670 has been fed by the coector, the en
Is not vad wth respect to securtes mortgaged, pedged, or purchased for an
adequate and fu consderaton n money or money s worth, f at the tme of
the mortgage, pedge, or purchase such mortgagee, pedgee, or purchaser Is
wthout notce or knowedge of the e stence of such en. The term securty
s defned to mean certan corporate obgatons (ncudng those ssued by a
government or potca subdvson thereof), share of stock, votng trust cer-
tfcate, or any certfcate of nterest or partcpaton n, certfcate of depost
or recept for, temporary or nterm certfcate for, or warrant or rght to sub-
scrbe to or purchase, any of the foregong any negotabe nstrument ssued by
any ndvdua, corporaton, or other ega entty or money. The provsons
of the subsecton are appcabe wth respect to mortgages, pedges, and pur-
chases whenever occurrng and regardess of when the en arses, but f the
abty of the mortgagee, pedgee, or purchaser has been estabshed by a
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524
udgment whch becomes fna before the date of enactment of the but, to
amendment does not appy.
The new provsons deang wth securtes are consdered necessary because
of a recent decson of a dstrct court (Unted States v. Rosenfed. . D.
Mch., 193 , 26 . Supp., 433). Ths case hed that a bona fde purchaser ft
vaue of shares of stock from a seer aganst whom a notce of en for edera
Income ta es had been duy fed pror to the sae took sub|ect to the en even
though the purchaser dd not have notce or knowedge of such en. Whe It s
true that the fng of the notce of the ta en may consttute notce n to
case of rea property, It Is Inequtabe for the statute to provde that t con-
sttutes notce as regards securtes. or e ampe, when a broker purchases a
securty for hs customer on the e change, t Is obvousy mpossbe for hm
to check a the offces In whch a notce of the ta en may be duy fed
to determne whether the securty s sub|ect to such en. ke stuaton
e sts wth respect to over-the-counter and drect transactons In securtes.
n attempt to enforce such ens on recorded notce woud In many cases
Impar the negotabty of securtes and serousy Interfere wth busness
transactons. The adopton of the amendment w remove an e stng hardshp
wthout causng any undue oss of revenue.
Ta on Transfers of Worthess Securtes by ecutor, etc.
The present aw mposes a stamp transfer ta on the devery or transfer
of shares or certfcates of stock. Usuay, an e ecutor or admnstrator s
requred under the aw or by the terms of the w to dever or transfer to
the persons awfuy entted to them the shares or certfcates formery beong-
ng to the decedent. To mpose a transfer ta equa to or In e cess of the vaue
of the securtes under these crcumstances, as now requred under est
aw, does not seem equtabe. Secton 402 of the b proposes to amend secton
1 02(b) of the Interna Revenue Code so as to e empt such deveres or trans-
fers n the future f the vaue of the securtes Is not greater than the amount
of the ta that woud otherwse be Imposed on the devery or transfer.
1939-30-9920
R NU ILL O 1939.
Senate Report No. 64 , Seventy-s th Congress, rst Sesson. Caendar No. 6991
une 21 (egsatve day, une 15), 1939.
Mr. arrson, from the Commttee on nance, submtted the foowng report
to accompany . R 6 51 :
The Commttee on nance, to whom was referred the b ( . R 6S51) f
provde revenue, equaze ta aton, and for other purposes, havng had te
same under consderaton, report favoraby thereon wth certan amendment
and, as amended, recommend that the b do pass.
The ouse b made the foowng changes n e stng aw:
1. Ta payers are permtted to carry over ther net operatng busness oss
for a perod of two years. Ths provson w take effect wth respect tf
ta abe years begnnng after December 31, 1939. owever, a ta payer wbkh
has sustaned a net operatng busness oss n 1939 w be permtted to carr|
over such operatng net oss n reducton of ts ncome for 1940 and. f such pet
oss s n e cess of ts Income for 1940, to carry over such e cess n reducton
of ts ncome for 1941.
2. Corporatons are gven the rght to ncrease ther capta stock ta vaua-
tons for the fsca years endng une 30, 1939, and une 30, 1940. but not to
decrease such vaue for such years. Under the e stng aw, corporatons are
entted to a new decaraton (ether owerng or rasng ther capta stoc
vaue) for capta stock ta purposes for the fsca year endng une 30,1ML
3. In eu of the ta now mposed upon corporatons wth ncomes above
25,000, there s mposed a fat corporate ta of 1 per cent Ths new rate
w take effect wth respect to ta abe years begnnng after December 31, Wv
The present corporaton ta contanng the undstrbuted-profts ta feature
w be aowed to e pre, as such ta does not appy to ta abe years begnu
after December 31, 1939.
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4. Corporatons wth ncomes of 25,000 or ess are sub|ect to the graduated
rates on sma corporatons provded by e stng aw.
5. notch provson s provded to prevent corporatons from beng heavy
ta ed by reason of havng ncomes sghty n e cess of 25,000. If t were not
for ths notch provson, a corporaton wth an ncome of 25,001 woud have
ts ta ncreased over 900 by reason of havng 1 more n ta abe ncome.
Snce the cassfcaton between arge and sma corporatons s based upon
norma-ta net ncome nstead of net ncome, the notch s greaty smpfed as
compared to the one n e stng aw.
6. anks, nsurance companes, Chna Trade ct corporatons, and corpora-
tons In the possessons of the Unted States are ta ed ke other corporatons.
That s, those wth norma-ta net ncomes of 25,000 and ess receve the bene-
ft of the graduated rates appcabe to sma corporatons, whe those wth
norma-ta net ncome n e cess of 25,000 are ta ed under the notch or at a
fat rate of 1 per cent, whchever method resuts n the esser ta .
7. oregn corporatons engaged n a trade or busness wthn the Unted
States and mutua nvestment companes are ta ed at a fat rate of 1 per cent,
regardess of the amount of ther ncome.
. oregn corporatons not engaged n a trade or busness wthn the Unted
States are ta ed at the rates provded for n e stng aw. Under the e stng
aw, ths type of corporaton s ta ed upon f ed or determnabe ncome at a
rate of 15 per cent, e cept that In the case of dvdends the rate s 10 per cent.
In the case of a contguous country, the 10 per cent rate on dvdends may be
reduced by treaty to a rate not ess than 5 per cent Thus, the e stng aw s
contnued n ths b.
9. Corporatons n bankruptcy or recevershp, |ont-stock and banks, and
renta housng corporatons are treated under the b ke other corporatons.
The speca treatment accorded to them under the e stng aw made necessary
by the undstrbuted-profts ta has been abandoned.
10. The 2,000 mtaton appcabe to the capta osses of corporatons has
been repeaed e cept wth respect to domestc persona hodng companes and
foregn persona hodng companes. In eu of ths provson, the b aows
capta osses on assets hed for more than 1 months to be apped n fu
aganst ordnary net ncome for the ta abe year n whch the oss was reazed.
In the case of capta osses on assets hed for not more than 1 months, the
b provdes that they may be apped ony aganst capta gans on assets hed
not more than 1 months. If the osses from the sae or e change of such assets
hed for not more than 1 months e ceed the gans from such short-term trans-
actons the e cess oss f not n e cess of the net ncome, may be carred over
nto the foowng ta abe year and may be apped aganst short-term capta
gans of such year. Ths s the same treatment accorded ndvduas under
e stng aw n the case of short-term capta osses. These provsons are ap-
pcabe ony wth respect to ta abe years begnnng after December 31, 1939.
11. The b aso makes certan admnstratve changes whch afford reef
both to the Government and the ta payer. refy, these are as foows:
(a) corporaton whch estabshes to the satsfacton of the Commssoner
that t s n an unsound fnanca condton may redeem ts bonds, notes, or
other evdence of Indebtedness n e stence on une 1, 1939, at ess than ther
face vaue wthout the recognton of gan f such redempton occurs after the
enactment of the b and n a ta abe year begnnng pror to anuary 1, 1943.
Ths provson w materay ad raroads and other corporatons whose bonds
can be purchased at the present tme at ess than ther face vaue, gvng them
an ncentve to qudate ther ndebtedness. Proper safeguards prevent the
provsons from beng utzed by corporatons n a sound, fnanca condton
to drve the prce of ther bonds down n the market.
(6) provson whch permts corporatons to contnue bona fde busness
reorganzatons wthout beng sub|ect to ta aton mmedatey upon such re-
organzaton by reason of the assumpton by one corporaton of the debts of
the other n the process of reorganzaton. Ths provson affords reef both to
the Government and to the ta payer. Ths change was made n vew of the
endercase (303 U. S., 564).
(c) modfcaton of the mtatons on the foregn ta credt to make t ess
dffcut for mercan corporatons to transact busness abroad. The mta-
tons on the aowance of a credt for ta es pad to foregn countres were paced
n the aw to make t certan that the edera Government woud receve Its
fu ta on the ncome from Unted States sources. It was not ntended for the
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526
mercan ta to appy aganst the Income from foregn sources uness the
foregn ta rate was ess than the ta rate Imposed by the Unted States. Doe
to a technca change (nserted In the Revenue ct of 1934 and contnued n sub-
sequent cts) makng the aowance for ntercompany dvdends, and nterest
on Government obgatons sub|ect to surta a credt aganst net Income nstead
of a deducton from gross ncome, mercan corporatons operatng abroad do
not get a fu credt for the ta es pad to a foregn country on ther foregn n-
come. Ths makes t dffcut for mercan corporatons to compete abrotd
wth foregn corporatons. oth the Treasury Department and the State De-
partment requested that mmedate steps be taken to correct ths stuaton. |
reason of the nature of the ta mposed by secton 102, reatng to corpora-
tons Impropery accumuatng ncome to avod surta on ther sharehoder
t s not beeved that the credt for ta es pad to foregn countres shoud he
permtted to dmnsh such ta , and the b so provdes.
(d) provson amendng the edera en aw to provde that such en sha
not be vad as aganst any mortgagee, pedgee, or purchaser of a negotabe
securty for fu consderaton f the mortgagee, pedgee, or purchaser was wth-
out knowedge of the e stence of the en. It was nserted to overcome the
effect of the Itosenfed decson (Dstrct Court, astern Dstrct of Mchgan.
December , 193 ).
(e) provson vadatng a Treasury reguaton of ong standng when
requred that where a stock dvdend was decared the bass of the orgna
shares to be apportoned between those shares and the dvdend stock for com-
putng the gan or oss on the sae thereof. In one case, the Supreme Court
hed that where a ta payer had receved a dvdend of common stock on ts
preferred stock, no part of the cost of the od stock coud be aocated to the
dvdend stock In determnng gan or oss onhand v. everng. 29 U. S,
441). In another case where the converse stuaton was presented, the Conn
hed that no part of the cost of the orgna stock coud be aocated to the dv-
dend stock and therefore the cost bass of the dvdend stock was zero. e-
verng v. owran, 320 U. S., 23 Ct. D. 1292, C. . 193 -1, 300 .)
These decsons may affect adversey ether the Government or the ta payer,
dependng upon the partcuar stock sod by the ta payer. The b corrects
ths stuaton by ratfyng the Treasury reguatons deang wth ths pont.
f) Severa mnor technca changes. One of these makes a s eca provson
n Subchapter , Chapter 2 (reatng to persona hodng companes) so that the
gross ncome of nsurance companes other than fe or mutua whch s specay
defned n secton 204 and Is n part a net ncome, w be comparabe, for tbe
purposes of Subchapter , to the gross ncome of ordnary corporatons. n-
other change e empts from stamp ta on transfers of worthess stock from an
e ecutor or admnstrator to a egatee, her, or dstrbutee.
(g) n e empton from the ncome ta Is granted to vountary empoyees
benefcary assocatons provdng for the payment of fe, sck, accdent, or
other benefts to members of such assocatons or ther dependents, f no part
of ther net earnngs nures (other than through such payments) to the beneft
of any prvate ndvdua or sharehoder and the membershp s composed
soey of edera offcers or empoyees.
12. The b e tends for two years the temporary e cse ta es whch, under
e stng aw, e pre at the end of une or uy of ths year. It aso e tends for
two years the 3-cent posta rate on nonoca frst-cass ma. The b aso
e tends for two years the power of the Presdent to modfy postage rates on
other than frst-cass matter.
Your commttee approve these changes and recommend the foowng add-
tona provsons:
panaton of Substantve Commttee mendments.
secton 3. ta on toet peepabatons.
Secton 3 of the b, as reported, adds to the secton mposng ta on toet
preparatons two new provsons. The frst provdes that saes by a mf 1
facturer to a seng corporaton of an artce sub|ect to ta as a toet pre
araton sha be prma face presumed to be otherwse than at arm s ength f
ether the manufacturer or the seng corporaton owns more than 75 percent
of the stock of the other, or f more than 75 per cent of the stock of both te
manufacturng and seng corporatons Is owned by the same persons n sub-
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stantay the same proportons. Snes by a manufacturer to a seng corpora-
ton In a other cases sha be prma face presumed to be at arm s ength.
The second amendment made by the secton provdes a rue for determnng
the prce for whch an artce sub|ect to the toet preparatons ta Is sod.
Ths amendment provdes that whether or not the sae s at arm s ength the
charge for coverngs and contaners sha be Incuded ony f they are fur-
nshed by the actua manufacturer, and the charge ncdent to pacng the
artce n condton ready for shpment sha be ncuded ony f performed by
the actua manufacturer. It aso provdes that whether or not the sae s an
arm s-ength transacton whoesaers saesmen s commssons and costs and
e penses of seng sha be e cuded from the prce f the amount s estabshed
to the satsfacton of the Commssoner of Interna Revenue. The amendment
aso provdes that a transportaton, devery, nsurance, or other charge sha
be so e cuded f estabshed to the satsfacton of the Commssoner n cases
In whch the transacton s not an arm s-ength transacton.
S CTION 214. STOC DI ID NDS ND STOC IG TS.
The amendments made by subsecton (c) and (f) to secton 214 of the b
provde that under a Revenue cts, n determnng the perod for whch a
ta payer has hed stock or rghts to acqure stock receved upon a stock-dv-
dend dstrbuton, there sha, under reguatons prescrbed by the Comms-
soner wth the approva of the Secretary, be ncuded the perod pror to such
dstrbuton for whch he hed the stock upon whch such dstrbuton was
made, f the bass of the stock or rghts so dstrbuted s determned by the
rue of aocaton.
S CTION 215. DISC RG O IND T DN SS.
Ths secton of the ouse b whch adds a new paragraph (9) to secton
22(b) of the Interna Revenue Code (reatng to e cusons from gross ncome)
s retaned n the reported b, e cept wth a modfcaton whch s presenty
e paned. The ouse b provdes that the amount of ncome of a corporate
ta payer attrbutabe to the dscharge wthn the ta abe year of certan of ts
ndebtedness or ndebtedness for whch t s abe s to be e cuded from gross
ncome, f (1) the Commssoner of Interna Revenue Is satsfed that such
ta payer was In an unsound fnanca condton at the tme of such dscharge
and (2) such ta payer consents to reguatons prescrbed under the new secton
113(b)3 of the Code, reatng to reducton of bass, n effect at the tme of the
fng of the return.
Many corporatons (such as raroads) that w endeavor to brng themseves
under the provsons of the new paragraph (9) are corporatons that have had,
and contnue to have, consderabe deangs wth the edera Government,
where the fnanca condton of such corporatons s an mportant factor n
such deangs. It seems desrabe to utze nformaton obtaned by varous
agences of the Government and thus reeve the Commssoner of Interna
Revenue from the necessty of makng an Independent fndng n each case as
to the fnanca condton of the corporate ta payer. To carry out ths pocy,
a commttee amendment to ths secton provdes that a corporaton may obtan
the benefts of the new paragraph (9) f t can estabsh that t was n an
unsound fnanca condton at the tme of the dscharge of ts ndebtedness, by
the presentaton of a certfcaton to the Commssoner by any edera agency
whch s authorzed to make oans on behaf of the Unted States to such corpo-
raton, or by any edera agency authorzed to e ercse reguatory power over
such corporaton.
S CTION 21 . MPLOY S T USTS.
Under e stng aw, for ta abe years begnnng after December 31, 193 , an
empoyees trust Is e empt from ncome ta ony If at any tme before the pen-
son abtes wth respect to empoyees under the trust have been satsfed, t
s mpossbe for any part of the trust fund, ncudng prncpa and ncome, to
be used for, or dverted to, purposes other than the e cusve beneft of em-
poyees. Ths s a change, ntroduced by secton 165 of the Revenue ct of
193 , over pror aw, whch permtted an empoyees trust to be e empt from
Income ta even though t was possbe for the empoyer to revoke or ater the
trust at any tme.
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52
Your commttee beeves that It Is advsabe to aow empoyers addtona
tme n whch to revse ther penson trust pans. ccordngy, ths secton d
the b amends secton 165 of the Interna Revenue Code so as to make the
provsons of cause (2) of subsecton (a) thereof nappcabe to a ta abe
year begnnng pror to anuary 1, 1940. Ths amendment merey has the
effect of postponng for one year the effectve date of the change made by secton
165 of the Revenue ct of 193 and carred over nto the Interna evenue
Code,
S CTION 219. IN NTORI S.
Secton 219 of the b, as reported, provdes an optona method of takng
nventores of goods, whch s a substtute for the comparabe provson of e st-
ng aw, adopted n 193 . Under e stng aw the optona method may be nw
ony by tanners and producers and processors of nonferrous metas. Under
the b the opton s e tended to a ta payers who use t, appy for t, and use
t consstenty, regardess of the busness n whch the ta payer s engaged.
Under secton 22(c), the Commssoner has the power to prescrbe the method,
and secton 219 of the b reaffrms the power.
The method s to treat the goods remanng on hand at the cose of the ta abe
year, for the purposes of determnng the cost of those sod durng the year,
as beng, frst, those ncuded n the openng nventory of the ta abe year n the
order of acquston of the goods to the e tent of the goods so ncuded and
second, those acqured n the ta abe year. When ths method s used te
Inventory must be taken at cost The goods n the openng nventory of the
frst ta abe year n whch the method s used for ta purposes (whch s the
cosng nventory of the prevous year) must be consdered to have been acqured
at the same tme, and ther cost s to be ascertaned by averagng ther cost
Goods acqured n the ta abe year may be treated as havng been acqured n
the order of ther acquston and so vaued, or ther cost may be averaged, or
any other proper method of vauaton may be used wth respect to such goods,
dependng on whatever s the proper treatment under the crcumstances.
If a ta payer eects to use the method, he must specfy the goods wth re-
spect to whch the method s to be used. The ta payer must show that he, for
the perod the method Is to be used for ta purposes, has used no other method
for certan busness purposes, such as Income statements, appcatons for bant
oans, and reports to sharehoders. ut f, for these purposes, the ta payer
vaues such goods at market rather than cost he s st abe to use the method
for ta purposes.
The Commssoner s gven power to prescrbe reguatons In order that
the use of the method wth respect to the goods w ceary refect ncome,
and he may prescrbe that the ta payer use the method, wth respect to goods
other than those specfed n the appcaton, f the Commssoner deems t
necessary n order ceary to refect ncome.
To reman quafed to use the method, the ta payer must contnue to use
t for ta and the busness purposes ndcated above. The Commssoner may.
however, permt hm to change. The Commssoner may requre hm to chanf
to a dfferent method f the ta payer changes but even f the ta payer does
change to a dfferent method for other purposes, the Commssoner may requre
hm to contnue to use the method for ta purposes. The change, when the
ta payer changes to a dfferent method (ether because he s permtted or
requred to do so), s sub|ect to reguatons of the Commssoner n order that
the use of the other method and the change to It may ceary refect ncome.
S CTION 220. COMP NS TION O S R IC S R ND R D O P RIOD O TOS Tt
OR MOR .
It has been consdered a hardshp to ta fuy the compensaton of wrters,
nventors, and others who work for ong perods of tme wthout pay and then
receve ther fu compensaton upon the competon of ther uDdertat
Under e stng aw, such persons have ther ncome for the whoe perod agfre-
gated nto the fna year. Ths resuts n two nequtes: rst, ony the deduc-
tons, e penses, and credts of the fna year are chargeabe aganst the comprn-
saton for the fu perod second, under our graduated surta , the tapa.
Is sub|ected to a consderaby greater burden because of the aggregaton ot hs
compensaton.
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Secton 220 of the b provdes that wth respect to compensaton for persona
servces rendered by an ndvdua over a perod of fve or more years and whch
s pad ony on the competon of such servces the ta attrbutabe to such
compensaton sha not be more than the aggregate of ta es whch woud have
been pad had the ncome been receved n equa portons n each of the years
n the perod. The provson s appcabe ony to cases where the compensa-
ton s requred to be Incuded n gross ncome of the ndvdua for any ta abe
year begnnng after December 31, 193 . owever, there s no requrement
reatve to the year n whch such servces were commenced so ong as the year
n whch the compensaton Is pad meets the above standard.
S CTION 221. T NSION O TIM WIT R SP CT TO ORD U O S CURITI S ND
C NG COMMISSION.
In the 193 Revenue ct t was provded that certan transactons arsng
out of the smpfcaton or geographca ntegraton of pubc utty hodng
company systems mght be accompshed under the Revenue ct by treatng some
of the transactons as ta -free e changes and makng varous ad|ustments of
the bass of property accordng to the speca treatment provded n Suppe-
ment R. Under the 193 ct (and the Interna Revenue Code) such trans-
actons had to be n conformty wth orders of the Securtes and change
Commsson ssued before anuary 1, 1940, or orders suppementary to such
orders. The amendment made by secton 221 e tends from anuary 1, 1940,
to anuary 1, 1941, the tme durng whch such an order may be made.
S CTION 222. R N W L O IND T DN SS.
Secton 27(a)4 of the Interna Revenue Code and the Revenue ct of 193
aow, for undstrbuted-profts ta purposes, a credt for amounts used or set
asde to pay or retre ndebtedness e stng at the cose of busness on December
1, 1937, and evdenced by a bond, note, debenture, certfcate of ndebtedness,
mortgage, or deed of trust, ssued by the corporaton and n e stence at the
cose of busness on December 31, 1937, or by a b of e change accepted by a
corporaton pror to, and n e stence at, the cose of busness on such date.
Secton 222 of the b amends the Code and the 193 ct, the effect of whch
s that ndebtedness sha not be deemed to be outsde the provsons of secton
27(a)4 of such cts merey because, at the tme payments are made or amounts
are set asde, the ndebtedness s evdenced by a renewa obgaton ssued after
December 31, 1937. Ths amendment does not ater the requrement of e stng
aw reatve to the tme before whch the ndebtedness must have been ncurred
and the manner n whch t was evdenced at the cose of busness on December
31, 1937. Under the b, the renewa obgaton need not be one of the type
of nstruments enumerated n the e stng aw, and a renewa of a renewa
obgaton s quafed f the orgna ndebtedness was.
S CTION 223. COMMODITY CR DIT LO NS.
The attenton of your commttee has been drawn to the fact that oans by
the Commodty Credt Corporaton to producers of agrcutura commodtes,
on the securty of such commodtes, though n form oans, shoud be treated
for ncome-ta purposes as though such commodtes had been sod n the
year of the oan for the amount of the oan. Nevertheess, e stng aw requres
them to be treated as oans, wth the resut that when the pedged commodtes
are eventuay sod ta payers are requred to take up a arge amount of n-
come and, n addton, w not onger have avaabe to them ther deductons
on account of producton e penses. In order to avod ths harsh resut, sec-
ton 223 of the b adds a new secton 49 to the Interna Revenue Code, gvng
ta payers an eecton to treat such oans as ncome. n eecton once so
made s bndng as to a future years uness the Commssoner s approva s
obtaned to a change of method. Secton 223 aso adds a new secton
113(b)(G), provdng for proper ad|ustments of bass n the event t ever be-
comes matera to compute gan or oss upon a subsequent sae or other ds-
poston of such commodtes.
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Subsectons (d) and (e) make smar provson reatve to the computaton
of ncome and the ad|ustment of bass under the Revenue cts of 1 34, 193
and 193 , wth proper safeguards.
S CTION 224. C RIT L CONTRI UTIONS TO POSS SSIONS ND C TI S
IN POSS SSIONS.
Ths amendment broadens sectons 23(o) and 23(q) of the Interna Revenue
Code so as to aow deductons to ndvduas and corporatons for contrbutons
made to any possesson of the Unted States or to any corporaton, trust, nr
communty chest, fund, or foundaton created or organzed n, or under the
aws of, any possesson of the Unted States sub|ect to the quafcatons and
mtatons now provded by aw wth respect to other contrbutons.
S CTION 225. P N- M RIC N TR D CORPOR TIONS.
Secton 225 of the reported b e tends benefts to mercan corporatons
engaged soey n the actve conduct of a trade or busness n Centra or South
merca whch are affated wth another mercan corporaton engaged n the
actve conduct of a trade or busness wthn the Unted States. The amend-
ment permts such corporatons (ncudng the parent corporaton) to fe con-
sodated returns. It has been found mpractcabe for a parent corporaton
havng many nterests n Centra or South merca to carry on busness there
n ts own name. s a matter of economy and effcency t s necessary to or-
ganze a subsdary corporaton to act n ts pace. These subsdary corpora-
tons, whe organzed wthn the Unted States, conduct ther operatons entrety
outsde of the Unted States and therefore do not compete wth mercan com-
panes operatng wthn the Unted States. Your commttee s of the opnon that
t s a wse pocy to encourage the formaton of such corporatons for the pur-
pose of stmuatng mercan trade abroad. Proper safeguards are nserted to
make t cear that the reef granted by ths secton w not appy uness both the
parent corporaton and the subsdary corporatons are actvey engaged n a
trade or busness (not mere hodng companes) and the subsdary companes do
not receve any gross ncome from sources wthn the Unted States.
S CTION 226. D DUCTIONS O INSUR NC COMP NI S OT R T N LI O MUTU L
Under e stng aw nsurance companes other than fe or mutua must n-
cude n gross ncome, n addton to other tems, a tems whch consttute
gross ncome n the case of ordnary corporatons. Such companes are not
however, aowed n fu the deductons aowed under secton 23 to ordnary
corporatons. The amendment made by secton 226 aows such deductons n
fu by removng the mtaton now contaned n secton 204(c)10.
S CTION 22 . COMPUT TION O DI ID ND C RRY-O R OR P RSON OLDING
COMP NY T .
Under e stng aw, a persona hodng company receves a dvdend carry-
over ony for the dvdends decared n e cess of ts ad|usted net ncome. Ths
resuts n denyng to a persona hodng company the fu carry-over where ts
ad|usted net ncome has been reduced through the payment of edera ta es
whch are aowed as a deducton for the purpose of computng the ta on
persona hodng companes. Secton 22 of the reported b corrects ths
stuaton by aowng the dvdend carry-over for purposes of the surta on
persona hodng companes to be determned on the bass of the dvdends n
e cess of the ad|usted net ncome mnus the deducton aowed for edera
ta es under the persona hodng company provsons.
S CTION 401. T LI NS ON S CURITI S.
The ony changes made n ths secton by the reported b are n the new
subsecton (b) deang wth securtes. The ouse b provdes that even
though notce of the ta en mposed by secton 3670 of the Interna Revenue
Code has been fed by the coector n the prescrbed manner, such hen sha
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not be vad wth respect to securtes mortgaged, pedged, or purchased, f at
the tme such mortgagee, pedgee, or purchaser s wthout notce or knowedge
of the e stence of such en. In such cases the mortgage, pedge, or purchase
must be for a fu and adequate consderaton, but such consderaton woud be
consdered as gven f a securty s accepted n satsfacton of, or as securty
for, a pree stng obgaton. Secton 31 6 of the Revsed Statutes, as amended,
was codfed n part as secton 3070 of the Interna Revenue Code. Pror to
the effectve date of secton 3670 of the Code, ebruary 11, 1939, the genera
ta en (correspondng to the en mposed under secton 3670 after the enact-
ment of the Code) was mposed under secton 31 6 of the Revsed Statutes, as
amended.
The reported b e pressy e tends the provsons of the new subsecton (b)
to the en mposed under secton 31 6 of the Revsed Statutes, as amended.
The reported b makes no change n the defnton of the term securty. The
ouse b provdes that the new subsecton (b) sha appy, regardess of the
tme when the mortgage, pedge, or purchase was made or the en arose, e cept
where the en has been enforced by a cv acton whch has become fna before
the date of enactment of the b. Ta ens are now enforced by dstrant or
by a cv acton. Pror to the enactment of the Code, such ens were enforced
by dstrant or by a sut n equty. To ncude those methods of enforcement,
the reported b e pressy ncudes a proceedng or sut n the above-mentoned
e cepton. The e cepton s appcabe ony f the proceedng, sut, or cv
acton to enforce the en has become fna before the date of enactment of the
b.
S CTION 403. CR DITS G INST ST T T O T P ID TO POSS SSIONS.
Under e stng aw no credt s aowed aganst the edera estate ta for
death ta es pad to Puerto Rco or the Phppnes. The e stng aw confnes
the credt to death ta es pad to the States, Terrtores, and the Dstrct of
Coumba. Ths operates un|usty n the case of mercan ctzens who are
resdents of the Phppnes or who are resdents of the Unted States but own
property n the Phppnes or Puerto Rco. The Phppne death ta es have a
ma mum rate of from 27 to 3 per cent, accordng to the reatonshp of the
hers.
Tour commttee are of the opnon that the same credt shoud be aowed for
death ta es pad to the possessons of the Unted States as Is aowed for death
ta es pad to the States, the Terrtores, or the Dstrct of Coumba, and secton
403 of the b so provdes.
S CTION 404. R TURNS O TTORN YS S TO OR IGN CORPOR TIONS.
Under secton 3604(a) of the Interna Revenue Code, attorneys who counse
or advse wth respect to the formaton or reorganzaton of foregn corpora-
tons are requred to fe a return wth the Commssoner of Interna Revenue
wthn 30 days after the renderng of such advce. The return must set forth
such nformaton of the attorney regnrdng the purpose and affars of the cor-
poraton as the Commssoner may prescrbe. owever, the secton does not
requre the dvugng of prveged communcatons between attorney and cent.
Secton 404 reeves attorneys at aw who In ther practce advse cents from
fng any return wth respect to the advce they gve or the nformaton they
receve h the attorney-cent reatonshp. The amendment s effectve as of
the date of the enactment of the Revenue Code, so that the reef s retroactve.
S CTION 405. T NSION O D T OR TT.1NO CL IMS OR R UND O MOUNTS COL-
L CT D UND R T GRICULTUR L D USTM NT CT.
Secton 903 of the Revenue ct of 1936 requred cams for refund of ta es
pad under the grcutura d|ustment ct to be fed before uy 1, 1937. s
the 1936 ct was approved on une 22, 1936, camants were aowed ony a
year and eght days n whch to fe ther cams.
Secton 405 of the b woud e tend the perod durng whch such cams may
be fed from uy 1, 1937, to anuary 1. 1940.
Note. The ouse of Representatves havng accepted the changes made by
the Senate to the b ( . R. 6 51), there was no conference necessary thereon
and therefore no conference report.)
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532
1939-52-10126
CONSOLID T ND CODI Y T INT RN L R NU L WS O T
UNIT D ST T S.
anuary 20, 1939.
Mr. Doughton, from the Commttee on Ways and Means, submtted tk
foowng report to accompany . R. 2762 :
The Commttee on Ways and Means, to whom was referred the b ( .
2762) to consodate and codfy the nterna revenue aws of the Unted Stae ,
havng had the same under consderaton, unanmousy report t back to te
ouse wthout amendment and recommend that the b do pass.
T N D O N INT RN L R NU COD .
The need for enactment nto absoute aw of a codfcaton of nterna remw
aws has ong been recognzed. The ast such enactment was n 1 74, when the
Revsed Statutes were adopted. If the need for enactment nto aw of a
codfcaton was recognzed n 1 74, when ony 17 voumes of the Statutes a
Large had been pubshed and our nterna revenue was derved amost entre|
from ta es on quor and tobacco, that need must be much greater today, wh
34 addtona voumes have been pubshed and our nterna revenue s derved
from more than a hundred separate sources.
The Unted States Code s tsef the cumnaton of more than 30 year-
effort Due to the mass of egsaton contaned n that Code, t was thoufbt
best by the Congress to put t through a testng perod before ts enactmat
nto aw. It was, therefore, made ony prma face evdence of the aw, an
scrutny of t was nvted for the purpose of correctng errors, emaatf
obsoete matter, and restatement.
The revew and correcton of the nterna revenue tte was begun by te
staff of the ont Commttee on Interna Revenue Ta aton after the enact-
ment of the Revenue ct of 192 . The frst edton of the work was pubshed
n 1930 and the second, n 1933. The second edton was substtuted for tte
26 of the Unted States Code and became, therefore, prma face evdence of
the aw.
It has now been neary 13 years snce the Unted States Code was enacted
as prma face aw and more than years snce the frst edton of the Interns
Revenue Code was pubshed by the staff of the |ont commttee. owever,
because the nterna revenue tte s not the aw, but ony prma face evdence
thereof, t can not be reed upon and t s st necessary to go to the man
voumes of the Statutes at Large to determne what the aw actuay s. Tbe
great mass of nterna revenue egsaton snce 1 73, scattered through M
voumes of the Statutes at Large, makes such a recourse an e ceedngy dffcu
undertakng, even for the most e perenced awyer. Statutes are repeated to
subsequent cts n amost dentca anguage, wth no reference to pror cts
or any e pressed ntenton to amend or repea. Provsons of a permanect
character are ncuded n rders and provsos and are hdden n varous ct
mendments are often Invoved and obscure. Inconsstences and dupcatons
abound.
The ony practca way to determne wth certanty that the Interna Revenue
Code s actuay the aw s to enact t, as was done wth the Revsed Statutes
of 1 73. It s beeved that t has had a suffcent testng perod to make t
acceptabe as free from error.
In the preparaton of ths edton vaued ad has been rendered by the
Treasury Department. The work performed there has been under the mmed-
ate supervson and drecton of Mr. Preston C. e ander, charman of the
Chef Counse s Commttee, and Mr. Waace Streater, of the Interpretatve
Dvson. The orgna work of comparng the te t of the Code wth the ha-
aw was dvded among some 25 or 30 attorneys n the Chef Counse s offce,
whose recommendatons passed through the respectve dvson heads or the
assstants to Messrs. e ander and Streater for the fna revew. ppre
ton s e pressed of the servces of a who coaborated, whose number s t
arge to permt the menton here of each by name.
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Gratefu acknowedgment s aso made of hepfu suggestons receved from
the Department of ustce.
In ths connecton, Mr. ames W. Morrs, ssstant ttorney Genera, made
the foowng comment as to the desrabty of the enactment of ths codfcaton
nto aw:
I am gad to earn that the ong-reazed need of a codfcaton whch w be
recognzed as the aw rather than as merey prma face evdence thereof Is
probaby soon to be fed. Ths need has been especay mpressed upon the
Ta Dvson of the Department of ustce nasmuch as the functon of handng
revenue tgaton rests wth t.
It Is evdent that the confuson e stng by reason of the number of Revenue
cts, contanng In many nstances the same basc provsons, to whch reference
must be made n the handng of cases arsng under the varous cts, const-
tutes a burden to the courts and counse ake. urthermore, severa of these
statutory provsons have been amended by ecutve order, but, snce such
changes have not appeared on the face of the statutes t has been necessary to
refer to the ecutve orders to ascertan ther nature and e tent. The pro-
posed codfcaton w be partcuary hepfu n that It emnates these sources
of confuson.
I am confdent that the enactment of the codfcaton w be a defnte step
toward obtanng carty, certanty, and smpcty In onr revenue aws and w
be of substanta ad to ths dvson n the handng of revenue tgaton.
Ths Code contans a the aw of a genera and permanent character reatng
e cusvey to Interna revenue In force on anuary 2, 1939. In addton. It
contans the Interna revenue aw reatng to temporary ta es, the occason
for whch arses after the enactment of the Code. The foowng shoud be
noted In connecton wth the genera character of the Code:
rst. It makes no changes n e stng aw.
Second. It makes bera use of catchwords, headnes, dfferent types, Inden-
tatons, and other typographca Improvements.
Thrd. y a system of cross-references, It correates not ony Its own pro-
vsons but aso provsons of the Unted States Code not reatng e cusvey
to nterna revenue.
ourth. To obvate confuson wth the aw tsef, the cross-references are In
type dfferent from that contanng the aw.
fth. It Is arranged wth a vew of gvng promnence to matters whch
concern the ordnary transactons of the ordnary casses of ta payers.
The preparaton of ths Code began wth the coecton and e amnaton of
a orgna statutes reatng to Interna revenue, wthout reference to the Unted
States Code. Ths procedure aowed an ndependent check to be made subse-
quenty aganst that Code. The ne t step was the emnaton of obsoete
matter and those temporary provsons reatng to ta es the occason for whch
arose pror to the effectve date of the Code. The most strkng e ampes of
the temporary aws whch are omtted are the ncome ta provsons of the
Revenue ct of 1936 and pror Revenue cts. Whe these provsons reman
n force for the purpose of admnsterng the ta es for the earer years, they
do not affect the current ta stuaton.
fter the emnaton of the obsoete and temporary provsons from the
whoe body of Interna revenue aw, the remanng provsons were checked
aganst the Unted States Code. The care n the preparaton of the Unted
States Code and n the present codfcaton gves assurance of the accuracy
of the fna product. Moreover, every provson has been carefuy revewed and
checked by the Treasury Department and conferences have been hed and agree-
ments reached on a ssues.
There are many aws of a genera character whch, though reatng to Interna
revenue, appy aso to other ob|ects. To codfy such aws under Interna
revenue, however, woud dsrupt the entre tte structure of the Unted States
Code and render compete codfcaton of edera aw mpossbe. In ony a few
nstances has any provson been taken from any tte of the Unted States Code
other than the nterna revenue tte, and then ony for the reason that such
provson reates e cusvey to Interna revenue. The great vaue of the
Unted States Code s thus preserved. Moreover, detaed cross-references com-
pensate for any defcency due to such a procedure by acquantng the reader
both wth the genera sub|ect of the provson referred to and Its ocaton n
the Unted States Code.
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534
The fna step was to arrange the Code In a ogca and convenent manner.
There are s subttes. Subtte contans those ta es over whch the Unted
States oard of Ta ppeas has |ursdcton. These ncude ncome, estate:
and gft ta es.
Subtte contans the msceaneous ta es.
Subtte C contans the temporary ta es.
Subtte D contans the genera admnstratve provsons.
Subtte contans the personne provsons.
Subtte contans provsons reatng to the ont Commttee on Interna
Revenue Ta aton.
The purpose of ths arrangement Is to make the subttes as far as possbe
compete n themseves. or e ampe, those nterested soey n provsons re-
atng to ncome, estate, or gft ta es need concern themseves ony wth sub-
ttes and D, and may dsregard the provsons reatng to tobacco, quor, and
other msceaneous ta es, whch are ncuded n subtte , as we as the
provsons reatng to temporary ta es n subtte C. In subtte D, a genera
admnstratve provsons have been coected.
The chapter arrangement s based both upon the Importance of the ta from
a revenue standpont and the number of persons affected. The pan for the
arrangement of provsons n the ncome ta chapter foows the Revenue ct
of 103 and conssts of the coecton of the provsons under two cassfcatons,
genera provsons and suppementa provsons. The genera provsons are
those whch appy to the ordnary transactons of the ordnary casses of ta -
payers. In the man, the suppementa provsons are those whch appy to the
e traordnary casses of ta payers or to the e traordnary transactons of the
ordnary casses of ta payers. Speca admnstratve provsons are ncuded
n the suppementa provsons. Ths same scheme s apped to the chapter
on the estate and gft ta es. The chapter on the Unted States oard of Ta
ppeas s ncuded n subtte for the reason that the |ursdcton of the
oard s confned to the ta es In that subtte.
Subtte contans the msceaneous ta es, such as the empoyment ta es
arsng under the Soca Securty ct and the Carrers Ta ng ct of 1937,
the ta es on tobacco and quor, admssons and dues. Issues and transfers of
stocks, ssues of bonds, etc. The arrangement of these chapters gves prom-
nence to matters of chef Interest to the ta payer that s, abty to ta ,
rate, payment, and other obgatons and dutes mposed upon the ta payer.
The speca admnstratve provsons foow and the penaty and forfeture
provsons are grouped together so as to be ready ocated.
In Subtte C the temporary ta es are ncuded. mong those are the
manufacturers e cse ta , the ta on teegraph and teephone messages, and
the ta on eectrca energy, whch by e press provson of the aw e pre
on a specfed date.
Subtte D contans the admnstratve provsons of a genera character.
The arrangement of ths subtte foows the usua course of procedure n ta
admnstraton that s, nformaton, returns, assessment, coecton, and refund.
Subtte contans the provsons reatng to personne. The provsons
reatng to appontment, saary, powers, and dutes of nterna revenue offcas
and empoyees are ogcay and systematcay arranged.
1939-52-10126
CONSOLID T ND CODI Y T INT RN L R NU L WS
O T UNIT D ST T S.
Senate Import No. 20, Seventy-s th Congress, rst Sesson. Caendar No. 19.
anuaby 30, 1939.
Mr. George, from the Commttee on nance, submtted the foowng report
to accompany . R. 2762 :
The Commttee on nance, to whom was referred the b ( . R. 27G2) to
consodate and codfy the nterna revenue aws of the Unted States, havng
had the same under consderaton, unanmousy report t back to the Senate
wthout amendment and recommend that the b do pass.
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D SCRIPTION O T COD .
Ths Code contans a the aw of a genera and permanent character reatng
e cusvey to nterna revenue n force on anuary 2, 1939. In addton, t
contans the nterna revenue aw reatng to temporary ta es, the occason
for whch arses after the enactment of the Code. The foowng shoud be
noted n connecton wth the genera character of the Code:
rst. It makes no changes n e stng aw.
Second. The Code w be the aw and not merey prma face evdence thereof.
Ths w gve a new startng pont behnd whch t w not be necessary to
search to determne the aw as to current ta es. It w then be necessary
ony to ook to subsequent egsaton, whch woud be amendatory of the Code
tsef.
Thrd. The Code Is prospectve n ts appcaton. or e ampe, n the
case of the ncome ta , the Code appes ony to ta abe years begnnng after
December 31, 193 . In the case of ta abe years begnnng pror to anuary 1,
1939, the ncome ta provsons of the Code w have no appcaton, but the
appcabe provsons of the Revenue ct of 193 and pror Revenue cts w
govern. In the case of the estate ta , the Code w appy ony to estates of
decedents dyng after the date of ts enactment, the e stng Revenue cts con-
tnung to appy to estates of decedents dyng on or pror to such date. In the
case of the gft ta , the Code w appy ony to the caendar year 1940 and subse-
quent caendar years, eavng such ta es for pror caendar years to be governed
by the appcabe provsons of the Gft Ta ct of 1932. In the case of the
Soca Securty ta es, the Code w appy to the caendar year 1939 and subse-
quent caendar years, eavng the pror years st under the Socety Securty ct.
s to the e stng temporary ta es, the Code appes ony where the occason
for the ta arses after the effectve date specfed n the Code. or nstance,
the Code w appy to automobes sod on and after the frst day of the
caendar month occurrng ne t after ts enactment and automobes sod pror
to that date w be sub|ect to the provsons of the Revenue ct of 1932.
so, the Code w appy to sugar manufactured on or after the frst day of
that caendar month occurrng ne t after the enactment of the Code, but n the
case of sugar manufactured pror to that date, the e stng aw w appy. The
foowng tabe shows the effectve date of the varous chapters of the Code:
Chap-
ter.
Sub|ect.
ppcaton or effectve date.
Income ta
ddtona ncome ta es:
Persona hodng companes..
cess-profts ta
cess profts on Navy contracts.
Un|ust enrchment.
state ta
Gft ta
oard of Ta ppeas
Capta-stock ta
Ta on transfers to avod Income ta
askan raroads ta
mpoyment ta es
dmssons and dues
Documents, other
payng cards.
Safe-depost bo es.
ts, and
Crcuaton other than of natona
banks.
Cotton futures
Tobacco, snuff, cgars, and cgarettes.
Oeomargarne, aduterated butter,
and process or renovated butter.
ed cheese
M ed our.
Ta abe years begnnng after Dec 31, 193 .
Do.
Income-ta ta abe years endng after une 30,1939.
Contracts competed wthn ncome-ta ta abe
begnnng after Dec. 31, 193 .
Ta abe years endng durng the caendar year 1939, and
subsequent ta abe years.
states of decedents dyng after the date of the enactment
of the Code.
Caendar years 1940 and subsequent caendar years.
The day foowng the date of the enactment of the Code.
Year endng une 30,1939, and subsequent years.
Ta abe years begnnng after Dec. 31, 193 .
Caendar year 1939 and subsequent caendar years.1
rst day of the frst caendar month begnnng after the
enactment of the Code.
The day foowng tho date of the enactment of the Code.
rst day of the frst caendar month begnnng after the
une 1,1939.
Do.
Do.
Do.
Do.
1 So n orgna Shoud be Subchapters and , effectve on pr 1,1939, and
try 1, 1939.
Subchapter 0 on anu-
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536
Chap-
ter.
90
n
Sub|ect.
Coconut and other vegetabe os
sh, anma, and vegetabe os
Narcotcs -
Whte phosphorous matches
rearms:
Pstos and revovers
Machne Runs and short-barreed
frearms.
Lquor
Occupatona ta es
Provsons common to msceaneous
ta es.
Manufacturers e cse and mport
ta es:
cse ta es
Import ta es --
Transportaton and communcaton..
Documents and other nstruments...
Sugar
Manufacture
Importaton
Coa
Informaton and returns
ssessment
Coecton
batements, credts, and refunds
M sccaneous provsons
The Offce of the Commssoner of
Interna Revenue.
The Offce of the ssstant Genera
Counse for the ureau of Interna
Revenue.
Coectors of nterna revenue
Deputy coectors of nterna revenue.
Interna revenue agents.
Storekeeper-gagers
Interna revenue nspectors
Msceaneous provsons
ppcaton or effectve date.
rst day of the frst caendar month
Do.
Do.
Do
The day after the dato of the enactment of the Code.
Do.
Ta abe years begnnng on or after the day
the enactment of the Code.
The day foowng the date of the enactment of
The frst day of the frst caendar month begnnaf after
The day foowng the date of the enactment of the Cok.
The frst day of the frst caendar month begnoaf pf
The day foowng the date of the enactment of the Ms.1
The frst day of the frst caendar month begnnm tt
The day foowng the date of the enactment of the C -
The frst day of the frst caendar month bepnnnr fa
The day foowng the date of the enactment of the Co
Do.
Do.
Do.
Do.
Do.
Do.
Do.
Do.
Do.
Do.
Do.
Do.
So In orgna. Shoud be the day foowng the date of the enactment of the Code.
1 So n orgna. Shoud be the 1st day of the frst caendar month begnnng after the enactmentau
Code.
4 So n orgna. Shoud bo ta abe perods. . .
So n orgna. The foowng addton shoud have been made: and on the 1st day of the
caendar month begnnng after the enactment of the Code.
ourth. The Code w not have any effect upon pendng cases, suts, or
controverses. e stng rghts and abtes are preserved.
fth. The Code repeas ony such aws and parts of aws as are endfW
theren. It s beeved that ths Code, whch s the resut of ntensve researrb
e tendng over a erod of 10 years, admts no reasonabe doubt of ts accuracy,
but f t shoud deveop that any provson has been mpropery omtted, sod
provson s not repeaed, but st remans the aw. Lkewse, temporary and
obsoete provsons whch are omtted from the Code are not repeaed by t-
Moreover, no provson of aw correspondng to that contaned n the Code s
repeaed unt the correspondng Code provson becomes effectve.
S th. If any error s found n the Code, t can be remeded by amendatory
egsaton. Concedng the possbty of error, t s the opnon of yonr eo
mttee that the nterests of the Government and the ta payer ake woud bf
best served by the adopton of the Code as absoute aw and the egsatve
correcton of any errors that may be found n t. Such a procedure woud be far
ess burdensome upon the partes concerned than the makng of the Code prto-
face aw, thereby sub|ectng t to rebutta upon the producton of the or/ na
statute. Ths ast procedure woud compe both the Government and the US-
payer to make a thorough search of the numerous Statutes at Large n ever
case to estabsh that the prma face aw was n fact the aw, thereby resntn
In perpetuatng the confuson whch ncreases wth each new edton of te
Statutes at Large.
Seventh. The Code makes bera use of catchwords, headnes, dfferent type
ndentatons, and other typographca mprovements.
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537
M C.
ghth. To obvate confuson wth the aw tsef, the cross-references n the
Code are n type dfferent from that contanng tbe aw.
Nnth. The Code s arranged wth a vew of gvng promnence to matters
whch concern the ordnary transactons of the ordnary casses of ta payers.
The nterna revenue aws were frst codfed n the Revsed Statutes of 1 73,
Tte , whch was made absoute aw. perfected edton of the Revsed
Statutes was prepared n 1 7 , but s ony prma face, not absoute aw.
In the years 1 97 to 1907 a commsson was engaged by Congress to codfy
the edera aws, but the work was never competed. Subsequenty, on.
dward C. Ltte prepared a codfcaton of edera aws whch was emboded
n a b whch passed the ouse of Representatves but faed of acton In
the Senate. The Interna revenue aws were agan codfed n tte 2(5 of the
Unted States Code, whch was enacted as prma face aw n 1926. Scrutny
of the Code was Invted n ts preface for the purpose of correctng errors.
In 1930 the ont Commttee on Interna Revenue Ta aton pubshed a
compete substtute for tte 26 of the Unted States Code, contanng a the
aw of a permanent character, reatng e cusvey to nterna revenue, In
force on December 1, 1930. Ths was not a mere dupcaton of the od tte,
for, n addton to correctng errors and emnatng obsoete matter, certan
omtted provsons were added and the tte competey rearranged n a manner
consdered ogca and usefu.
In I9 3 a new edton was pubshed contanng the Interna revenue aws
n force on uy 16, 1932. Ths edton was substtuted for tte 26 of the
Unted States Code, and n ts present form s prma face aw. thrd
edton was pubshed n 193 , contanng the nterna revenue aws In force at
the begnnng of that year. The staff of the ont Commttee on Interna
Revenue Ta aton, wth the cooperaton and assstance of the Treasury Depart-
ment, has brought the Interna Revenue Code up to date by the present edton.
It has now been neary 13 years snce the Unted States Code was enacted
as prma face aw and more than years snce the frst edton of the Interna
Revenue Code was pubshed by the staff of the ont commttee. owever,
because the Interna revenue tte Is not the aw, but ony prma face evdence
thereof, t can not be reed upon and It s st necessary to go to the many
voumes of the Statutes at Large to determne what the aw actuay s. The
great mass of nterna revenue egsaton snce 1 73, scattered through 34
vonmes of the Statutes at Large, makes such a recourse an e ceedngy dffcut
undertakng, even for the most e perenced awyer.
The ony practca way to determne wth certanty that the Interna Revenue
Code Is actuay the aw s to enact t, as was done wth the Revsed Statutes
of 1 73. It s beeved that t has had a suffcent testng perod to make t
acceptabe as free from error.
In the preparaton of ths edton vaued ad has been rendered by the
Treasury Department. The work performed there has been under the Immed-
ate supervson and drecton of Mr. Preston C. e ander, charman of the
Chef Counse s Commttee, and Mr. Waace Streater, of the Interpretatve
Dvson. The orgna work of comparng the te t of the Code wth the basc
aw was dvded among some 25 or 30 attorneys n the Chef Counse s offce,
whose recommendatons passed through the respectve dvson heads or ther
assstants to Messrs. e ander and Streater for the fna revew. pprecaton
Is e pressed of the servces of a who coaborated, whose number Is too arge
to permt the menton here of each by name.
Gratefu acknowedgment s aso made of hepfu suggestons receved from
the Department of ustce.
In a etter to on. Pat arrson, charman of the ont Commttee on
Interna Revenue Ta aton, dated December 22, 193 , Mr. ames W. Morrs,
assstant attorney genera, stated:
Department of ustce,
Washngton, December 22, 19S .
on. Pat armson,
Charman, ont Commttee on Interna Revenue Ta aton,
Senate Oftee udng, Washngton, D. C.
My Dear Senator arrson: In a recent conversaton wth Mr. Stan, chef
of the staff of the ont commttee, I was advsed of the progress of the proposed
codfcaton of the revenue aws whch has been undertaken by the commttee
I am gad to earn that the ong reazed need of a codfcaton whch w be
recognzed as the aw rather than as merey prma face evdence thereof s
209196 40 1
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53
probaby soon to be fed. Ths need has been especay mpressed upon the
Ta Dvson of the Department of ustce n as much as the functon d
handng revenue tgaton rests wth t
It s evdent that the confuson e stng by reason of the number of Rerenut
cts, contanng n many nstances the same basc provsons, to whch referent
must be made n the handng of cases arsng under the varous cta, cos-
sttutes a burden to the courts and counse ake. urthermore, severa of tbea
statutory provsons have been amended by ecutve order, but, snce suck
changes have not appeared on the face of the statutes t has been necessar
to refer to the ecutve orders to ascertan ther nature and e tent Tn
proposed codfcaton w be partcuary hepfu n that t emnates these
sources of confuson.
I am confdent that the enactment of the codfcaton w be a defnte ste
toward obtanng carty, certanty, and smpcty n our revenue aws and w
be of substanta d to ths Dvson n the handng of revenue tgaton.
The staff of the |ont commttee deserves to be commended for ts vauabe
contrbuton to the ta aw.
ery truy yours,
akes W. Mokes,
ssstant ttorney Genera
In a etter from George M. Morrs, squre, Charman of the Standnt
Commttee on edera Ta aton of the mercan ar ssocaton, date
anuary 24, 1939, Mr. Morrs sad:
n e amnaton of the codfcaton of the Interna Revenue Laws as pre-
pared by the staff of the ont Commttee on Interna Revenue, ndcates that
hghy sensbe dea has been brought to a most satsfactory fruton.
Uness one has had e perence handng questons whch nvove the stauta
treatng wth our nterna revenue for a span of years (not at a an unusc
e perence n ta dsputes), he can have tte Idea of the dffcuty of acheva|
certanty as to what the appcabe statute aw s. If for ta payers and ther
counse Ihese dffcutes and uncertantes can be emnated, the reducton U
e pense of ta controverses, and even the emnaton of such controverss
shoud be greaty furthered.
Not ony does t seem hghy advsabe that ths panstakngy prepared cod
fcaton shoud be enacted nto aw but It shoud be apparent that the sooner
such acton s taken the more benefca w be the effect, partcuary n the
consderaton of any revenue egsaton durng the present sesson of Con e
n ntegent consderaton of any proposa for change woud seem to reunte
an assured knowedge of the aw whch It Is proposed to chance.
1939-35-9
SOCI L S CURITY CT M NDM NTS O 1939.
ouse of Representatves Report No. 72 , Seventy-s th Congress. rst Sesson. 1
une 2, 1939.
ng report to accompany . R. CC35 :

genera statement.
Dvsons of the .
Ths b amends the Soca Securty ct and certan sectons of Subchapter
and C of Chapter 9 of the Interna Revenue Code (formery Ttes III aw
I of the Soca Securty ct).
The b s dvded nto nne ttes:

Tte I mendments to the Interna Revenue Code (provsons formery s

Tte III mendments to Tte I of the Soca Securty ct (genera prw
sons).
Tte I Msceaneous amendments.
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Msc.
Summary ok Prncpa Contents of .
T S.
1. The od-age nsunnce ta has been frozen at 1 per cent on the worker and
1 per cent on the empoyer for the three years 1940, 1041, an 1942 as aganst
the 1 per cent rates on each under the present ct. Ths w save empoyers
and workers about 275,000,000 n 1940, or a tota of 25,000,000 In the three
years.
2. Provson s made so that the States may reduce ther unempoyment-nsur-
ance contrbutons If a certan reserve fund has been attaned and mnmum
beneft standards have been provded. e cept about fve States w be abe
to take advantage of ths change durng 1940. Ths may save empoyers from
200,000,000 to 250,000,000 durng 1940 f the States reduce ther contrbuton
rates from an average of 2.7 to 2 per cent.
3. Ony the frst 3,000 an empoyer pays an empoyee for a year s ta ed under
the unempoyment-compensaton provsons. Ths s aready the case n od-age
nsurance. Ths w save empoyers about 05,000,000 a year.
4. Provson s made for refunds and abatements to empoyers who pad ther
1930,1937, and 193 unempoyment-compensaton contrbutons ate to the States.
Ths w save empoyers about 15,000,000.
. 5. Thus the savngs above mentoned, through 1940, may aggregate some
5 0,000,000. In addton, such savngs for the ensung two years may amount to
appro matey 1,130,000,000. Ths represents tota savngs of appro matey
1,710,000,000.

CO R G .
1. Certan servces, ncudng servces for agrcutura and hortcutura asso-
catons, vountary empoyees benefcary assocatons, oca or rtuastc servces
for fraterna benefcary socetes, and servces of empoyees earnng nomna
amounts (ess than 45 per quarter) of nonproft Insttutons e empt from ncome
ta , are e empted from od-age Insurance and unempoyment compensaton In
order to emnate the nusance cases of nconsequenta ta payments.
2. The term agrcutura abor s defned so as to carfy ts meanng and to
e tend the e empton to certan types of servce whch, athough not at present
e empt, are an Integra part of farmng actvtes.
3. bout 1,100,000 addtona persons (seamen, bank empoyees, and empoyed
persons age 65 and over) are brought under the od-age Insurance system and
about 200,000 under unempoyment Insurance (chefy bank empoyees).

DMINISTR TION.
1. edera od-age and survvor Insurance trust fund Is created for safegnard-
ng the nsurance beneft funds. The Secretary of the Treasury, the Secretary of
Labor, and the Charman of the Soca Securty oard are made trustees of ths
tud.
2. Provson s made to restrct the use of Informaton concernng recpents of
State od-age assstance (partcuary ther names and addresses) to purposes
recty connected wth the admnstraton of od-age assstance. Ths s desgned
o prevent the use of such nformaton for potca and commerca purposes.
3. Other amendments are recommended to smpfy and carfy admnstraton
f the aw.
story or Legsaton.
The Soca Securty ct became aw on ugust 14, 1935, after many months of
eberatou n Congress. The b was passed by an overwhemng ma|orty In
oth the ouse and the Senate, the votes beng 372 to 33 and 77 to 6, respectvey.
The nsurance provsons of the ct (substantay as reported out by ths com-
nttee) were uphed by the Unted States Supreme Court n the cases of Steward
fochne Co. v. Davs (301 U. S., 54S) everng v. Davs (301 U. S., 619) and
armchae v. Southern Coa Co. (301 U. S., 495).
The enactment of the Soca Securty ct marked a new era, the edera Gov-
rnment acceptng, for the frst tme, responsbty for provdng n systematc
rogram of protecton aganst economc and soca hazards. Though admttedy
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540
not perfect or a-ncusve, the Soca Securty ct dd embrace the broadest
program for soca securty ever aunched at one tme by any government

Unempoyment compensaton. The ncentves provded n the Soca Securt|
ct stmuated rapd passage of State unempoyment compensaton aws. efore
the ct was passed, ony 1 State, Wsconsn, had a gong system of unempoyment
Insurance now a the 4 States and aska, awa, and the Dstrct of Coum-
ba have approved aws. enefts are aready beng pad to unempoyed covered
workers under a but two of these aws the ast two States (Inos at
Montana) w start beneft payments on uy 1 of ths year. More tha
27, 00,000 workers are covered by these aws and about 3. 00,000 tempor rf|
unempoyed workers receved benefts amountng to neary 400,000,000 durns
the year 193 . In addton, about 145,000,000 has been pad to unempoyed
workers durng the frst four months of 1939.
Od-age nsurance. The fu effect of the edera od-age Insurance program
w not be fet unt monthy benefts begn to be pad. In the meantme, how-
ever, the Soca Securty oard has estabshed wage-record accouuts for neary
44,000,000 persons, of whom more than 32,000,000 have aready had wages
reported n cther 1937 or 193 , thus enabng these ndvduas to bud up rgbU
to protecton for themseves and ther dependents upon a sound bass. In add-
ton, ump-sum benefts, amountng to 3 per cent of accumuated covered
earnngs, totang about 17,200,000, have been pad up to pr 30, 1939, to or on
behaf of neary 345.000 who reached age 65 or ded.
Revson of Soca Securty rt. Tremendous as s the scope of ts program.
It was recognzed from the begnnng that changes woud have to be made as
e perence and study ndcated nes of revson and mprovement. Congress,
therefore, e pressy provded n the Soca Securty ct that the Soca Secort|
oprd shoud study and make recommendatons as to methods of pronto
more effectve economc securty.
urther to factate necessary revson, an dvsory Counc on Soca Securty
was created n May, 1937. It was composed of outstandng ctzens representta
empoyers, empoyees, and the pubc. The dvsory Counc spent more than
a year n study and deberaton and transmtted ts fna report and recoa-
mendatons on December 19, 193 .
The recommendatons of the Soca Securty oard, based upon three years
of ntensve study, were submtted to the Presdent of the Unted States on
December 30, 193 . The Presdent transmtted the oard s report to Congress,
wth a speca message on anuary 16, 1939. The Presdent s message and the
oard s report were then referred to ths commttee.
The commttee hed e tended pubc hearngs on these recommendatons and
aternatve proposas reatng to soca securty, ncudng more than 90 bte
ntroduced n the ouse. These hearngs asted from ebruary 1 to pr
durng whch perod the commttee sat 4 days and took 2,5 O pages of testmony
mong the 164 ndvduas who testfed n person there were 3 Senators, 41
Congressmen, 14 Government offcas ( edera and State), 21 abor representa-
tves, 27 empoyer representatves, 16 economsts, and 42 others, representng
themseves or varous organzed groups of ctzens. Many of these wtnesses
fed suppementary statements for the record. Some 20 or 30 other statement
from ndvduas unabe to appear before the commttee n person were aso
paced n the record.
Snce the concuson of the pubc hearngs these varous proposas ha
receved the constant attenton of the commttee. ecutve sessons have been
hed over a perod of s weeks. The commttee has reazed the mportant
of ths sub|ect and has taken serousy Its responsbty to recommend to Con-
gress the best possbe egsaton for suppementng and mprovng our system
of soca securty. The commttee therefore recommends mmedate enactment
of ths b.
Genera Purpose and Scope of mendmknts.
The present b ams to strengthen and e tend the prncpes and ob|ectve
of the Soca Securty ct. The foundatons of a permanent program have been
ad and t seems wse to bud upon the present structure.
Od-age nsurance, unempoyment compensaton, and pubc assstance are n
accepted as permanent n our fabrc of soca servces. The present b s de-
sgned to wden the scope and to mprove the adequacy and the adnnstratwo
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541
Msc.
of these programs wthout aterng ther essenta features. enefts w contnue
to be payabe as a matter of rght to workers covered by the Insurance programs
ad w contnue to be reated to need under the assstance programs.

IN NCING.
Certan amendments are proposed whch affect the fnanca framework of the
od-age nsurance system. rst, the od-age reserve account Is changed to a
federa od-age and survvor nsurance trust fund wth the Secretary of the
Treasury, the Secretary of Labor, and the Charman of the Soca Securty oard,
a e offco, actng as a board of trustees. The board of trustees w supervse
the fund and w report to Congress annuay and whenever the trust fund be-
comes unduy sma or e ceeds three tmes the hghest annua e pendture antc-
pated In the ensung 5-fsca-year perod. The Secretary of the Treasury w
serve as managng trustee of te fund. assets credted to the reserve account
as of anuary 1,1940, are transferred to the trust fund when the reserve account
s aboshed on that date. It s further proposed that an amount equa to the
fu amount of the od-age nsurance ta es coected n the future be permanenty
approprated to the trust fund. Provson s made for the admnstratve costs
of the pan to be met from the trust fund.
The method of nvestng that porton of the trust fund not needed for current
cams or admnstratve purposes w be ke that now provded n the case of
the unempoyment trust fund. Instead of a mnmum 3 per cent nterest on the
nvestments of the present od-age reserve account, the edera od-age and sur-
vvor nsurance trust fund, ke the unempoyment trust fund, w earn nterest
at the current average rate of Interest borne by a outstandng nterest-bearng
obgatons composng the pubc debt. t the present tme the rate of nterest
beng pad to the unempoyment trust fund s 2 per cent.
The present ta schedue s amended so that the current rate of 1 per cent on
empoyers and 1 per cent on empoyees s contnued unt 1943. Ths postpone-
ment n the ta step-up w save empoyers and workers about 275,000,000 for
1940 or a tota of 25,000,000 for the three years 1940,1941, and 1942. owever,
no change s made n the ta schedue thereafter. The rates w st ncrease to
2 per cent n 1943, 2 per cent n 1946, and 3 per cent In 1949 and thereafter.
The resut of the commttee s recommendatons wth respect to ta es and bene-
fts on the sze of the reserve and the amount of the beneft payments s shown
n tabe 6. It shoud be noted that the ma mum reserve but up n the perod
shown w be between seven and eght bon doars. It shoud aso be noted
that the sze of the reserve w conform cosey to the recommendaton of the
Secretary of the Treasury of an eventua reserve amountng to not more than
three tmes the hghest prospectve annua benefts n the ensung fve years.
Tabe 6. Progress of reserve under the ntermedate retrement estmate of
beneft dsbursements wth nterest at 2 per cent. Taw rate at 2 per cent
unt an. 1, 194 , and thereafter foowng the present schedue.
In mons of doars.
Net ta recepts (gross recepts mnus
1940
1941
1942
1943
1944
1945
1950
1955
tso
505
211
604
919
1,067
59
1,07
1,751
1, 49
Less beneft payments

350
50
713
1,3 9
1,930
Net cash recepts, Government.
dd nterest at 2 per cent
413
41
294
U
154
5
411
06
469
365
91
362
- 1
190
79
153
Tota addton to fund
4M
345
2,229
212
2,441
477
2,91
64
,4 6
456
3,922
515
6,449
109
7.762
und at end of year
1, 4
Note. ond at end of 1939 Is estmated to be 1,430,000,000. The beneft payments e ceed the net
ta recepts In 1 54.
It shoud be ceary understood that the estmates presented are sub|ect to a
margn of error. Changes n average wages, death rates, brth rates, the rate
of retrement, the proporton of the aged n the tota popuaton, and shfts
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542
between nsured and unnsured groups may resut In substanta changes h
these fgures n the future. It s mpossbe, therefore, to predct accuratey the
future trends of a the factors nfuencng the ong-run aspects of the od-ap
nsurance program. The further one pro|ects estmates of future ncome aad
beneft payments, the greater s the margn of error. Constant study and fre-
quent revauatons are, therefore, essenta for the ong-run fnancng of 00:
soca nsurance system. Ths s one of the reasons why the commttee hs
recommended that the board of trustees make an annua report to Congress
the actuara status of the system, and report to Congress whenever the tra
fund s unduy sma, or e ceeds three tmes the hghest annua e pendhn
e ected n the ne t 5-fsca-year perod.
ccordng to the best e pert nformaton avaabe to the commttee, the est-
mates presented here are reasonabe appro matons of the ncome and oatr
of the nsurance pan for the ne t 15 years. The actua fgures w no doubt
vary somewhat from those shown n tabe 6. owever, the beneft paymefc
shown, athough based upon an ntermedate estmate as regards rate of retre-
ment, probaby represent ma mum amounts payabe under the provsons of the
b. serous downswng n busness condtons mght ncrease the rate of od
age retrement and decrease the estmated amount of ta recepts, but sr
varatons woud probaby not ater the fact that the contrbutons and nterest
w cover a beneft payments for the ne t 10 to 15 years. It s ony when co|-
sderaton s gven to the ncome and outgo of the system for 40 to 45 years.
even more, that t becomes qute mpossbe to predct the future status of the
system.
Tabe 6 shows that the annua contrbutons from workers and empoyers mU
probaby be suffcent unt 1055 to meet a the annua beneft payments rote
the revsed pan. If the orgna actuara assumptons of 1935 prove to
correct, t s possbe that benefts for a tme to come can be fnanced from the
present schedue of ta es and the nterest from the fund, even wth the recto
mended postponement of the ta step-up unt 1043. owever, upon the bass
of addtona data deveoped snce 1035, t woud appear that the artuaru.
cacuatons of 1935 represent a mnmum estmate of the future costs. There-
fore, t s possbe that the annua cost of the benefts may begn to e ceed ttt
annua ta coectons about 1955 or even somewhat sooner.
Ony after e perence has been obtaned n payng benefts for severa yeft
w we have a better pcture of the probabe future deveopment of the systen
ven then contnua change w be necessary n the estmates due to the matf
varabe factors whch go nto makng such estmates.
In makng the changes n the present pan the commttee has kept constant
n mnd the fact that, whe dsbursements for benefts arc reatvey sma
the eary years of the program, far arger tota dsbursements are nevtabe b
the future.
The pan recommended by ths commttee s desgned to safeguard workff-
empoyers, and the genera pubc. In fact the commttee beeves the rersed
pan s a much safer one than the present pan. s has aready been |ok
out, whe the annua costs under the revsed pan are greater n the eary r
of operaton, the future annua costs of the benefts when the system reaebfr
maturty arc materay ower than under the present aw and the over-a averse
cost s kept about the same. Consequenty, t a beeved that there s not the
same danger as e sts n the present beneft schedue, the cost of whch, whU-
deceptvey sma n the eary years, mounts very steepy as the years progre
Unforeseen contngences may, however, change the entre operaton of the
pan. It s mportant, therefore, that Congress be kept fuy nformed of tf
probabe future obgatons beng ncurred under the nsurance pan as we n
the pubc-assstance pans. ach generaton may then meet the stuaton bef 1
t n such manner as t deems best.
If future annua pay-ro ta coectons pus avaabe nterest are nsuffcent
to meet future annua benefts t w be necessary, n order to pay the promt
benefts, to ncrease the pay-ro ta or provde for the defcency out of 00W
genera ta es, or do both. roadenng the coverage of the system to brnf
those persons now e cuded w not ony make the system more effectve u
provdng protecton but aso strengthen ts actuara base by st further em-
natng the possbty of unearned benefts to the worker who moves frw
unnsured to nsured empoyment
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543
Msc.
CO R G .
our years ago, when the od-age nsurance program was beng panned, t was
e pected that the ct as passed woud provde od-age securty for about haf
|f the ganfu workers n the country. It was reazed, of course, that many
workers who mght not be nsured under the ct at any one tme woud ater
obtan protecton by shftng nto nsured occupatons. It was generay sup-
posed, however, that the group so shftng woud be sma compared wth the
r eat mass of workers, who, throughout ther workng fe, woud reman contnu-
ousy ether n the nsured category or n the unnsured category.
Operaton of the ct shows that the e tent of mgraton, temporary or perma-
nent, from unnsured to nsured empoyment s far greater than was assumed by
the Presdent s Commttee on conomc Securty n 19(55. s a consequence of
he mgraton, a much arger proporton of the tota popuaton of the Unted
States w quafy under the contrbutory system for od-age benefts than had
|een e pected.
The most mportant e cuded groups are agrcutura abor, domestc servce,
nd certan nonproft organzatons here the commttee decded unanmousy
:hat t woud be unwse to remove the e emptons from these three groups at
the present tme. The present b does, however, e tend od-age nsurance
coverage to some 1,100,000 more workers by removng the e empton of martme
mpoyment, wages earned after 65, and certan edera nstrumentates such
1 natona banks and State banks whch are members of the edera Reserve
System.
In order to emnate the nusance of nconsequenta ta payments the b
: cudes certan servces performed for fraterna beneft socetes and other non-
proft nsttutons e empt from ncome ta , and certan other groups. Whe
the earnngs of a substanta number of persons are e cuded by ths recom-
mendaton, the tota amount of earnngs nvoved s undoubtedy very sma.
So estmate s avaabe of the number of persons or amount of earnngs so
s cuded. The Intent of the amendment s to e cude those persons and those
rganzatons n whch the empoyment s part-tme or ntermttent and the
:ota amount of earnngs s ony nomna, and the payment of the ta s n-
consequenta and a nusance. The beneft rghts but up are aso nconse-
uenta. Many of those affected, such as students and the secretares of
edges, w have other empoyment whch w enabe them to deveop nsurance
|enefts. Ths amendment, therefore, shoud smpfy the admnstraton for
he worker, the empoyer, and the Government
Seven other coverage amendments are proposed. They are as foows:
1. grcutura abor. The present ct e cudes agrcutura abor from
:overage. The b contnues the e empton of agrcutura abor and defnes
e term so as to carfy ts meanng and to e tend the meanng to certan serv-
ces whch are an ntegra part of farmng actvtes. These provsons are e -
paned n deta n a subsequent part of ths report, n connecton wth the
efnton of agrcutura abor as defned n secton 209(1) of the b.
2. cuson of payments to empoyer wefare pans. The term wages s
mended so as to e cude from ta payments made by an empoyer on account
)f a retrement, sckness, or accdent dsabty pan, or for medca and hos-
ptazaton e penses n connecton wth sckness or accdent dsabty. Ds-
nssa wages whch the empoyer s not egay requred to make, and payments
y an empoyer of the worker s edera nsurance contrbutons or a contrbuton
equred of the worker under a State unempoyment-compensaton aw are aso
cuded from ta . Ths w save empoyers tme and money but what s more
mportant Is that t w emnate any reuctance on the part of the empoyer
o estabsh such pans due to the addtona ta cost.
3. Defnton of empoyee. The b ncudes a defnton of the term em-
doyee desgned to cover saesmen not aready covered by the ct.
4. State empoyment. The e empton reatng to empoyment by State Instru-
nentates s so defned as to appy ony to an nstrumentaty whoy owned
y the State or potca subdvson, or ta e empt under the Consttuton.
6. oregn governments. Provson s made for the e empton of foregn
governments, and ther nstrumentates under certan condtons, from the od-
ge Insurance ta es.
. amy empoyment. Servce performed by an ndvdua for hs son,
aughter, wfe, or husband, and servce by a chd under 21 for hs parent, a
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Msc.)
544
e cuded so as to moke the od-age nsurance coverage dentca n ths respect
wth unempoyment compensaton coverage.
7. Incuded and e cuded servces. The aw s changed wth respect to sen-
ces of an empoyee performng both ncuded and e cuded empoyment for tbs
same empoyer so that the servces whch predomnate n a pay perod deter-
mne hs status wth that empoyer for that perod.
DMINIST TI C NG S.
1. provson s ncuded requrng empoyers to furnsh empoyees a state-
ment, whch they may retan, showng the amount of ta es deducted from ther
wages under the od-age nsurance system.
2. Provson s made for makng more equtabe the recovery by the edera
Government of ncorrect payments to ndvduas.
3. Provson s made respectng the practce of attorneys and agents before be
oard.
4. Detaed provsons have been added reatng to rues and reguatons, bear-
ngs, and decsons wth respect to nsurance benefts, procedure for |udca
revew of the oard s decsons, and deegaton of authorty by the oard.
5. Provson s made for gvng an opportunty for a hearng to a wage earner
or nterested ndvdua wth respect to any entry, omsson, or revson of te
oard s wage record wthn four years after the year any wages were pad a
aeged to be pad, and as to the fnaty of the record.
6. Subchapter , Chapter 9, of the Interna Revenue Code (formery Tte Tn
of the Soca Securty ct) Is gven the short tte edera Insurance Contrte
tons ct

OT R UN MPLOYM NT COMP NS TION C NG S.
Under the proposed State-wde reducton pan, descrbed above, empo|en
woud st be aowed to obtan ther fu 90 per cent credt aganst the edera
pay-ro ta . The edera ta woud reman at 3 per cent, but addtona credts
woud be provded for a empoyers In States whch were In a poston to reduce
ther contrbuton rates beow 2.7 per cent
Ths State-wde reducton pan woud not ater present ndvdua e perence
ratng provsons. The States whch coud make genera ta reductons after
budng up the necessary reserve fund and rasng ther mnmum beneft stand-
ards, mght st aow further contrbuton reductons to ndvdua empoy
wth favorabe empoyment e perence. States whch dd not meet the new nn-
mnm beneft stnndards or whose reserve fund was nadequate, coud contn
under ther present aws, wth or wthout ndvdua empoyer e perence rats
systems, provded they mantaned contrbuton rates, producng a tota amonr
equa to 2.7 per cent of the ta abe pay ros. The b provdes that the prov-
sons wth respect to mantenance of the average 2.7 per cent w not 2
effect unt anuary 1,1942, wth respect to a pooed fund or to a partay poo
account or to a separate reserve account Those States whch do not wsh to take
advantage of the horzonta reducton pan but wsh to mantan the ndWd 1
empoyer e perence ratng system woud do so wthout havng to make at
egsatve changes at ths tme.
urther savng to empoyers woud be effected by the proposed amend t
grantng reef to empoyers who pad ther State unempoyment-compensat
contrbutons for the years 1936, 1937, and 193 too ate to quafy for t
edera credt. mpoyers who pay ther denquent ta es for these years
before the s teth day after the enactment of these amendments woud rece
fu credt aganst ther edera ta es for 1936, 1937, and 193a Ths woud
amount to an aggregate sum of about 15,000,000. urther the provsons ts to
oss of credt on account of future denquency woud be rea ed by (1) ncreas-
ng from 60 to 90 days the ma mum perod for whch the Commssoner of
Interna Revenue Is permtted to grant an e tenson for the fng of eders
ta returns, and (2) by provdng that empoyers who pay ther ta es after
anuary 31 but before uy 1 ne t foowng the cose of the ta abe
woud ose ony 10 per cent of ther aowabe credt.
nother of the amendments woud resut In a savng to empoyers as we as
In consderabe smpfcaton of reportng procedures. Ths s the amende 51
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545
Msc.
to mt unempoyment-compensaton ta es to the frst 3,000 of annua wages.
Such a mtaton aready e sts n the case of od-age nsurance and there are
dstnct advantages to provdng a unform ta base for both programs. It s
estmated that ths new mtaton woud resut In a savng to empoyers of
about 05,000,000 a year.
gan n the nterests of smpfcaton and unform reportng, the present
b proposes to change the ta base for unempoyment compensaton from
wages payabe to the wages pad defnton used In od-age nsurance.
Many of the same changes n coverage are provded n ths b wth respect
to unempoyment compensaton as have aready been dscussed under od-age
nsurance. The cases nvovng ta es of sma consequence, whch woud be
e empt under od-age nsurance, woud aso be e empt from the edera Unem-
poyment Ta ct. The agrcutura-abor e empton Is defned and e tended as
n od-age nsurance. The b proposes to e tend coverage to one of the groups
now e cuded, namey, empoyees of certan edera Instrumentates such as
natona banks, and State bank members of the edera Reserve System. Ths
amendment woud brng about 200.000 addtona persons under the unempoy-
ment-compensaton program, provded the States amend ther aws accordngy.
Provson s made n secton 902(h) of the b grantng reef to ta payers
and States n those cases n whch the hghest court of a State has hed con-
trbutons pad under the State unempoyment compensaton aw for 1936 or
1937 not to have been vady requred under such aw. Ths provson s to
take care of the stuaton n North Carona where the State supreme court
recenty hed that the provsons of the State aw requrng contrbutons for
193G were nvad because they were retroactve. The effect of the proposed
amendment s to enabe North Carona to keep about 3,000,000 In ts reserve
fund for use n the payment of unempoyment compensaton benefts.
Other changes affectng unempoyment compensaton are:
1. uthorzaton s gven to the States to make ther unempoyment-compensa-
ton aws appcabe to servces performed on aud or premses owned, hed, or
possessed by the Unted States Government, such as servces performed as
empoyees of hotes n natona parks. Congress has aready enacted a statute
gvng the States authorty to appy ther workmen s compensaton aws to
such empoyees.
2. The anguage e cudng State Instrumentates Is defned as n od-age
Insurance so that the e empton appes ony to an nstrumentaty whoy
owned by the State or potca subdvson, as we as those e empt from ta
under the Consttuton.
. s n od-age nsurance, the defnton of wages s amended so as to
e cude from ta the payments made by an empoyer on account of a retre-
ment, sckness, or accdent dsabty pan, or for medca or hosptazaton
e pense n connecton wth sckness or accdent dsabty. Dsmssa wages,
whch the empoyer s not egay requred to pay, and payments by an em-
poyer of the worker s edera nsurance contrbutons, or a contrbuton re-
qured of the worker under a State unempoyment-compensaton aw are aso
e cuded from ta .
4. Provson s made, as n od-age nsurance, for the e empton of foregn
governments and ther Instrumentates from the unempoyment-compensaton
ta .
5. The aw s changed wth respect to servces of an empoyee performng both
ncuded and e cuded empoyment for the same empoyer so that the servces
whch predomnate n a pay perod determne hs status wth that empoyer for
the perod. The same provson s made n connecton wth od-age Insurance.
6. The mert ratng or ndvdua empoyer e perence ratng provsons
are carfed.
7. provson has been Inserted requrng the State aws to provde for the
e pendture of edera grants for the admnstraton of ther unempoyment
compensaton aws n accordance wth the edera ct and requrng the re-
pacement of any moneys ost or e pended for other purposes.
. tenson of tme s gven for the aowance of credt aganst the edera
ta n cases where the empoyer has pad hs State ta on tme but has pad t to
the wrong State.
9. The tme s aso e tended n those cases where ta payer s assets are n the
custody or contro of a recever, trustee, or other fducary under the contro of
a court.
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546
10. Te ta on empoyers of eght or more now contaned n Subchapter C
of Chapter 9 of the Interna Revenue Code (formery Tte I of the Sot
Securty ct) s gven the short tte edera Unempoyment Ta ct.

Genera.
Two amendments of a genera character have been recommended by the ma
mttee. These are:
1. n amendment to prohbt the dscosure of nformaton obtaned by tb
otrd or ts empoyees e cept under certan restrcted condtons reated :o
proper admnstraton.
2. Penates are provded for certan frauds and for mpersonaton n securng
nformaton concernng an ndvdua s date of brth, empoyment, wages, or
bcnets of any Indvdua.
D T IL D PL N TION O T TLL
Shout Ttus.
Secton 1 of the b provdes that the ct may be cted as the Soca Seeur|
ct mendments of 1939.

Tte I mendments to the Interna It eveny Code.
D R L INSUR NC CONTRI UTIONS CT.
T S UND R S CTIONS 1400 ND 1410 O T INT RN L R NU COD ( OMIOLT
S CTIONS 01 ND 04 OT T SOCI L S CURITY CT .
Sectons 601 and 604: Under the e stng provsons of sectons 1400 sd
1410 of the Interna Revenue Code (formery sectons 01 and 04, respectvey
of the Soca Securty ct) the rate of ta on empoyees and the rate of ta
on empoyers are each schedued to ncrease on anuary 1, 1940, from 1 per
cent of the wages to I per cent, wth a further Increase of per cent at tbe
e praton of succeedng 3-year perods unt the ma mum rate of 3 per c :
on empoyees and 3 per cent on empoyers s reached n 1949. Under the
amendment the ncrease schedued for anuary 1, 1940, woud be emnate
and the rate of each ta woud be as foows:
Per cet
or the caendar years 1939, 1940, 1941, and 1042 1
or the caendar years 1943, 1944, and 1945
or the caendar years 1946, 1947, and 194 W
or the caendar year 1949 and subsequent caendar years 3
further change Is made by ths amendment Sectons 1400 and 1410 of
the Interna Revenue Code now provde that the rate of ta appcabe to wage)
s the rate n effect at the tme of the performance of the servces for whr
the wages are pad. Ths w unnecessary compcate the makng of returns
and the coecton of the ta es n ater years when the rate of ta has been
ncreased. or e ampe, n 1943 the rate of ta Increases from 1 per cent to
2 per cent. Thus, wages whch are pad n 1943 for servces performed a
1942 w be sub|ect to the 1 per cent rate, whe wages pad n 1943 for serv-
ces performed n that year w be sub|ect to the 2 per cent rate. Protsta
must therefore be made n the return for 1943 for the reportng of wages sub-
|ect to the dfferent rates, and, n audtng the returns, t w be necessary to
ascertan not merey the tme when the wages were pad and receved, but as
the year of the rendton of the servces for whch the wages are pad. If em-
poyers have faed to make the proper dstncton, many refunds and add-
tona assessments w doubtess be necessary and confuson w resut. Co-
der the- amendment the rate appcabe woud be the rate n effect at the tn
that the wages are pad and receved wthout reference to the rate whch w
In effect at the tme the servces were performed.
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D USTM NTS O O RP YM NT ND UND RP YM NT O MPLOY S T .
Secton 602: Present secton 1401(c) of the Interna Revenue Code (formery
secton 02(b) of the Soca Securty ct) s desgned to permt the empoyer
to ad|ust, wthout nterest, overpayments and underpayments of empoyees ta
wthout the necessty n the former case of requrng the fng of a cam for
refund and n the atter case of the makng of a demand by the coector for
the addtona ta . The e stng provsons of the secton requre that the
ad|ustment be made n connecton wth subsequent wage payments. The dffer-
ent types of stuatons obtanng at the tme the error s dscovered and shoud
be corrected are numerous. or e ampe, the empoyee may be contnuousy
empoyed and recevng remuneraton at reguar ntervas, or he may be entted
to no remuneraton for some tme to come, or f he s entted to remuneraton,
t may not be ta abe because hs servce s rendered temporary, or for an
ndefnte tme, n a foregn country, or because he has aready receved 3,000
from the empoyer for servces rendered durng the caendar year, the ma mum
ta abe remuneraton under secton 1420(a) of the Interna Revenue Code
(formery secton 11(a) of the Soca Securty ct), or the empoyee s connec-
ton wth the empoyer who made the error may have been severed. More-
over, undercoectons requre a procedure dfferent from that n the case of
overcoectons. The use of the term wage payments causes dffcuty snce
the term wages has a restrcted meanng for the purpose of ths tn .
urthermore, t may prove desrabe n certan crcumstances to provde for
ad|ustments at tmes other than n connecton wth subsequent payments of
remuneraton to the ndvdua. Ths amendment, by use of the word remuner-
aton nstead of wage and by eavng the manner and tme of the ad|ust-
ment to be prescrbed by reguatons, w enabe the admnstratve offcers to
meet the vared stuatons whch arse.
R C IPTS O MPLOY S.
Secton 603: Ts sect on amends Subchapter of Chapter 9 of the Interna
Revenue Code (formery Tte III of the Soca Securty ct) by nsertng a
new secton n such subchapter. Subsecton (a) of the new secton requres
every empoyer to furnsh each empoyee wth a wrtten statement or state-
ments, n a form sutabe for retenton by the empoyee, showng the ta abe
wages pad to the empoyee after December 31, 1939, for servces rendered n hs
empoy, and the amount of tn mposed by secton 1400 wth respect to such
wages. In addton, the names of the empoyer and empoyee, and the perod
covered by the statement, are to be shown. ach statement, or recept, must
cover one or more, but not more than four, caendar quarters. Under e stng
Treasury reguatons the empoyer s requred to fe a return for each caendar
quarter wth the coector of nterna revenue, showng the amount of wages
pad to each empoyee. y requrng the recepts to cover one or more caendar
quarters, the empoyer s enabed, n makng out such recepts, to use the
amounts of wages of each empoyee as shown on the copes of the quartery
returns whch the empoyer retans. Returus, under e stng Treasury regua-
tons, must be fed wth the coector wthn the caendar month foowng the
cose of the quarter. The secton gves empoyers an addtona month wthn
whch to furnsh ther empoyees wth the recepts. owever, when an empoyee
eaves the empoy of the empoyer, the fna recept, coverng the perod from
the termnaton of the perod covered by the ast precedng recept furnshed
the empoyee, s to be gven the empoyee when the fna payment of wages s
made to hm. If the empoyer chooses, he may under the secton furnsh a
recept to an empoyee at the tme of each payment of wages durng a caendar
quarter, n eu of coverng In a snge recept the tota wages pad to the
empoyee durng such quarter.
Subsecton (b) provdes that any empoyer who wfuy fas to furnsh a
statement to an empoyee n the manner, at the tme, and showng the nforma-
ton, requred under subsecton (a), sha for each such faure be sub|ect to a
cv penaty of not more than 5.
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54
T S ITND S CTION 1410 O T INT RN L NtT COD ( O M LT S CTTO M
O T SOCI L S CU ITY CT).
Secton 604: See secton 601, supra.
D USTM NT O MPLOY RS T .
Secton 605: The amendment made by ths secton to secton 1411 of the Inter-
na Revenue Code (formery secton 05 of the Soca Securty ct), reatng t
ad|ustments of empoyers ta , s ntended to accompsh the same purpose u
the correspondng amendment to secton 1401(c) of the Code, reatng to ad|ust-
ments of empoyees ta . See secton 602, supra.
D INITIONS.
Secton G06: Ths secton, effectve anuary 1, 1940, amends secton 1426 of
the Interna Revenue Code, contanng defntons appcabe n the case of th
od-age nsurance ta es.
Defnton of wages. Secton 1420(a) : Ths subsecton contnues the present
defnton of wages, but e cudes certan payments heretofore ncuded. Para-
gruph (2) e cudes a payments made by the empoyer to or on behaf of a
empoyee or former empoyee, under a pan or system provdng for retrement
benets (ncudng pensons), or dsabty benefts (ncudng medca and hos-
ptazaton e penses), but not fe nsurance. These payments w be e cuded
even though the amount or possbty of such payments s taken nto consdera-
ton n f ng the amount of remuneraton and even though such payments ant
requred, ether e pressy or mpedy, by the contract of empoyment. Sne
t s the practce of some empoyers to provde for such payments through nsur-
ance or the estabshment and mantenance of funds for the purpose, the pre-
mums or nsurance payments and the payments made nto or out of any fund
w kewse be e cuded from wages. Paragraph (3) e pressy e cudes from
wages the payment by an empoyer (wthout deducton from the remunera-
ton of, or other rembursement from, the empoyee) of the empoyee s ta m-
posed by secton 1400 of the Interna Revenue Code (formery secton 01 of the
Soca Securty ct) and empoyee contrbutons under State unempoyment
compensaton aws. Paragraph (4) e cudes dsmssa payments whch the em-
poyer s not egay obgated to make.
Defnton of empoyment. Secton 1426(b) : Ths term s defned to mean any
servce performed pror to anuary 1, 1940, whch consttuted empoyment as
defned n ths secton pror to such date and to mean any servce performed
after December 31, 1939, by an empoyee for the person empoyng hm. rrespec-
tve of the ctzenshp or resdence of ether, ( ) wthn the Unted States or ( )
on or n connecton wth an mercan vesse (defned n subsecton (h) ) under
a contract of servce entered nto wthn the Unted States or durng the per-
formance of whch the vesse touches a port theren, f the empoyee s empoyed
on and n connecton wth the vesse when outsde the Unted States. No sub-
stantve change n e stng aw s effected by the ntroductory paragraph of ths
provson e cept the e tenson of the defnton to ncude servce on mercan
vesses. Ths e tenson s desgned to ncude, wth the quafcatons noted, a
servce whch s attached to or connected wth the vesse (e. g., servce by offcers
and members of the crew and other empoyees such as those of concessonares).
Indvduas who are passengers on the vesse n the generay accepted sense, sacs
as an empoyee of an mercan department store gong abroad, w not be n-
cuded because such servce has no connecton wth the vesse. Servce per
formed on or n connecton wth an mercan vesse wthn the Unted States
w be on the same bass as regards ncuson as other servce performed wthn
the Unted States.
Under e stng aw servce performed wthn the Unted States (whch other-
wse consttutes empoyment) Is covered rrespectve of the ctzenshp or res-
dence of the empoyer or empoyee. The amendment makes cear that ths w
be true aso n the case of martme servce covered by the amendment, regard-
ess of wheather performed wthn or wthout the Unted States. The basc
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Mne.
easons whch caused the orgna coverage to be made wthout dstnctons
n account of ctzenshp or resdence appy n the case of seamen. The number
f foregn seamen who may be empoyed on mercan vesses engaged n trade
s mted under our shppng aws.
The defnton of the term empoyment under the amendment, as apped
o servce rendered pror to anuary 1, 1940, retans the e emptons contaned
n the present aw. The defnton appcabe to servce rendered on and after
hat date contnues unchanged some of the present e emptons, revses, others,
,nd adds certan addtona ones.
Paragraph (1) contnues the e cepton of agrcutura abor, but a new sub-
|ecton () defnes the term for purposes of the e cuson.
Paragraph (2) contnues the present e cepton of domestc servce n a
rvate home, but adds to the e cepton such servce n a oca coege cub, or
oca chapter of a coege fraternty or sororty (not ncudng aumn cubs or
bapters). Thus servces of cook, water, chambermad, and the house mother,
erformed for these oca cubs and chapters, are e empt.
Paragraph (3) contnues the present e cepton of casua abor not n te
ourse of the empoyer s trade or busness.
new paragraph (4) e cudes servce performed by an ndvdua n the
empoy of hs son, daughter, or spouse, and servce performed by a chd under
he age of 21 n the empoy of hs parent. Ths e cuson s aready con-
aned n the edera unempoyment ta provsons of the e stng aw. The od
wragraph (4), whch e cuded servce performed by an ndvdua who has at-
aned the age of 65, s repeaed.
Paragraphs (5) to (13), ncusve, are dentca wth the same paragraphs n
ecton 200(b) of the Soca Securty ct. or detaed anayss of such para-
P aphs sec pages 46-40 of ths report. The matera referred to s as foows:
Paragraph (5), whch takes the pace of the e stng e cuson of servce
n documented vesses, e cudes servce performed on or n connecton wth a
vesse not an mercan vesse, f the empoyee s empoyed on and n connecton
cth such vesse when outsde the Unted States. Ths provson e cudes a
ervce, athough performed wthn the Unted States, whch s rendered by an
mpoyee who was renderng servce on and n connecton wth such a vesse
pon ts entry nto the Unted States or who s renderng such servce upon
eparture of the vesse from the Unted States. Thus, offcers and members of
e crew and other empoyees whose servce s rendered both on and n connec-
ton wth the vesse (such as empoyees of concessonares and others whose
tervce s smary connected wth the vesse) when on ts voyage are e cuded
ven though the vesse s wthn the Unted States, f they come nto or go out
)f the Unted States wth the vesse.
Paragraph (6) contnues the e empton of servce performed n the empoy
)f the Unted States but, wth respect to nstrumentates of the Unted States,
mts the e empton to those nstrumentates whch are ( ) whoy owned by
he Unted States or ( ) e empt from the ta Imposed by secton 1410 of the
Interna Revenue Code (formery secton 04 of the Soca Securty ct) by
rtue of any other provson of aw. The change n ths provson brngs wthn
hs tte of the ct certan edera nstrumentates not fang wthn cause
) or ( ), above, such as natona banks.
Paragraph (7) contnues the e empton of servce for State governments,
her subdvsons and nstrumentates, but mts the e empton wth respect to
nstrumentates so that t appes ony to an nstrumentaty whch s whoy
wned by a State or poc subdvson or whch woud be Immune from the
a Imposed by secton 1410 of the Interna Revenue Code (formery secton
04 of the Soca Securty ct) by the Consttuton. The amendment thus nar-
ows the present e empton and n no case broadens t.
Paragraph ( ) contnues the e empton of regous, chartabe, scentfc,
terary, or educatona organzatons, but brngs the anguage of the e empton
nto conformty wth the correspondng e empton from Income ta under sec-
on 101(6) of the Interna Revenue Code, by addng a specfc dsquafyng
cause appcabe where any substanta part of the actvtes of the organzaton
s carryng on propaganda or otherwse attemptng to nfuence egsaton.
Paragraph (9) contnues wthout change the present provsons of aw e -
emptng servces of empoyees covered by the raroad-retrement system. Ths
rovson eaves unchanged the e empton of the servce of an ndvdua In the
empoy of an empoyer sub|ect to the raroad retrement system even though
-be ndvdua receves remuneraton n a form, e. g., tps, not recognzed as
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550
compensaton under the Raroad Retrement ct and Subchapter of Chapter
ft of the Interna Revenue Code (formery the Carrers Ta ng ct of 1937),aad
eaves unchanged the ncuson of servce n case t s performed by an empoys
n the segregabe nonraroad actvtes of an empoyer where segregaton of te
raroad actvtes from nonraroad actvtes s found necessary n the nterpre-
taton and admnstraton of the aws reatng to the soca securty system asd
the raroad retrement system.
Paragraph (10) provdes severa new e cusons from empoyment Can.
( ) e empts certan servce n any caendar quarter performed n the empoy
an organzaton e empt from ncome ta under secton 101 of the Interna Revem
Code, f () the remuneraton for such servce does not e ceed 45 or () wth
regard to amount of remuneraton, f the servce s performed n connecton wth
the coecton of dues or premums (away from the home offce) for a fraterna
benefcary socety, order, or assocaton, or s rtuastc servce (wherever per-
formed) n connecton wth such an organzaton or (), wthout regard s
amount of remuneraton, f the servce s performed by a student enroed am
reguary attendng casses at a schoo, coege, or unversty. Organzatons
e empt from ncome ta and thus wthn ths provson ncude the foowng
Certan abor, agrcutura, and hortcutura organzatons, mutua savngs bank,
fraterna benefcary socetes, budng and oan assocatons, cooperatve bads,
credt unons, cemetery companes, busness eagues, chambers of commerce, rea
estate boards, boards of trade, cvc eagues, oca assocatons of empoyees, sods
cubs, oca benevoent fe nsurance assocatons, mutua rrgaton and teepboa
companes, farmers or other mutua ha, cycone, casuaty, or fre nsurance cc-
panes or assocatons, farmers cooperatve marketng and purchasng ossus-
tons, corporatons organzed to fnance crop operatons, vountary empoye
benefcary assocatons, and regous or apostoc assocatons or corporatons.
Paragraph (10), cause ( ), e cepts servce n the empoy of an agrcutura
or hortcutura organzaton, regardess of the amount of remuneraton. Tbw
organzatons are dentca wth agrcutura and hortcutura organzaton
e empt from ncome ta under secton 101 (1) of the Interna Revenue Code.
Paragraph (10), cause (C), e cepts servce n the empoy of a vountary
empoyees benefcary assocaton, provdng for payment of fe, sck, accdent, or
other benefts to the members of such assocaton or ther dependents, f ()
part of ts net earnngs nures (other than through such payments) to the bene:
of any prvate sharehoder or ndvdua, and () 5 per cent or more of the Is-
come conssts of amounts coected from members for the soe purpose of mate
such payments and meetng e penses. Ths e empton s dentca wth that d
these organzatons under secton 101(16) of the Interna Revenue Code a d
w have the same scope.
Paragraph (10), cause (D), e cepts a servce performed n the empoy of s
vountary empoyees benefcary assocaton provdng for the payment of ft
sck, accdent, or other benefts to the members of such assocaton or ther depeu
euts or desgnated benefcares, f () admsson to membershp n such assoca-
ton s mted to Indvduas who are empoyees of the Unted States Govenuoes .
and () no part of the net earnngs of such assocaton nures (other than throug
such payments) to the beneft of any prvate sharehoder or ndvdua.
Paragraph (10), cause ( ), e cepts servce performed n any caendar quar-
ter n the empoy of a schoo, coege, or unversty, not e empt from ncome ta
f such servce s performed by a student enroed and reguary attendng cass
at such schoo, coege, or unversty, and the remuneraton for such servce d s
not e ceed 45. In determnng the remuneraton, for purposes of the 45 Un
taton, the vaue of room, board, and tuton, If furnshed by the schoo, coege,
unversty as part of the remuneraton, woud be e cuded.
caendar quarter s any perod of three caendar months endng on March 31
une 30, September 30, or December 31.
Paragraph (11) e cepts servce performed n the empoy of a foregn govern
ment, and paragraph (12) smary e cepts, on a bass of recprocty, serra
performed n the empoy of an nstrumentaty whoy owned by a foregn gor-
ernment. These paragraphs are, by secton 902(f) of the b, made retro-
actvey effectve to the date of the enactment of the Soca Securty ct
Paragraph (13) e cepts servce performed as a student nurse n the enrpW
of a hospta or a nurse s tranng schoo by an Indvdua who s enroed and
s reguary attendng casses n such a schoo chartered or approved pursuant
to State aw and servce performed as an nterne (as dstngushed fwn
resdent doctor) n the empoy of a hospta by an ndvdua who has compete
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a four years course n a medca schoo chartered or approved pursuant to State
aw.
Secton 1426(c): Ths subsecton reates to an empoyee who has both ncuded
and e cuded servce for the same empoyer durng a pay perod. It provdes
that f one-haf or more of the servces consttutes ncuded empoyment, a of
such servce w be ncuded but that f ess than one-haf consttutes ncuded
empoyment, a w be e cuded.
The provson does not appy to the servce of an empoyee In a pay perod f
any of the servce of the empoyee n the pay perod s covered under Subchapter
of Chapter 9 of the Interna Revenue Code (formery the Carrers Ta ng ct
of 1937).
Defnton of empoyee. Secton 1426(d) : Ths defnton s dentca wth the
defnton n secton 1101(a)6 of the Soca Securty ct, whch s appcabe
to Tte II (see secton 01 of the b). The amendment to the defnton reates
to saesmen. In some nstances where remuneraton s by way of commsson
and the servces are performed away from the pace of busness of the person
for whom they are performed, the ndvdua performng the servces s hed to
be an empoyee, whe n others he s hed not to be an empoyee. restrcted
vew of the empoyer-empoyee reatonshp shoud not be taken n the admns-
traton of the edera od-age and survvors nsurance system n makng cover-
age determnatons. The tests for determnng the reatonshp ad down n
cases reatng to tort abty and to the common-aw concept of master and
servant shoud not be narrowy apped. In certan cases even the most bera
vew as to the e stence of the empoyer-empoyee reatonshp w fa short of
coverng ndvduas who shoud be covered, for e ampe, certan casses of saes-
men. In the case of saesmen, t s thought desrabe to e tend coverage even
where a of the usua eements of the empoyer-empoyee reatonshp are
whoy ackng and where accordngy even under the bera appcaton of the
aw the court woud not ordnary fnd the e stence of the master-and-servant
reatonshp. It s the ntenton of ths amendment to set up specfc standards
so that ndvduas performng servces as saesmen may be unformy covered
wthout the necessty of appyng any of the usua tests as to the reatonshp of
empoyer and empoyee.
saesman n busness as a broker or factor s e cuded f the servces are
performed as part of such busness, and, n furtherance of such busness, smar
servces are erformed for other persons and one or more empoyees of such
saesman perform a substanta part of such servces and an ndvdua whose
servces as a saesman are casua servces, not n the course of such ndvdua s
prncpa trade, busness, or occupaton, s not ncuded n the defnton.
Ths defnton s not ntended to affect the empoyer-empoyee status of a
saesman and the empoyee of such saesman. Thus, the busness chauffeur who
has been an empoyee of a saesman w reman soey the empoyee of such
saesman.
Defnton of empoyer. Secton 1426(e) : Ths new defnton s for the pur-
pose of makng cear that the e tenson of the broadened empoyee concept aso
broadens the empoyer concept. Thus, where a saesman s hed to be an
empoyee, the person for whom the saesman performs the servces s the
empoyer. or e ampe, an nsurance soctor who e ecutes a contract wth
an nsurance company under whch he performs servces as a saesman woud
be the empoyee of the nsurance company and not of the genera agent of the
company.
Secton 1426 (f) and (g), defnng the terms State and person, respec-
tvey, makes no change n the e stng defntons of those terms.
Defntons of mercan vesse and agrcutura abor. Subsectons (h) and
() of secton 1426 are dentca wth subsectons (d) and (1) of secton 209 of
the Soca Securty ct. or detaed anayss of such subsectons see pages 49
and 51 of ths report. The matera referred to s as foows:
Defnton of mercan vesse. Secton 209(d): Ths term s defned to
mean any vesse documented or numbered under the aws of the Unted States
and aso to ncude any vesse nether so documented nor numbered nor docu-
mented under the aws of any foregn country whe the crew s n the empoy
ony of ctzens or resdents of the Unted States or corporatons organzed under
the aws of the Unted States or of any State.

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Defnton of agrcutura abor. Secton 209(1) : The present aw e empts
agrcutura abor wthout defnng the term. It has been dffcut to demt
the appcaton of the term wth the certanty requred for admnstraton and
for genera understandng by empoyers and empoyees affected.
Your commttee beeves that greater e actness shoud be gven to tb
e cepton and that t shoud be broadened to Incude as agrcutura abor
certan servces not at present e empt, as such servces are an ntegra part of
farmng actvtes. In the case of many of such servces, t has been found tba
the ncdence of the ta es fas e cusvey upon the farmer, a factor whch, n
numerous nstances, has resuted n the estabshment of compettve advantages
on the part of arge farm operators to the detrment of the smaer ones.
Paragraph (1) of ths subsecton e empts servce performed on a farm, a
the empoy of any person, n connecton wth cutvatng the so, or n eonwe-
ton wth rasng or harvestng any agrcutura or hortcutura commodty, n-
cudng the rasng, feedng, and management of ve stock, bees, poutry, acd
fur-bearng anmas. Such servces are e empt under e stng aw ony t
performed n the empoy of the owner or tenant of the farm on whch they art
rendered. Servces performed on a farm n connecton wth the rasng, feed-
ng, and management of fur-bcarng anmas, such as fo es, not now e empted
w be e empt under paragraph (1). Ths paragraph aso contnues the e st-
ng e cuson of servces performed on a farm n the rasng or harvestng r|
hortcutura commodtes, ncudng fowers and nursery products, such as
young frut trees, ornamenta pants, and shrubs.
Paragraph (2) of the subsecton e cepts servces n the empoy of the owr
(whether or not such owner s n possesson) or tenant of a farm In counectea
wth the operaton, management, or mantenance of such farm, f the ma|or part
of those servces are performed on a farm. Under ths anguage certan serrfs
are to be regarded as agrcutura even though they are uot performed n (-n-
ductng any of the operatons referred to n paragraph (1). Servces perforate
In connecton wth the operaton, management, or mantenance of a torn
may Incude, for e ampe, servces performed by carpenters, panters, fane
supervsors, rrgaton engneers, bookkeepers, and other sked or semsked
workers whose servces contrbute In any way to the proper conduct of the
farm or farms operated by ther empoyer. Some of these servces at presest
consttute covered empoyment under some crcumstances but not under other
crcumstances. It s stpuated that the servces referred to n ths paragra
must be performed n the empoy of the owner or tenant of the farm so that
the e empton w not e tend to servces performed by such persons as em-
poyees of a commerca pantng concern, for e umpe, whch contracts wth
farmer to renovate hs farm propertes.
Paragraph (3) e tends the e cepton to servces performed In connecton
wth certan specfed products and operatons. Ordnary these servces are
performed on a farm or are of such a character as to warrant no dfferent treat
ment than s accorded servces performed n connecton wth farmng actvtes.
In order that a unform rue may be apped n the case of these servces, they
w be e cepted whether or not performed on a farm or n the empoy of
the owner or tenant of a farm. In the case of mape sap, the e empton m
e tend to servces In connecton wth the processng of the sap Into mape sngu
or mape srup, but not In the subsequent bendng or other processng of such
sugar or srup wth other products. Under the present e cepton servces per-
formed In connecton wth the producton of mape srup or mape sugar do not
consttute agrcutura abor. Smary, the e stng e cepton does not
e tend to servces performed In connecton wth the growng, harvestng
processng, packng, and transportng to market of oeorestn, gum sprts of tur-
pentne, and gum resn. Under ths paragraph, however, the e cepton w
appy to servces performed n connecton wth the producton or harvestng of
crude gum (oeoresn) from a vng tree and of the foowng products as prof-
essed ony by the orgna producer of the crude gum (oeoresn): Gum sprts
of turpentne and gum resn, as defned In the grcutura Marketng ct,
amended. Servces performed n connecton wth any hatchng of poutry and
n connecton wth the gnnng of cotton w aso be e cepted. Servces per-
formed n connecton wth the rasng or harvestng of mushrooms consttute
agrcutura abor under e stng aw, ony when performed on a farm. The
fact that mushrooms are not usuay grown under ordnary fed condtons bat
are grown n cears, caves, barns, or n sheds specay constructed for
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purpose has resuted n the empoyees of some growers beng covered whe em-
poyees of others are not. Under ths paragraph a such servces w be
e cepted.
Paragraph (4) of the subsecton e tends the e empton to servce (though
not performed n the empoy of the owner or tenant of a farm) performed n the
handng, freezng, gradng, storng, or deverng to storage or to market or to a
carrer for transportaton to market, any agrcutura or hortcutura commodty,
provded such servce s performed as an ncdent to ordnary farmng operatons
or, n the case of fruts and vegetabes, as an ncdent to the preparaton of such
fruts or vegetabes for market. The provsons of the paragraph, however, do
not e tend to servces performed n connecton wth commerca cannng or com-
merca freezng, nor to servces performed n connecton wth any agrcutura
or hortcutura commodty after ts devery to a termna market for dstrbuton
for consumpton. The e presson as an ncdent to ordnary farmng opera-
tons s, n genera, ntended to cover a servces of the character descrbed n
the paragraph whch are ordnary performed by the empoyees of a farmer or
by empoyees of a farmers cooperatve organzaton or group, as a prerequste
to the marketng. In ts unmanufactured state, of any agrcutura or hortcutura
commodty produced by such farmer or by the members of such organzaton or
group. The e presson aso ncudes the devery of such commodty to the pace
where, In the ordnary and natura course of the partcuar knd of farmng
operatons nvoved, the commodty accumuates n storage for dstrbuton nto
the usua channes of commerce and consumpton. To the e tent that such
farmers, organzatons, or groups engage n the handng, etc., of commodtes
other than those of ther own producton or that of ther members, such handng,
etc., s not regarded as beng carred on as an Incdent to ordnary farmng
operatons. In such a case the rues set forth n subsecton (c) of ths secton
appy.
In the case of fruts and vegetabes, however, whether or not of a pershabe
nature, servces performed In the handng, dryng, packng, etc., of those com-
modtes consttute agrcutura abor even though not performed as an Inc-
dent to ordnary farmng operatons, provded they are rendered as an ncdent
to the preparaton of such fruts or vegetabes for market. Under ths porton
of the paragraph, for e ampe, servces performed n the sortng or gradng of
ctrus fruts or n the ceanng of beans, as an Incdent to ther preparaton for
market, w be e cepted Irrespectve of whether performed n the empoy of
a fanner, a farmers cooperatve, or a commerca hander of such commodtes.
Snce the servces referred to n ths paragraph must be rendered n the actua
handng, dryng, etc., of the commodty, the paragraph does not e empt servces
performed by stenographers, bookkeepers, cerks, and other offce empoyees n
the empoy of farmers, farmers cooperatve organzatons or groups, or com-
merca handers. To the e tent that servces of ths character are performed n
the empoy of the owner or tenant of a farm, however, and are rendered In ma|or
part on a farm, they may be e empt under the provsons of paragraph (2).
The ast sentence of the subsecton makes t cear that the term farm as
used In ths subsecton has a broad and comprehensve meanng. The term, for
e ampe, ncudes fur-bearng anma farms. Under present aw, servces per-
formed n connecton wth the operaton of such farms consttute covered em-
poyment. The term aso Incudes greenhouses or other smar structures
used prmary for the rasng of agrcutura or hortcutura commodtes, re-
gardess of ther ocaton. Under the e stng e cepton, abor performed n
some greenhouses s e cepted whe abor In others Is not. The Incuson of
greenhouses of the knd specfed, wthn the meanng of the term farm, w
make for a more unform treatment of greenhouse abor and essen the admn-
stratve dffcutes whch ths cass of cases presents. Greenhouses used pr-
mary for purposes such as storage or dspay purposes or for the fabrcaton
of wreaths and corsages (usuay In connecton wth the operaton of a reta
estabshment) do not, of course, come wthn the e cepton.
S ORT TITL .
Secton 607: Ths secton Inserts a new secton In Subchapter of Chapter
9 of the Interna Revenue Code whch provdes that the subchapter may be
cted as the edera Insurance Contrbutons ct.
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554
eoerat. Unempoyment Ta ct.
ta es under secton 1000 of the nterna revenue code (formery becto ( .
of the soca securty act).
Secton 60 : Ths amendment changes the bass for determnng ta abty
nnder Subchapter C of Chapter 9 of the Interna Revenue Code (formery Tte
I of the Soca Securty ct) from wages payabe to wages pad. That
subchapter Is thus brought Into conformty wth Subchapter of Chapter 9
(formery Tte III of the Soca Securty ct), whch aso mposes a ta co
wages pad. Wages, for the purpose of these ta es, are consdered pad whec
they are actuay pad, or when they are constructvey pad, . e., credted to
the account of, or set apart for, the wage earner so that they may be drac
upon by hm at any tme athough not then actuay reduced to possesson.
Under the e stng aw wages are payabe wth respect to empoyment
durng a caendar year, even though the amount of wages s not f ed and no
rght e sts to enforce payment at any tme durng that year. Thus a bonus pad
n 1939 for servces performed n 193 consttutes wages payabe for ISS
even though the amount of the bonus may not have been known n 193 am
no obgaton to pay t e sted n that year.
In cases n whch remuneraton for servces of an empoyee n a partcuar
year s based on a percentage of profts, or on future royates, the amount e
whch can not be determned unt ong after the cose of the year, the empoyer
has been requred to estmate unascertaned amounts and pay ta es and contr
butous on that bass. If he has overestmated, subsequent correctons on tb(
return must be made wth consequent refunds. If the empoyer has underest-
mated, addtona ta es may become due and he may aso be compeed to pa|
addtona State contrbutons, whch are usuay not aowabe as credt beans
not tmey pad. The attendant dffcutes and confuson cause a burden m
empoyers and admnstratve authortes ake. The pacng of ths ta on tb
wages pad bass w reeve ths stuaton.
Wth both the od-age Insurance ta and the unempoyment-compensaton t
on the wages pad bass, the keepng of records by empoyers w be empfM
The new bass of ta aton w appy to a wages for servces rendered after
the begnnng of 1939. In so far as the amendment woud be retroactve wt
respect to the year 1939, t woud not ncrease the ta abty of any ta payer.
CR DIT G INST T .
Secton 609: Ths secton reates ony to the ta wth respect to erte
rendered n 1939 and thereafter.
Contrbutons to State unempoyment - fund . Secton 1601(a): The preset
secton 1001(a) of the Interna Revenue Code (formery secton 902 of tbe
Soca Securty ct) provdes that a ta payer may credt aganst tbe edera
ta ony contrbutons pad by hm under a State aw wth respect to empoy-
ment, as defned n secton 1607 of the Code (formery secton 907 of the ct).
Snce the defnton of empoyment In secton 1607 restrcts the meanng of the
term to certan types of servce, the ta payer s not gven credt for contr
tons made under a State aw wth respect to servces not covered by the edera
aw. Subdvson (1) emnates the references n e stng aw to empoy-
ment, thus aowng tbe ta payer to credt aganst the ta the contrbuton
whch he s requred to pay, and whch he actuay pays, under a State a
The amendment aso ncudes a requrement that credt sha be aowed op|
for contrbutons to an unempoyment fund whch has been mantaned durW
the ta abe year as specfed n the amendment to secton 1607(f) of the Interna
Revenue Code. (See secton 614, nfra.)
Subdvson (2) provdes that credt sha be permtted aganst the ta for
the ta abe year ony for the amount of contrbutons pad wth respect to and
year. Ths effects no substantve change n the present aw.
Subdvson (3) berazes e stng aw by gvng empoyers more tme wt
whch to pay ther contrbutons to the State and secure credt therefor aga a
the edera ta . Under e stng aw credt Is aowabe ony for contrbuton
wth respect to the ta abe year pad to the State before the due date of t
edera return for such year. The amendment permts fu credt for contrbo-
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tons pad on (as we as before) the doe date. The amendment further permts
a credt for contrbutons pad after the due date of the edera return but on or
before une 30 ne t foowng the due date, but ths credt Is not to e ceed 90
per cent of the amount whch woud have been aowabe as credt on account of
such contrbutons f they had been pad on or before the due date. or e am-
pe, f an empoyer s gross abty for edera ta at the 3 per cent rate Is
100, and hs abty for the same year for State contrbutons s aso 100, and
he pad such contrbutons on or before the due date of the edera return, he
woud be entted to the ma mum credt (under the mtaton provded n
secton 1601(c)) of 90 per cent of the edera ta , or 90, and hs net edera
ta woud be 10. If, however, the empoyer pad the 100 n contrbutons after
the due date but not ater than une 30 ne t foowng, bs credt woud he 90
per cent of 90, or 1, and hs net edera ta woud be 19. No credt s
aowabe for contrbutons pad after une 30.
Thus, substanta reef s gven empoyers for 1939 and future years. Your
commttee s of the opnon that further berazaton of the condtons under
whch ths credt woud be aowabe mght endanger the ordery functonng of
the system. It s desrabe not to remove the ad provded n e stng aw to
the State unempoyment-compensaton systems whch has been secured through
the nducement to empoyers to pay ther State contrbutons prompty. ur-
thermore, any change shoud be avoded whch woud mpede the audt of the
edera returns or deay fna determnaton of the ta payer s abty beyond
a reasonabe tme after the returns are fed. In proposng ths amendment
consderaton has been gven these factors as we as to the need for beraza-
ton n favor of the ta payers.
Certan e ceptons to the foregong genera rue are made In the amendment,
however, to meet cases of genune hardshp
Subdvson (3) removes the tme mtaton for payment of State contrbu-
tons n those cases where the assets of the ta payer are n the custody or contro
of a court at any tme begnnng wth the due date and endng wth the ne t
foowng une 30, both dates ncusve.
Subdvson (4) grants reef n cases of payments made through mstake under
the wrong unempoyment-compensaton aw. In such a case payment under the
proper State aw wth respect to the remuneraton n queston w be deemed,
for the purposes of credt aganst the edera ta , to have been made on the
date of the erroneous payment. If the ta payer s e perence under the aw of
the wrong State had entted hm to cease payng any contrbutons for servces
sub|ect to that aw and by reason thereof the ta payer had actuay pad no
contrbutons wth respect to the remuneraton n queston, payment to the proper
State w bo treated, for such ta -credt purposes, as havng been made on the
date on whch the edera ta return was actuay fed.
Subdvson (5) provdes for refund of any ta (ncudng any penates and
Interest) whch has been coected but wth respect to whch credt aowabe
under ths secton has not been taken. The aw (ncudng statutes of mta-
tons) appcabe n the case of erroneous or ega coecton of ta w appy
to such refunds. No Interest w be pad on any such refund.
ddtona credt. Secton 1601(b) (formery secton 900(a) of the Soca
Securty ct): Ths amendment changes n some partcuars the e stng aw,
reatng to addtona credt aowance.
It e pressy condtons the aowance of an addtona credt upon certfcaton
of the State aw under secton 1603(c) of the Interna Revenue Code (formery
secton 903(b) of the Soca Securty ct) and under the proposed amendment
to secton 1602(c). (See secton 610, nfra.)
It e tends the addtona credt to reduced rates of contrbutons requred
Tnder a State aw wth respect to empoyment not covered by the edera ta ,
thus brngng ths subsecton nto conformty n that regard wth the proposed
amendment of subsecton (a) (reatng to contrbutons to State unempoyment
funds).
Under the amendment, addtona credt aowance w be based on the dffer-
ence between the amount of contrbutons the ta payer was requred to pay under
the State aw and the amount he woud have pad had he been sub|ect under
such State aw to a rate of 2.7 per cent, rather than on the dfference between
the amount the ta payer actuay pad under the State aw and the hghest rate
appcabe from tme to tme throughout the ta abe year. Ths change, n
addton to measurng the credt by 2.7 per cent of the pay ro wth respect to
whch contrbutons are requred under the State aw, aso emnates the possbe
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556
necessty for measurng addtona credts n terms of perods of ess than one
year.
Lmt on tota credt. Secton 1601(c) restates the e stng aw mtng tota
credts aganst the edera ta to not n e cess of 90 per cent of such ta . Sm
both the provson wth respect to credts for contrbutons actuay pad and tc
provsons wth respect to addtona credts are now ncuded In one secton of
the aw as subsectons (a) and (b), respectvey, t Is unnecessary to ncude
the mtaton separatey In respect to each subsecton.
CONDITIONS O DDITION L CR DIT LLOW NC .
Secton 610(a) : Ths subsecton amends the provsons of e stng aw (secton
10r| of the Interna Revenue Code, formery secton 910 of the Soca Securt|
ct) reatng to the requrements wth respect to addtona credt aowance.
e terms empoyers, empoyment, and wages, whch are defned In sec-
ton 1007 and have speca meanngs not appcabe here, are repaced by terms
sc as persons havng ndvduas In ther empoy, servces, and remunera-
ton, n order to make the requrements of ths subsecton more easy under-
standabe n ther appcaton to State aws whose coverage dffers from that of
the edera aw. The phrase person (or group of persons) has been used n
the standards wth respect to a types of State funds, to make cear that a State
aw nny measure, for Indvdua e perence ratng purposes, ether an ndvdua
empoyer s record, or may permt two or more empoyers to combne ther records
and be treated, for e perence ratng purposes, as f they were a snge ega
entty. Severa verba changes are suggested n ths subsecton In the nterest of
carty.
In order to factate the admnstraton of provsons In State aws aowng
varatons n rates of contrbutons, the term computaton date, defned n sub-
|ecton (d) (7) of the Code, has been adopted, and the phrase year precedng the
computaton date substtuted for terms such as precedng year and year.
to permt the States to compute reduced rates as of a date pror to the date on
whch such reduced rates w become effectve.
State standards. Secton 1602(a) of the Code s amended by addng a ne
standard wth respect to the aowance of addtona credt, whch requres that
rrespectve of the type of fund mantaned under the State aw, the State aw w
contan provsons whereby varatons n rates of contrbutons as between dffer-
ent empoyers w be so computed as to yed, wth respect to each year, a tota
amount of contrbutons substantay equvaent to 2.7 per cent of the tota pa|
ros of empoyers, sub|ect to the contrbuton requrements of the State aw.
uctuatons n pay ros from year to year precude the computaton of rates n
such a manner as to yed an e act amount. Your commttee beeves that ths
new standard wth respect to ndvdua empoyer e perence ratng s essenta
to protect the fundamenta purposes of the edera ta credt system for provdng
unempoyment compensaton. ecause t s an addtona standard. State aw
under whch partcuar types of funds are mantaned w be requred to comp|
wth ths over-a standard as we as the appcabe standards prescrbed n par
graph (2), (3), or (4) of ths subsecton. The effectve date of ths new standard
s postponed, under secton 610(b) of the b wth respect to the standards pre-
scrbed n paragraphs (2) and (4), to permt States to conform therewth wt-
out ncurrng the e pense of speca egsatve sessons (secton 610(b), Infra -
Paragraph (2) ncorporates the standards of e stng aw appcabe to a pooW
fund or partay pooed account, e cept that the phrase years of compensaton
e perence n the present aw has been repaced by a broader phrase permttn
the use of an empoyer s e perence wth respect to unempoyment or an
empoyer s e perence wth respect to other factors bearng a drect reaton t
unempoyment rsk as a bass for ndvdua e perence ratng under a pooed
fund. Ths change s made n order to e tend the possbe bases by whch State
aws may measure egbty for reductons In empoyers rates of contrbutons to
a pooed fund, thus addng fe bty to the present aw. ecause of ths chanp.
the defnton of the phrase year of compensaton e perence n subsecton (d)
(od subsecton (c)) of ths secton s no onger necessary.
Paragraphs (3), (4), and (5) : The reserve requrements wth respect tore-
serve accounts (under the amended new paragraph (4) to become effectve f
ary 1,1942) and guaranteed empoyment acconnts have been restated n terms of
2 per cent of the pay ro for three years, rather than 7 per cent of the par
ro for one year. The term pay ro ncudes ony the pay ro sub|ect to t1
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contrbuton requrements of the State aw. Ths bass of measurng an em-
poyer s reserve or guaranteed empoyment account s more equtabe from both
the pont of vew of the empoyer and the State, snce t permts the averagng of
pay-ro e perence over three years and avods the unreasonabe fuctuatons In
rates whch may occur f pay ros are substantay ncreased or decreased for a
partcuar year. ecause the standard rate of contrbutons under most aws s
27 per cent (a very few State aws requre a standard rate of 3 per cent), em-
poyers coud not accumuate a reserve equa to 7 per cent of ther annua pay
ro n ess than three years, e cept n very unusua stuatons. ence, t s
beeved that the change n the reserve requrement to 2 6 per cent of pay ros for
three years n pace of 1 per cent of pay ro for one year w not, n practca
effect, ater the present reserve requrements. The addtona requrement wth
respect to three years of contrbutons s deemed necessary to carfy the prov-
son reatng to reserves equa to 2 per cent of the pay ro for three years.
Uness the empoyer has actuay been sub|ect to the contrbuton requrements
of the State aw for three years, the provson measurng the reserve n terms of
2 per cent of pay ros for the three precedng years woud operate to reduce the
reserve requrements. Under these two paragraphs, an empoyer may not be
permtted a reduced rate of contrbutons to hs guaranteed empoyment account
uness he has fufed hs guaranty wth respect to the precedng year, and an
empoyer may not e permtted a reduced rate of contrbutons to hs reserve
account uness compensaton has been payabe from hs account throughout the
precedng year.
Paragraph (5) ncorporates the new standards wth respect to ndvdua re-
serve accounts. In order to permt States mantanng such accounts to conform
therewth wthout ncurrng the e pense of speca egsatve sessons, these new
standards w not become effectve unt anuary 1,1942. Pror to that date, the
standards n paragraph (4), whch Incorporate the present aw, w be appcabe.
Other State standards. Secton 1602(b) : Ths s a new subsecton provdng
greater fe bty to the States wth respect to -the aowance of reduced rates of
contrbutons on the bass of whch addtona credts aganst the edera ta w
be aowed. Wthout regard to ths subsecton a State may aow reduced rates
under ndvdua empoyer e perence ratng systems n conformty wth the
standards n subsecton (a) of ths secton. In addton, under the opton pro-
vded by ths subsecton, a State may adopt ether of two aternatve courses of
acton f t meets the standards set forth n paragraphs (1) and (2) of ths sub-
secton: (1) It may reduce a empoyers rates unformy or (2) t may vary
ndvdua empoyers rates of contrbutons under e perence ratng provsons
whch compy wth the appcabe standards n paragraph (2) or (3) or (4) of
subsecton (a) (paragraph (3) of ths subsecton) but wthout so cacuatng the
respectve rates as to secure an annua yed of an amount substantay equva-
ent to 27 per cent of the State pay ro, the requrement of paragraph (1) of
subsecton (a) of ths secton.
The two standards contaned In ths subsecton reate to the amount In the State
unempoyment compensaton fund as of the computaton date and the compensa-
ton payabe under the State aw as of the date the reduced rate s effectve.
Under paragraph (1) the amount In the State fund, as of the date that amount
s determned, must at east equa one and one-haf tmes the hghest amount
pad nto such fund up to some date pror to the effectve date of the new rate
wth respect to any one of the 10 precedng caendar years, or one and one-haf
tmes the hghest amount of compensaton pad out of such fund wthn any one
of the 10 precedng caendar years, whchever amount s greater. Ths para-
graph does not requre that ether contrbutons or compensaton sha have been
payabe under the State aw for 10 caendar years.
Under paragraph (2) the State aw must provde for the payment of com-
pensaton to otherwse egbe ndvduas n accordance wth the foowng
genera standards or In accordance wth genera standards whch are substan-
tay equvaent thereto:
( ) Wthn a compensaton perod of not more than 52 consecutve weeks
any such ndvdua w be entted to receve a tota amount of compensaton
equa to not ess than () s teen tmes hs weeky rate of compensaton for a
week of tota unempoyment, or () one-thrd of the ndvdua s tota earnngs
for nsured work durng a base perod of not ess than 52 weeks, whchever
s ess
( ) The watng perod wth respect to each compensaton perod descrbed
under cause ( ) may not e ceed two caendar weeks of tota unempoyment
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or two perods of tota unempoyment of seven consecutve dnys each. Scr
weeky or 7-day watng perods need not be consecutve. Ths secton s
Dot appcabe to perods for whch an ndvdua may be dsquafed to:
compensaton
(C) The weeky rates of compensaton for tota unempoyment w be reUtr
to the ndvdua s fu-tme weeky earnngs for nsured work durng a perrd
to be prescrbed n the State aw. Such a perod may be a snge week. repTt-
sentatve of the ndvdua s customary fu-tme weeky earnngs, may be
severa such representatve weeks occurrng wthn a onger prescrbed perod,
or the State aw may secure such a reaton to such fu-tme weeky eank|
by formuae (such as a reasonabe fracton of tota wages for nsured work
durng that caendar quarter n the ndvdua s base perod n whch such wage
were hghest) whch w produce a reasonabe appro maton of such fu-tuw
weeky earnngs. Such weeky rates of compensaton may not be ess thu:
() 5 per week f such fu-tme weeky earnngs were 10 or ess () 50
per cent of such earnngs f they were more than 10 but not more than 30:
and () 15 per week f such earnngs were more than 30 and
(D) Compensaton w be pad to an otherwse egbe ndvdua who, b|
reason of some nvountary unempoyment durng a week, earns ess than hs
weeky rate of compensaton. The amount of such compensaton w at es
equa the dfference between the ndvdua s weeky rate of compensaton for
tota unempoyment and hs actua earnngs for such week.
Certfcaton by the oard tcth respect to addtona credt aowance. Sertot
1602(c) : Ths s a new subsecton, requrng the Soca Securty oard to certf
to the Secretary of the Treasury, n the same manner as t certfes State aw
under secton 1603(c), State aws whch t fnds compy wth the requrement-
of subsecton (a) or (b) of ths secton. Provson s made for parta certks
ton where two knds of funds are mantaned under the same State aw, oa
of whch fas to compy wth subsecton (a) or (b) of tbs secton, or where
contrbuton s dvded between two knds of funds under a State aw, so that
addtona credts w be aowed ony wth respect to reduced rates aowed a
compance wth the requrements of ths secton.
Under those provsons a State aw whch compes In a respects wth the
requrements of ths secton w receve an unquafed certfcaton. In some
States, provson s made for the mantenance of two parae systems (such as
a reserve account system and a guaranteed empoyment account system). I
such States, some empoyers may be covered by the one system and other em-
poyers may be covered by the other. In such States there woud be no df-
cuty n certfyng one system, even though the other faed to compy wth the
requrements of ths secton, and the oard woud accordngy be drected to dt
so by subsecton (c)(2). In other States, contrbutons wth respect to par-
tcuar wage payments are requred to be dvded between two knds of fund
(such as the requrement that a part of each empoyer s contrbuton bt
credted to hs own reserve account and a part to a partay poed fa
whch s operated as a rensurance fund). If n ths type of stuaton the pro-
vsons of the State aw wth respect to one or the other such ftnd do
compy wth the requrements of ths secton, the oard s drected to mate
such certfcaton as w permt the aowance of addtona credts ony wth
respect to those reduced rates whch have been aowed n accordance wth the
requrements of ths secton.
In addton, ths new subsecton ncudes a paragraph requrng the Socte)
Securty oard to advse the States, n the same manner as t advses the
States of ts fndngs under secton 1603, whether or not ther aws compy wth
the requrements of ths secton after fndng such compance, the oard may
thereafter deny certfcaton of a State aw for addtona credt purposes on|
after pror notce and opportunty for hearng to the State, and ony f t fnds
the State aw no onger contans the appcabe provsons specfed n subsectoc
(a) or (b) or the State has faed to compy substantay wth any such pro-
vson. The present subsecton (b) of ths secton s emnated because ts
purpose s acheved by the foregong provsons.
Defntons. Secton 1602(d) : Paragraphs (1) and (4) of ths subsecton are
amended to make cear that from a partcuar empoyer s reserve account or
guaranteed empoyment account, a compensaton payabe on the bass of sm-
ces performed for hm and ony compensaton payabe on the bass of servce
performed for hm. s to be pad. Ths ncorporates n part the e cepton eau
n the present defnton of a pooed fund, . e., that compensaton may not fce
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(Msc.
pad from a parta poo or rensurance fund uness the reserve account or
guaranteed empoyment account of the empoyer on the bass of whose servces
the beneft camant had earned hs beneft rghts, s e hausted or termnated.
The present paragraph (2) s revsed and dvded nto paragraphs (2) and
(3) n order to dstngush more ceary between a fuy pooed fund and a
partay pooed (or rensurance) fund. The new paragraph (3) permts the
mantenance of a partay pooed fund n connecton wth a guaranteed em-
poyment account, as we as n connecton wth a separate reserve account.
The defnton of the partay pooed account aso makes cear that a State may,
wthout endangerng ts compance wth the defntons of the term reserve
account and guaranteed empoyment account, provde for transfers from
reserve accounts or guaranteed empoyment accounts to a partay pooed
account. Severa State aws now provde for such transfers.
Paragraph (4) (od paragraph (3)) amends the present aw to permt
guarantees of empoyment to be operatve ony wth respect to ndvduas
who contnue to be avaabe for sutabe work n the guaranteed estabshment.
Ths provson s deemed necessary because under the present provson t Is
not cear whether empoyers are reeved from ther guarantees wth respect
to ndvduas who qut vountary, or are unabe to work because of some
ncapacty, or are out on 6trke, etc. Ths paragraph s aso amended to make
cear the genera understandng wth respect to ts requrements concernng
the probatonary servce perod, . e., that the probatonary perod must be
served wthn a contnuous perod Immedatey foowng the empoyee s frst
week of servce and may not be camed repeatedy wth respect to ntermttent
perods of empoyment whch never e ceed 12 consecutve weeks. The ast
cause of ths defnton s amended to carfy the pont that guaranteed remu-
neraton and unempoyment compensaton are not the same, and that the
guaranteed remuneraton s not to be payabe out of the guaranteed empoy-
ment account.
Paragraph (5) (od paragraph (4)) deetes the defnton of the term year
of compensaton e perence, because that term s no onger used n para-
graph (2) (od paragraph (1)) of secton 1602(a). The defnton of the term
year, n ths paragraph, s desgned to permt States to aow reduced
rates on the bass of 12 consecutve months, as we as on the bass of a
caendar year.
Paragraph (6), defnng the term baance, s a new defnton added to
make cear that the amount of the reserve requred to be accumuated by
empoyers wth respect to whom a reserve account or a guaranteed empoy-
ment account s mantaned, s to be made up of payments by such empoyers
and may not be made up of empoyee contrbutons or funds from other sources.
If empoyee contrbutons are requred under a State aw whch provdes for
the mantenance of reserve accounts or guaranteed empoyment funds, such
contrbutons may be payabe nto the rensurance fund. The e cepton con-
taned n ths defnton, whch permts the ncuson wthn a baance of
payments other than payments by empoyers f made to a reserve account
or guaranteed empoyment account pror to anuary 2, 1939, s desgned to
reeve the States of compcated computatons where payments, other than
payments by empoyers, have been pad to such accounts durng eary months
of the State s e perence.
Paragraph (7) defnes the term computaton date to Incude any date
occurrng wthn 27 weeks pror to the date that a reduced rate goes nto
effect s above ndcated, ths provson s desgned to gve the States ampe
tme wthn whch to make ther computatons wth respect to varatons n
rates of contrbutons. Such computatons are to be made at east once In
each caendar year.
Paragraph ( ), defnng the term reduced rate, s desgned to make cear
that the requrements of subsectons (a) and (b) are not appcabe to a reduc-
ton from an ncreased rate to a standard rate, . e., stuatons n whch
empoyers wth bad empoyment e perence have been requred to pay ncreased
rates and are subsequenty permtted to pay the standard or norma rate.
Secton 610(b): Ths subsecton of the b, referred to n connecton wth
secton 1602(a) 1 of the Interna Revenue Code, s necessary n order to
permt empoyers who are aowed reduced rates of contrbutons under State
aws whch conform wth the present standards, to secure addtona credts
on the bass thereof and to avod requrng States to convene speca sessons
of ther egsatures n order to conform ther aws wth the new standard
n secton 1602(a) of the Code, Ths secton of the b postpones the
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560
appcaton of that new standard wth respect to pooed funds, partay poos
accounts, and ndvdua reserve accounts, unt anuary 1, 1942. thereby aow-
ng ampe tme for a States to enact necessary amendatory egsaton at the
ne t reguar sessons of ther respectve egsatures.
PRO ISIONS O ST T UN MPLOYM NT COMP NS TION L WS.
Secton 611: The changes made n paragraphs (1), (3), and (4) of secton
1603(a) of the Interna Revenue Code (formery secton 903(a) of the Soca
Securty ct) by ths secton correspond to those made n paragraphs (2), (4),
and (5) of secton 303(a) of the Soca Securty ct by secton 302, supra.
T NSION O TIM O ILING T R TURNS UND R SU C PT R C O C T t 07
T INT RN L R NU COD .
Secton 612: Ths secton amends secton 1604(b) of the Interna Revenue
Code to authorze a onger e tenson of tme for fng the return of the edera
unempoyment ta . stng aw permts an e tenson of as much as 60 da|s.
The amendment woud provde an addtona 30 days, or 00 days In a Tn
e tensons under secton 1604(b) are granted under rues and reguatons pre-
scrbed by the Commssoner of Interna Revenue wth the approva of e
Secretary of the Treasury. n empoyer fndng t mpossbe to make hs return
on anuary 31, the due date prescrbed n secton 1604(a), or to pay hs Stae
contrbutons by that date, may make appcaton n accordance wth such roes
and reguatons for an e tenson of tme for fng hs edera return. II
granted, the empoyer has unt the e tended due date, as granted, to make hs
return and pay hs State contrbutons. No denquency penaty w be ncurred
for ate fng and no oss of credts w be suffered f the return s fed, ad
the contrbutons pad to the State, on or before such e tended due date.
INT RST T OR O ION COMM RC ND D R L INSTRUM NT LITI S.
Secton 613: Ths secton desgnates e stng secton 1606 of the Interna
Revenue Code (formery secton 906 of the Soca Securty ct) as subsecton
(a). carfyng amendment to the provson makes t cear beyond any pos-
sbe doubt that an empoyer engaged n foregn commerce s on te same bass
as respects authorty of a State to requre payments nto an unempoyment fond
as empoyers engaged n nterstate commerce.
Ths secton aso amends secton 1606 by addng subsectons (b) and (c), re-
atng to edera nstrumentates, and (d), reatng to empoyment on ands
hed by the Government.
Subsecton (b) confers on State egsatures authorty to requre nstrameo-
tatos of the Unted States (e cept those whoy owned by the Unted States
or e empt from the ta es mposed by sectons 1410 and 1600 of the Inters
Revenue Code (formery sectons 04 and 901, respectvey, of the Soca Securty
ct) by any other provson of aw) to compy wth State unempoyment com-
pensaton aws. Under ths amendment the States woud be abe to cover under
ther unempoyment compensaton systems natona banks and certan other
edera nstrumentates. Protecton aganst any possbe dscrmnaton aga f
nstrumentates of the Unted States s afforded by the two provsos, whch
make the permsson to requre compance wth the State aw condtona upon
equaty of treatment and upon the approva and certfcaton of the State aw
under secton 1603 of the Interna Revenue Code (formery secton 903 of tw
Soca Securty ct).
Subsecton (c) makes provson for e amnaton by the Comptroer of the
Currency of returns and reports made to the States by natona banks.
Subsecton (d) authorzes the States to cover under ther unempoyment com-
pensaton aws servces performed upon and hed by the edera Government
such as servces for hotes ocated n natona parks.
D INITIONS.
Secton 614: Ths secton, effectve anuary 1, 1940, amends secton 1607 of
the Interna Revenue Code, contanng defntons appcabe n the case of uw
edera unempoyment ta .
Defnton of empoyer. Secton 1607(a): No change from e stng taw
made n ths defnton.
Defnton of wages. Secton 1607(b) : Ths subsecton contnues the present
defnton of wages but e cudes certan payments heretofore ncuded. P
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graph (1) e cudes that part of the remuneraton whch, after remuneraton
equa to 3,000 has been pad to an ndvdua by an empoyer wth respect to
empoyment durng any caendar year, s pad to such ndvdua by such em-
poyer wth respect to empoyment durng such caendar year. Paragraph (2)
e cudes a payments made by the empoyer to or on behaf of an empoyee
or former empoyee, under a pan or system provdng for retrement benefts
(ncudng pensons), or dsabty benefts (ncudng medca and hosptaza-
ton e penses), but not fe nsurance. These payments w be e cuded even
though the amount or possbty of such payments s taken nto consderaton
n f ng the amount of remuneraton and even though such payments are
requred, ether e pressy or mpedy, by the contract of empoyment Snce t
s the practce of some empoyers to provde for such payments through nsur-
ance or the estabshment and mantenance of funds for the purpose, the pre-
mums or nsurance payments and the payments made nto or out of any fund
w kewse be e cuded from wages. Paragraph (3) e pressy e cudes from
wages the payment by an empoyer (wthout deducton from the remuneraton
of, or other rembursement from, the empoyee) of the empoyee s ta mposed
by secton 1400 of the Interna Revenue Code (formery secton 01 of the Soca
Securty ct) and empoyee contrbutons under State unempoyment compensa-
ton aws. Paragraph (4) e cudes dsmssa payments whch the empoyer
s not egay obgated to make.
Defnton of empoyment. Secton 1607 (c) : The amendments made here
conform ths defnton to the defntons contaned n amended secton 209(b)
of the Soca Securty ct and amended secton 142 (b) of the Interna Revenue
Code (formery secton 11(b) of the Soca Securty ct), wth the e cepton
of martme servce.
The defnton of the term empoyment under the amendment, as apped
to servce rendered pror to anuary 1, 1940, retans the e emptons contaned
that date contnues unchanged some of the present e emptons, revses others,
and adds certan addtona ones. No substantve change n e stng aw s
effected by the ntroductory paragraph of the defnton.
Paragraph (1) contnues the e cepton of agrcutura abor, but a new sub-
secton (1) defnes the term for purposes of the e cuson.
Paragraph (2) contnues the present e cepton of domestc servce n a prvate
home, but adds to the e cepton such servce In a oca coege cub or oca
chapter of a coege fraternty or sororty (not ncudng aumn cubs or
chapters). Thus servces of cook, water, chambermad, and the housemother,
performed for these oca cubs and chapters, are e empt
Paragraph (3) adds an e cepton of casua abor not n the course of the em-
poyer s trade or busness. Ths e cepton s aready contaned n amended
secton 209(b) of the Soca Securty ct and amended secton 1426(b) of the
Paragraph (4) contnues the e stng e cepton of servce performed as an
offcer or member of the crew of a vesse on the navgabe waters of the Unted
States.
Paragraph (5) contnues the e stng e cepton of servce performed by an
Indvdua n the empoy of hs son, daughter, or spouse, and servce performed
by a chd under the age of 21 n the empoy of hs father or mother.
Paragraph (0) contnues the e empton of servce performed n the empoy of
the Unted States, but wth respect to nstrumentates of the Unted States,
the Unted States or ( ) e empt from the ta mposed by secton 1600 of the
vrtue of any other provson of aw. The change n ths provson brngs wthn
the unempoyment ta provsons certan edera nstrumentates not fang
wthn cause ( ) or ( ) above, such as natona banks.
Paragraph (7) contnues the e empton of servce for State governments, ther
subdvsons and nstrumentates, but mts the e empton wth respect to
nstrumentates so that It appes ony to an nstrumentaty whch s whoy
owned by a State or potca subdvson or whch woud be mmune from the
ta mposed by secton 1600 of the Interna Revenue Code (formery secton 901
of the Soca Securty ct) by the Consttuton. The amendment thus narrows
the present e empton and n no case broadens t.
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562
Into conformty wth the correspondng e empton from ncome ta tnder seetoa
101(0) of the Interna Revenue Code, by addng a specfc dsquafyng caw
appcabe where any substanta part of the actvtes of the organzaton
carryng on propaganda or otherwse attemptng to nfuence egsaton.
Paragraph (9) e cepts servces of empoyees covered by the raroad unempo|-
ment nsurance system. Ths provson eaves unchanged the e empton of te
servce of an ndvdua n the empoy of an empoyer sub|ect to such system
even though the ndvdua receves remuneraton n a form (e. g., tps) not
recognzed as compensaton under the Raroad Unempoyment Insurance ct,
and eaves unchanged the ncuson of servce n case t Is performed by an
empoyee In the segregabe nonraroad actvtes of an empoyer where segrega-
ton of the raroad actvtes from nonraroad actvtes s found necessary h
the nterpretaton and admnstraton of the aws reatng to the soca secnrt|
system and the raroad unempoyment nsurance system.
Paragraphs (10) to (13), ncusve, are Identca wth the same paragraphs n
secton 209(b) of the Soca Securty ct. or detaed anayss of such para-
graphs see pages 47-491 of ths report
Secton 1607(d) : Ths secton reates to an empoyee who has both ncuded
that f one-haf or more of the servces consttutes ncuded empoyment, a
of such servce w be ncuded but that If ess than one-haf consttutes n-
cuded empoyment, a w be e cuded. The provson does not appy to te
servce of an empoyee In a pay perod f any of the servce of the empoyee
In the pay perod s covered under the raroad unempoyment-Insurance system.
Secton 1607(e), defnng State agency, makes no change In the e stng
defnton of that term.
Defnton of unempoyment fund. Secton 1607(f): Ths defnton s
amended by addng two new sentences. The frst of these added sentences s
a carfyng amendment provdng that a sums standng to the credt of the
State n the ( edera) unempoyment trust fund and money wthdrawn from
that fund by the State but une pended sha consttute a part of the State
fund. Ths removes any possbe doubt whether such moneys reman a part
of the State fund. The second added sentence provdes that an unempoyment
fund sha be deemed to be mantaned durng a ta abe year ony If no part
of the moneys of such fund was e pended for purposes other than payment of
unempoyment compensaton and refunds of sums erroneousy pad nto the
fund. Ths provson. In con|uncton wth an amendment to secton 1601(a)
(see supra, secton 609), makes t cear that an empoyer s entted to credt
aganst the edera ta ony so ong as the State uses Its fund for a proper
purpose.
Defnton of contrbutons. Secton 1607(g) : Ths provson Is changed so
as to avod use of defned terms and thus to ncude n the term contrbu-
tons payments requred by a State aw wth respect to servces not corered
by the edera aw.
Defnton of compensaton. Secton 1607(h) : No change In e stng aw h
made n ths defnton.
Defnton of empoyee. Secton 1607(1): The term empoyee s defned
as In e stng aw to Incude an offcer of a corporaton. though the term s
not broadened wth respect to saesmen as was done n the defnton for pur-
poses of od-age nsurance coverage, the tests for determnng the empoyer-
empoyee reatonshp ad down n cases reatng to tort abty and to the
common-aw concept of master and servant shoud not be narrowy apped.
y the amendment to subsecton (c), contaned In paragraph (10)( )
thereof, uncompensated offcers of any organzaton e empt from ncome ta
under secton 101 of the Interna Revenue Code are e cuded from the count
n determnng whether the organzaton s an empoyer of eght or more and
abe for the ta . owever, uncompensated offcers of corporatons not so
e empt are not e cuded for purposes of such determnaton merey because
they are uncompensated.
Secton 1607 (|) and (k), defnng the terms State and person, respec-
tvey, make no change In the e stng defntons of those terms.
Defnton of agrcutura abor. Secton 1607(1) Is dentca wth secton
209(1) of the Soca Securty ct, or detaed anayss of such seetoo see
page 51 of ths report.
1 See pap s 549-551, ths uetn.
See pages 551-553, ths uetn.
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Secton 615. Ths secton nserts a new secton n Subchapter O of Chapter 9
of the Interna Revenue Code whch provdes that the subchapter may be cted
as the edera Unempoyment Ta ct.

Tte III mendments to Tte I of the Soca Securty ct.
D INITION O MPLOY ND O MPLOY S.

The amendments to the defnton of empoyee reate to saesmen. In some
nstances where remuneraton s by way of commsson and the servces are
performed away from the pace of busness of the person for whom they are
performed, the ndvdua performng the servces Is hed to be an empoyee,
whe n others he s hed not to be an empoyee.
restrcted vew of the empoyer-empoyee reatonshp shoud not be taken
n the admnstraton of the edera od-age and survvors nsurance system
n makng coverage determnatons. The tests for determnng the reatonshp
ad down n cases reatng to tort abty and to the common-aw concept
of master and servant shoud not be narrowy apped. In certan cases even
the most bera vew as to the e stence of the empoyer-empoyee reatonshp
w fa short of coverng ndvduas who shoud be covered, for e ampe,
certan casses of saesmen.
In the case of saesmen, t s thought desrabe to e tend coverage even where
a of the usua eements of the empoyer-empoyee reatonshp are whoy
ackng and where accordngy even under the bera appcaton of the aw
the court woud not ordnary fnd the e stence of the master-and-servant
reatonshp.
It s the ntenton of ths amendment to set up specfc standards so that
ndvduas performng servces as saesmen may be unformy covered wthout
the necessty of appyng any of the usua tests as to the reatonshp of
empoyer and empoyee.
saesman n busness as a broker or factor s e cuded If the servces are
performed as part of such busness, and, n furtherance of such busness, sm-
ar servces are performed for other persons and one or more empoyees of
such saesman perform a substanta part of such servces and an ndvdua
whose servces as a saesman are casua servces, not In the course of such
Indvdua s prncpa trade, busness, or occupaton, s not ncuded n the
defnton. Ths defnton s not ntended to affect the empoyer-empoyee
status of a saesman and the empoyee of such saesman. Thus, the busness
chauffeur who has been an empoyee of a saesman w reman soey the
empoyee of such saesman.
The defnton of empoyer s to foow the defnton of empoyee. It s for
the purpose of makng cear that the e tenson of the broadened empoyee con-
cept aso broadens the empoyer concept. Thus, where a saesman s hed to
be an empoyee, the person for whom the saesman perforns the servces s
the empoyer. or e ampe, an nsurance soctor who e ecutes a contract
wth an nsurance company under whch he performs servces as a saesman
woud be the empoyee of the nsurance company and not of the genera agent
of the company.
penaty sectons.
Secton 02: Ths secton amends Tte I of the Soca Securty ct by
addng the foowng two sectons:
Dscosure of nformaton n possesson of oard. Secton 1106: Ths secton
prohbts the dscosure, e cept pursuant to oard reguatons, of any returns or
statements fed wth the Commssoner of Interna Revenue under Tte III of
the Soca Securty ct or the edera Insurance Contrbutons ct, or regua-
tons thereunder, whch have been transmtted by the Commssoner to the
oard. The prohbton aganst dscosure, e cept pursuant to oard regua-
tons, aso e tends to any fe, record, report, paper, or nformaton obtaned by
the oard or any of ts offcers or empoyees n the course of offca dutes, and
any such matera obtaned by any person from the oard or any of ts offcers
or empoyees. oaton of the prohbton s punshabe as a msdemeanor.
Penaty for fraud and msuse of oard s name. Secton 1107(a) provdes that
anyone who makes any fase representaton, wth ntent to defraud any person,
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564
knowng the representaton to be fase, concernng the requrements of ths ct.
or the edera Insurance Contrbutons ct, or the edera Unempoyment Ta
ct, sha be guty of a msdemeanor.
Secton 1107(b) provdes that anyone who, wth Intent to obtan nforma-
ton as to the date of brth, empoyment, wages, or benefts of any ndvdua
fasey represents to the oard that he s such ndvdua or the wfe, parent,
or chd of such Indvdua, or such ndvdua s agent, or the agent of such
wfe, parent, or chd, or fasey represents to any person that he s an empo|ee
or agent of the Unted States, sha be guty of a msdemeanor.
Tte I Msceaneous Pbovsons.
Secton 901: Ths secton makes cear that the amendment of Tte III of the
Soca Securty ct and secton 1603 of the Interna Revenue Code sha not be
construed to amend or ater those provsons of the Raroad Unempoyment
Insurance ct whch provde mted e ceptons to the provsons of sectons
303(a) (4) and (5) of the Soca Securty ct and 1603(a) (3) and (4) of
Secton 902: Subsectons (a), (b), (c), and (d) substantay berae the
condtons of aowance of credt aganst the edera unempoyment ta mposed
by Tte I of the Soca Securty ct for the years 1936, 1937, and 193a our
commttee recognzes that the perodca grantng of reef after the cose of
the ta abe year affected woud destroy the effectveness of the condtons of
aowance of the credt provded n permanent aw and woud prove costy n
that t woud ca for the reopenng and reconsderaton of cases prevous
cosed, the ad|ustment of cams, the abatement of assessments, and the payment
of refunds. owever, the need shoud not arse n the future for grantng reef
of the type provded n the present secton, snce substanta berazaton for
1939 and subsequent years Is provded In secton 609 of the b, amendng sec-
ton 1601(a) of the Interna Revenue Code.
Subsecton (a) provdes for the aowance of credt aganst the ta for 1336,
1937, or 193 , for contrbutons pad to the State for such year before te
s teth day after the date of enactment of ths ct Under secton 10 of the
Revenue ct of 193 ta payers were aowed credt aganst the ta for 1936
for contrbutons pad before uy 27, 193 . Snce a few ta payers dd not
take advantage of that reef provson, t s fet desrabe to ncude credt
aganst the ta for 19 6 n the present provsons. Thus, the same fna date
for payng contrbutons to the State, n order to secure credt aganst the ta -
namey, the ffty-nnth day after the date of enactment of ths ct s provded
for the ta for each of the three past years durng whch the ta has been.
effect.
Under cause (2) of subsecton (a) credt s aowabe for contrbutons pad on
or after the s teth day after the date of enactment of ths ct wth respect to
wages pad after the forteth day after such date of enactment. Ths s desgned
to permt credt n cases n whch, because the wages payabe bass of the ta
for the years 1936,1937, and 193 s st retaned, credt woud otherwse be ost
snce some wages are st beng pad wth respect to those years, and t may not
be possbe to estmate the amount thereof or the amount thereof may have been
underestmated.
Cause (3) of subsecton (a) permts credt for contrbutons pad to the State
wthout regard to the date of payment, f the assets of the ta payer are n te
custody or contro of a fducary apponted by, or under the contro of, a court of
competent |ursdcton at any tme durng the 59-day perod foowng the date of
enactment.
Subsecton (b) of ths secton makes the same provson wth respect to the
ta abe years 1936, 1937, and 193 as are made n secton 1601(a)4 of the
Interna Revenue Code, as amended, for the ta abe year 1939 and thereafter to
cases n whch the ta payer pays hs contrbutons to the wrong State. (See
secton 609, supra.)
Subsecton (c) preserves the defntons of secton 907 of the Soca Securty ct
the 90 per cent ma mum credt aganst the edera ta , and other provsons o
Tte I of the Soca Securty ct, essenta to the operaton of the reef pw
sons n subsectons (a), (b), and (h) of ths secton for the ta abe years 1
1937, and 193 .
Subsecton (d) provdes for refund of any ta (Incudng penates and nterest
whch has been coected but wth respect to whch credt Is aowabe under Una
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secton. The aw (Incudng statutes of mtatons) appcabe n the case of
srroneous or ega coecton of ta w appy to such refunds. No nterest w
c pad on any such refund.
Subsecton (e) of ths secton s desgned to permt credt aganst the ta for
e years 1940,1941, and 1942 f n those years wages are pad for servces rendered
f ter December 31, 193 , but durng a year pror to that n whch payment occurs,
and contrbutons wth respect to such wages have not been credted aganst the
ta for any pror ta abe year. Ths provson reeves cases of hardshp whch
mght arse by reason of the change n the bass of the edera ta from wages
payabe to wages pad. (See secton 60 , supra.)
Subsecton (f) s desgned to make retroactve to the date of enactment of the
Soca Securty ct the e emptons from edera Insurance and unempoyment
compensaton coverage contaned, respectvey, n amended sectons 209(b) (11)
and (12) of the Soca Securty ct and amended sectons 1426 (b) (11) and (12)
and 1607(c) (11) and (12) of the Interna Revenue Code of servce n the empoy
of foregn governments and certan of ther Instrumentates. If any ta (ncud-
ng nterest and penates) has been coected wth respect to servce thus e empt,
t s to be refunded, wthout aowance of nterest, n accordance wth the prov-
sons of aw (ncudng statutes of mtatons) appcabe n the case of erroneous
or ega coecton of the ta .
Subsecton (g) provdes that no ump-sum payments sha be made under the
provsons of secton 204 of the Soca Securty ct after the date of the enactment
of ths b, e cept to the estate of an ndvdua who des pror to anuary 1,1940.
Subsecton (h) grants reef to ta payers as we as States n cases n whch
the hghest court of a State has hed contrbutons pad under the State aw wth
respect to the ta abe years 1936 or 1937 not to have been requred payments
under the State aw. or e ampe, certan States enacted ther unempoyment
compensaton aws durng the atter porton of 1936, evyng contrbutons there-
under retroactvey wth respect to servces performed on and after anuary 1
of that year. State ta payers n good fath pad such contrbutons and camed
and receved credt therefor aganst ther edera ta . If some tme ater, the
retroactve mposton of such contrbutons s hed by the hghest court of such
State to have been nvad, such ta payers may be entted to refunds under the
State aw, but by vrtue of that fact, such ta payers aso become abe for the
fu edera ta wth respect to such year.
Under ths subsecton, so much of any such payments as are not refunded to
the ta payer may be credted aganst the ta mposed by secton 901 of the Soca
Securty ct for the caendar year 1936 or 1937. Moreover, f, n the e ampe
cted, the State had pad benefts wth respect to unempoyment occurrng durng
193 , ths secton safeguards the status of the State aw under secton 903 of the
Soca Securty ct by provdng that so much of such payments as are not
returned to the ta payer sha be consdered contrbutons for the purposes
of that secton. Ths secton aso postpones the perods of mtatons prescrbed
by secton 3312(a) of the Interna Revenue Code n the case of the ta for 1936
or 1937 of any such ta payer to whom any such payment s returned, unt the
ast such payment s returned to the ta payer.
Secton 903: Ths secton amends secton 1430 of the Interna Revenue Code by
strkng out the reference theren to secton 3762 of the Code and nsertng n eu
thereof a reference to secton 3661. The change merey corrects a typographca
error made n secton 1430 when the Code was enacted.

1939-37-10010
Senate Report No. 734, Sevcnty- Uth Congress, rst Sesson.
uy 7 (egsatve day, uy 6), 1939.
Mr. ng (for Mr. arrson), from the Commttee on nance, submtted the
foowng report to accompany . R. 6635 :

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566
G N R L ST T M NT.
Dvsons of the .
Ths b amends te Soca Securty ct and certan sectons of Subchapters
and C of Chapter 9 of the Interna Revenue Code (formery Ttes III acd
I of the Soca Securty ct).
Te b s dvded nto nne ttes:

Tte I mendments to the Interna Revenue Code (provsons formery

Tte III mendments to Tte I of the Soca Securty ct (genera pre-
vsons).
Tte I Msceaneous amendments.
Summary of Prncpa Contents of
ta es.
1. Te od-age nsurance ta has been frozen at 1 per cent on the worker and
1 per cent on the empoyer for te three years 1040, 1941, and 1942 as aganst to
1Y2 per cent rates ou each under the present ct. Ths w save empoyers --
workers about 275,000,000 n 1940, or a tota of 25,000,000 n the three years.
2. Ony the frst 3,000 an empoyer pays an empoyee for a year s ta ed under
the unempoyment-compensaton provsons. Ths s aready the case In od-ap
nsurance. Ths w save empoyers about 05,000,000 a year.
3. Provson Is made for refunds and abatements to empoyers who pad ther
1936, 1937, and 193 unempoyment-compensaton contrbutons ate to the States
Ths w save empoyers about 15,000,000.
4. Thus the savngs above mentoned, through 1940, may aggregate some 355,-
000,000. In addton, such savngs for the ensung two years may amount U
appro matey 550,000,000. Ths represents tota savngs of appro matey
905,000,000.

OO G .
1. Certan servces, ncudng servces for agrcutura and hortcutura asso-
catons, vountary empoyees benefcary assocatons-, oca or rtuastc sen-
ces for fraterna benefcary socetes, and servces of empoyees earnng nomna
amounts (ess than 45 per quarter) of nonproft nsttutons e empt from ncome
ta , are e empted from od-age nsurance and unempoyment compensaton
order to emnate the nusance cases of nconsequenta ta payments.
2. The term agrcutura nbor s defned so as to carfy ts meanng and tc
e tend the e empton to certan types of servce whch, athough not at present
e empt, are an ntegra part of farmng actvtes.
3. bout 1,100,000 addtona persons (seamen, bank empoyees, and empoyed
persons age 05 and over) are brought under the od-age nsurance system and
about 200,000 under unempoyment nsurance (chefy bank empoyees).

admnstraton.
1. edera od-age and survvor nsurance trust fund s created for safe-
guardng the nsurance beneft funds. The Secretary of the Treasury, the Secre-
tary of Labor, and the Charman of the Soca Securty oard are made trustees
of ths fund.
2. Provson s made to restrct the use of nformaton concernng recpents
of State od-age assstance (partcuary ther names and addresses) to purposes
drecty connected wth the admnstraton of od-age assstance. Ths s desgned
to prevent the use of such nformaton for potca and commerca pnrpo s.
3. Other amendments are recommended to smpfy and carfy admnstraton
of the aw.
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story of Legsaton.
The Soca Securty ct became aw on ugust 14, 1935, after many months of
deberaton n Congress. The b was passed by an overwhemng ma|orty In
both the ouse and the Senate, the votes beng 372 to 33 and 77 to 6, respectvey.
The nsurance provsons of the present ct were uphed by the Unted States
Supreme Court n the cases of Steward Machne Co. v. Davs (301 U. S., 54 )
everng v. Davs (301 U. S., 619) and Carmchac v. Southern Coa Co. (301
U. S., 495).
The enactment of the Soca Securty ct marked a new era, the edera Gov-
ernment acceptng, for the frst tme, responsbty for provdng a systematc
program of protecton aganst economc and soca hazards. Though admttedy
not perfect or a-ncusve, the Soca Securty ct dd embrace the broadest
program for soca securty ever aunched at one tme by any government.

Unempoyment compensaton. The ncentves provded n the Soca Securty
ct stmuated rapd passage of State unempoyment compensaton aws. efore
the ct was passed, ony 1 State, Wsconsn, had a gong system of unempoyment
nsurance now a the 4 States and aska, awa, and the Dstrct of Coumba
have approved aws. enefts are aready beng pad to unempoyed covered
workers under a but 2 of these aws n the ast 2 States (Inos and Montana)
beneft s became payabe on uy 1 of ths year. More than 27,500,000 workers
are covered by these aws and about 3, 00,000 temporary unempoyed workers
receved benefts amountng to neary 400,000,000 durng the year 193 . In
addton, about 22 ,000,000 has been pad to unempoyed workers durng the frst
s months of 1939.
Od-age nsurance. The fu effect of the edera od-age nsurance program
w not be fet unt monthy benefts begn to be pad. In the meantme, how-
ever, the Soca Securty oard has estabshed wage-record accounts for over
44,000,000 persons, of whom more than 32,000,000 have aready had wages reported
n ether 1937 or 193 , thus enabng these ndvduas to bud up rghts to pro-
tecton for themseves and ther dependents upon a sound bass. In addton,
ump-sum benefts, amountng to 3 per cent of accumuated covered earnngs,
totang about 1 ,712,000, have been pa d up to May 30, 1939, to or on behaf
of over 363,000 persons who reached age 65 or ded.
Revson of Soca Securty ct. Tremendous as s the scope of ths program,
t was recognzed from the begnnng that changes woud have to be made as
e perence and study ndcated nes of revson and mprovement. Congress,
therefore, e pressy provded n the Soca Securty ct that the Soca Securty
oard shoud study and make recommendatons as to methods of provdng more
effectve economc securty.
urther to factate necessary revson, an dvsory Counc on Soca Securty
was created n May, 1937. It was composed of outstandng ctzens representng
empoyers, empoyees, and the pubc. The dvsory Counc spent more than a
year n study and deberaton and transmtted ts fna report and recommenda-
tons on December 19, 193 .
The recommendatons of the Soca Securty oard, based upon three years of
ntensve study, were submtted to the Presdent of the Unted States on Decem-
ber 30, 193 . The Presdent transmtted the oard s report to Congress, wth a
speca message on anuary 16, 1939.
The Commttee on Ways and Means of the ouse of Representatves hed
e tended pubc hearngs on these recommendatons and aternatve proposas
reatng to soca securty. The b was referred to ths commttee on une 12,
1939. wtnesses who requested to be heard were aowed to appear n pubc
hearngs and ther statements and testmony appear n the prnted hearngs.
Genera Purpose and Scope or mendments.
The present b ams to strengthen and e tend the prncpes and ob|ectves
of the Soca Securty ct. The foundatons of a permanent program have been
ad and t seems wse to bud upon the present structure.
Od-age nsurance, unempoyment compensaton, and pubc assstance are now
accepted as permanent n our fabrc of soca servces. The present b s
desgned to wden the scope and to mprove the adequacy and the admnstra-
ton of these programs wthout aterng ther essenta features. enefts w
contnue to be payabe as a matter of rght to workers covered by the nsurance
programs ad w contnue to be reated to need under the assstance programs.

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56
n CD k
Certan amendments are proposed whch affect the fnanca framework of tk
od-age nsurance system. rst, the od-age reserve account s changed to I
edera od-age and survvors nsurance trust fund wth the Secretary ot tt
Treasury, the Secretary of Labor, and the Charman of the Soca Securty oar
a e ofco, actng as a board of trustees. The board of trustees w super-
vse the fund and w report to Congress annuay and whenever the trust road
becomes unduy sma or e ceeds three tmes the hghest annua e pendtm
antcpated n the ensung 5-fsca-year perod. The Secretary of the Treasury
w serve as managng trustee of the fund. assets credted to the resem
account as of anuary 1, 1040, are transferred to the trust fund when the resent
account s aboshed on that date. It s further proposed that an amount eqru
to the fu amount of the od-age nsurance ta es coected n the future be per-
manenty approprated to the trust fund. Provson s made for the admnstra-
tve costs of the pan to be met from the trust fund.
The method of nvestng that porton of the trust fund not needed for ctutpd
cams or admnstratve purposes w be ke that now provded n the case of
the unempoyment trust fund. Instead of a mnmum 3 per cent nterest on
the nvestments of the present od-age reserve account, the edera od-age vs
survvors nsurance trust fund, ke the unempoyment trust fund, w earr,
nterest at the current average rate of nterest borne by a oustandng nterna
bearng obgatons composng the pubc debt. t the present tme the rated
nterest beng pad to the unempoyment trust fund s 2 per cent
The present ta schedue s amended so that the current rate of 1 per cent
on empoyers and 1 per cent on empoyees Is contnued unt 1943. Ths post-
ponement n the ta step-up w save empoyers and workers about 275,000/ )
for 1040, or a tota of 25,000,000 for the three years 1040, 1041, and m
owever, no change s made n the ta schedue thereafter. The rates w stf
ncrease to 2 per cent n 1943, 2 per cent n 1046, and 3 per cent h 1S 9 u
thereafter.
The resut of the changes from e stng aw wth respect to ta es and benefts
on the sze of the reserve and the amount of the beneft payments s shown Is
tabe 6. It shoud be noted that the ma mum reserve but up n the perod
6hown w be between s and seven bon doars. It shoud aso be noted
that the sze of te reserve w conform cosey to the recommendaton of the
Secretary of the Treasury of an eventua reserve amountng to not more tha
three tmes the hghest prospectve annua benefts n the ensung fve years.
Tabrr 6. Progress of reserve under the ntermedate retrement estmate of
beneft dsbursements cth nterest at 2 per cent. Ta rate a per cat
unt an. 1, 1943, and thereafter f aottng the present schedue.
In mons of doars.)
1940
1941
1942
1943
1944
1915
m
Net ta recepts (rross recepts mnus
admnstratve e penses) 1
501
114
COS
504
431
919
1.067
667
1,07
L751
1,422
s
Less beneft payments
Net cash recepts to Oovern-
29
6 3
776
3 7
41
207
49
73
64
336
t
400
302
2
S3
136
m
71
42
1, 71
256
2,127
127
2,254
397
2,651
471
3 4
3,606
44
3.122
6.737
n
Dnes not ncude any ad|ustment for refunds to empoyees who receve more than 3,000 In wafts
covered empoyment n any one caendar year.
1 Incudes estmated 10 mon payabe n 1940 for ump-sum cams prevousy Incurred.
Note. The fund at the end of 1939 s estmated to be 1,443,000,000. eneft payments e ceed
recepts n 1954.
It shoud be ceary understood that the estmates presented are sub|ect to
a margn of error. Changes n average wages, death rates, brth rates, the rate
of retrement, the proporton of the aged n the tota popuaton, and dnft
between nsured and unnsured groups may resut In substanta changes
these fgures In the future. It s mpossbe, therefore, to predct accurate
the future trends of a the factors nfuencng the ong-run aspects of te
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nge Insurance program. The further one pro|ects estmates of future ncome
and beneft payments, the greater s the margn of error. Constant study and
frequent revauatons are, therefore, essenta for the ong-run fnancng of our
soca nsurance system. Ths s one of the reasons why the b provdes that
te board of trustees make an annua report to Congress on the actuara
status of the system, and report to Congress whenever the trust fund s unduy
sma, or e ceeds three tmes the hghest annua e pendtures e pected n the
ne t 5-fsea-year perod.
ccordng to the best e pert nformaton avaabe to the commttee, the
estmates presented here are reasonabe appro matons of the ncome and outgo
of the nsurance pan for the ne t 15 years. The actua fgures w no doubt
vary somewhat from those shown n tabe 6. owever, the beneft payments
shown, athough based upon an ntermedate estmate as regards rate of retre-
ment, probaby represent ma mum amounts payabe under the provsons of
the b. serous downswng n busness condtons mght ncrease the rate
of od-age retrement and decrease the estmated amount of ta recepts, but
such varatons woud probaby not ater the fact that the contrbutons and
nterest w cover a beneft payments for the ne t 10 to 15 years. It s ony
when consderaton s gven to the ncome and outgo of the system for 40 to
45 years, or even more, that t becomes qute mpossbe to predct the future
status of the system.
Tabe 6 shows that the annua contrbutons from workers and empoyers
w probaby be suffcent unt 1055 to meet a the annua beneft payments
under the revsed pan. If the orgna actuara assumptons of 1035 prove to
be correct, t Is possbe that benefts for a tme to come can be fnanced from
the present schedue of ta es and the nterest from the fund, even wth the
recommended postponement of the ta step-up unt 1043. owever, upon the
bass of addtona data deveoped snce 1935, t woud appear that the actuara
cacuatons of 1935 represent a mnmum estmate of the future costs. There-
fore, t s possbe that the annua cost of the benefts may begn to e ceed the
annua ta coectons about 1955 or even somewhat sooner.
Ony after e perence has been obtaned n payng benefts for severa years
w we have a better pcture of the probabe future deveopment of the system.
ven then contnua change w be necessary n the estmates due to the many
varabe factors whch go nto makng such estmates.
In makng the changes n the present pan the commttee has kept constanty
In mnd the fact that, whe dsbursements for benefts are reatvey sma
n the eary years of the program, far arger tota dsbursements are nevtabe
n the future.
The pan provded for n the b s desgned to safeguard workers, empoyers,
and the genera pubc. In fact, your commttee agrees wth the nouse that
the revsed pan s a much safer one than the present pan. s has aready
been ponted out, whe the annua costs under the revsed pan are greater
n the eary years of operaton, the future annua costs of the benefts when
the system reaches maturty are materay ower than under the present aw
and the over-a average cost s kept about the same. Consequenty, t s be-
eved that there s not the same danger as e sts n the present beneft schedue,
the cost of whch, whe deceptvey sma n the eary years, mounts very
steepy as the years progress.
Unforeseen contngences may, however, change the entre operaton of the
pan. It s mportant, therefore, that Congress be kept fuy nformed of the
probabe future obgatons beng ncurred under the Insurance pan as we as
the pubc-assstance pans. ach generaton may then meet the stuaton be-
fore t n such manner as t deems best.
If future annua pay-ro ta coectons pus avaabe nterest are Insuffcent
to meet future annua benefts t w be necessary, n order to pay the promsed
benefts, to ncrease the pay-ro ta or provde for the defcency out of other
genera ta es, or do both. roadenng the coverage of the system to brng
n those persons now e cuded w not ony make the system more effectve
n provdng protecton but aso strengthen ts actuara base by st further
emnatng the possbty of unearned benefts to the worker who moves from
unnsured to Insured empoyment
CO R G .
our years ago, when the od-age nsurance program was beng panned, t
was e pected that the ct as passed woud provde od-age securty for about
209196 40 19
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570
haf of the ganfu workers In the country. It was rea feed, of course, tte
many workers who mght not be Insured under the ct at any one tme woud
ater obtan protecton by shftng nto nsured occupatons. It was genera
supposed, however, that the group so shftng woud be sma compared wth te
great mass of workers, who, throughout ther workng fe, woud reman an-
tnuousy ether n the nsured category or n the unnsured category.
Operaton of the ct shows that the e tent of mgraton, temporary or per-
manent, from unnsured to nsured empoyment s far greater than was assumed
by the Presdent s Commttee on conomc Securty n 1935. s a eonseqo -
of the mgraton, a much arger proporton of the tota popuaton of the Unted
States w quafy under the contrbutory system for od-age benefts than ted
been e pected.
The most mportant e cuded groups are agrcutura abor, domestc serrct,
and certan nonproft organzatons here your commttee agrees wth the ouse
that t woud be unwse to remove the e emptons from these three groups u
the present tme. The present b does, however, e tend od-age nsuram
coverage to some 1,100,000 more workers by removng the e empton of mar-
tme empoyment, wages earned after 65, and certan edera nstrumentafe
such as natona banks and State banks whch are members of the edem
Reserve System.
In order to emnate the nusance of nconsequenta ta payments the d
e cudes certan servces performed for fraterna beneft socetes and ofe:
nonproft nsttutons e empt from ncome ta , and certan other groups. Whe
the earnngs of a substanta number of persons are e cuded by ths reM-
mendaton, the tota amount of earnngs nvoved s undoubtedy very sma
No estmate s avaabe of the number of persons or amount of earnne s
e cuded. The Intent of the amendment s to e cude those persons and tho
organzatons n whch the empoyment s part-tme or ntermttent and tt
tota amount of earnngs s ony nomna, and the payment of the ta s n c
sequenta and a nusance. The beneft rghts but up are aso nconsequent
Many of those affected, such as students and the secretares of odges, w hre
other empoyment whch w enabe them to deveop nsurance benefts. Ths
amendment, therefore, shoud smpfy the admnstraton for the worker, te
empoyer, and the Government
Nne other amendments to the coverage provsons are ncuded n the b
They are as foows:
1. grcutura abor. The present ct e cudes agrcutura abor froc
coverage. The b contnues the e empton of agrcutura abor and defoe
the term so as to carfy ts meanng and to e tend the meanng to certat
servces whch are an ntegra part of farmng actvtes. These provsons ar
e paned n deta n a subsequent part of ths report, n connecton wth tte
defnton of agrcutura abor as defned n secton 209(1) of the b.
2. cuson of payments to empoyer wefare pans. The term wages
amended so as to e cude from ta payments made by an empoyer on account
of a retrement, annuty, sckness, death or accdent dsabty pan, or fcr
medca and hosptazaton e penses n connecton wth sckness or acddea:
dsabty. Dsmssa wages whch the empoyer s not egay requred to make,
and payments by an empoyer of the worker s edera nsurance contrbutons
or a contrbuton requred of the worker under a State unempoyment-compensa-
ton aw are aso e cuded from ta . Ths w save empoyers tme and mow
but what s more mportant s that t w emnate any reuctance on tte
part of the empoyer to estabsh such pans due to the addtona ta cost- ,
3. shng. The b e empts servces performed n fshng and certan reates
actvtes, and aso an offcer or member of the crew of any sa vesse or aw
other vesse of ess than 400 tons.
4. Newsboys. The b e empts servces performed by an Indvdua nndet
the age of 1 In the devery or dstrbuton of newspapers or shoppng new
not ncudng devery or dstrbuton to any pont for subsequent devery or
dstrbuton.
5. State empoyment. The e empton reatng to empoyment by State Instru-
mentates s so defned as to appy ony to an Instrumentaty whoy owned
by the State or potca subdvson, or ta e empt under the Consttuton.
6. oregn governments. Provson Is made for the e empton of fore|S
governments, and ther nstrumentates under certan condtons, from u e
od-age-nsurance ta es.
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7. amy empoyment. Servce performed by an ndvdua for hs son,
daughter, wfe, or husband, and servce by a chd under 21 for hs parent, s
e cuded so as to make the od-age-nsurance coverage Identca n ths respect
wth unempoyment compensaton coverage.
. Incuded and e cuded servces. The aw Is changed wth respect to serv-
ces of an empoyee performng both ncuded and e cuded empoyment for
the same empoyer so that the servces whch predomnate n a pay perod
determne hs status wth that empoyer for that perod.
9. Mutpe empoyment. The b provdes for a refund wthout nterest to
empoyees who earn wages n covered empoyment In e cess of 3,000 from more
than one empoyer n any gven caendar year. The cam for refund must be
made to the ureau of Interna Revenue of the Treasury Department wthn
two years after the caendar year n whch the wages are pad wth respect to
whch the refund s camed.
DMINISTR TI C NG S.
1. provson s ncuded requrng empoyers to furnsh empoyees a state-
ment, whch they may retan, showng the amount of ta es deducted from ther
wages under the od-age-nsurance system.
2. Provson s made for makng more equtabe the recovery by the edera
Government of ncorrect payments to ndvduas.
3. Provson s made respectng the practce of attorneys and agents before
the oard.
4. Detaed provsons have been added reatng to rues and reguatons,
hearngs, and decsons wth respect to nsurance benefts, procedure for |udca
revew of the oard s decsons, and deegaton of authorty by the oard.
5. Provson s made for gvng an opportunty for a hearng to a wage
earner or nterested ndvdua wth respect to any entry, omsson, or revson
of the oard s wage record wthn four years after the year any wages were
pad or aeged to be pad, and as to the fnaty of the record.
6. Subchapter , Chapter 9, of the Interna Revenue Code (formery Tte
III of the Soca Securty ct) s gven the short tte edera Insurance
Contrbutons ct.
Unempoyment Compensaton,

Your commttee have emnated from the b certan amendments to the
unempoyment-nsurance provsons whch were contaned n the ouse b. In
genera, the two amendments whch have been deeted by your commttee are
as foows:
1. The provson requrng that States sha coect an average of 2.7 per cent
of pay ros and
2. The State-wde reducton pan aowng States to reduce contrbutons f
they meet certnn mnmum reserve and beneft standards.
Your commttee have not ncuded these two provsons In the b after
hearng from the admnstrators of severa State unempoyment-compensaton
agences who opposed these two provsons n the ouse b. Your commttee
fee that there has not been enough tme to deveop suffcent e perence n the
fed of unempoyment compensaton upon whch to base an ntegent decson
wth respect to a reducton n the contrbuton rates or the nserton of mnmum
beneft standards at ths partcuar tme.
In vew of ths fact your commttee fee that the wsest pocy s to contnue
the present provsons wth respect to unempoyment nsurance unt such tme
as a thorough study of the beneft e perence of the varous States w yed
practca resuts.
The b contans, however, certan amendments desgned to smpfy admns-
traton for empoyers and the Government and to carfy certan technca
aspects of the present ct.
mpoyers w save an aggregate amount of about 15,000,000 by vrtue of
the provson grantng reef to those empoyers who pad ther State unempoy-
ment-compensaton contrbutons for the years 1936, 1937, and 193 too ate to
quafy for the edera credt. mpoyers who pay ther denquent ta es for
these years before the s teth day after the enactment of these amendments
woud receve fu credt aganst ther edera ta es for 1930, 1937, and 193 .
urther the provsons as to oss of credt on account of future denquency
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572
woud be rea ed by (1) Increasng from 60 to 90 days the ma mum pereS
for whch the Commssoner of Interna Revenue Is permtted to grant an e -
tenson for the fng of edera ta returns, and (2) by provdng thy
empoyers who pay ther ta es after anuary 1 but before uy 1 ne t foow-
ng the cose of the ta abe year woud ose ony 10 per cent of ther aowabe
credt.
nother of the amendments woud resut In a savng to empoyers as we u
In consderabe smpfcaton of reportng procedures. Ths Is the amendmat
to mt unempoyment-compensaton ta es to the frst 3,000 of annua wags.
Such a mtaton aready e sts In the case of od-age nsurance and there ar
dstnct advantages to provdng a unform ta base for both programs. It
estmated that ths new mtaton woud resut In a savng to empoyers c
about 65,000,000 a year.
gan In the nterests of smpfcaton and unform reportng, the press
b proposes to change the ta base for unempoyment compensaton fas
wages payabe to the wages pad defnton used In od-age nsurance.
Many of the same changes In coverage are provded In ths b wth respen
to unempoyment compensaton as have aready been dscussed under od-as
nsurance. The cases nvovng ta es of sma consequence, whch woud fce
e empt under od-age nsurance, woud aso be e empt from the edera Unar-
poynent Ta ct. The agrcutura-abor e empton s defned and e tended
as n od-age Insurance. The b proposes to e tend coverage to one of t
groups now e cuded, namey, empoyees of certan edera nstrument t
such as natona banks, and State bank members of the edera Reserve Systec
Ths amendment woud brng about 200,000 addtona persons under the anes-
poyment-compensaton program, provded the States amend ther a
accordngy.
Provson Is made In secton 902(h) of the b grantng reef to ta payers
States n those cases In whch the hghest court of a State has hed contrbutss
pad under the State unempoyment compensaton aw for 1936 or 1937 not te
have been vady requred under such aw. Ths provson Is to take care
the stuaton In North Carona where the State supreme court recenty hed that
the provsons of the State aw requrng contrbutons for 1936 were nvad
because they were retroactve. The effect of the proposed amendment Is to
enabe North Carona to keep about 3,000,000 In ts reserve fund for use n tte
payment of unempoyment compensaton benefts.
Other changes affectng unempoyment compensaton are:
1. uthorzaton Is gven to the States to make ther unempoyment-comp
ton aws appcabe to servces performed on and or premses owned, hed
possessed by the Unted States Government, such as servces performed as
empoyees of hotes n natona parks. Congress has aready enacted a statute
gvng the States authorty to appy ther workmen s compensaton aws to sect
empoyees.
2. The anguage e cudng State Instrumentates s defned as In od-as-
Insurance so that the e empton appes ony to an nstrumentaty whoy owned
by the State or potca subdvson, as we as those e empt from ta under tts
Consttuton.
3. s In od-age Insurance, the defnton of wages Is amended so a t
e cude from ta the payments made by an empoyer on account of a retrenn
annuty, sckness, death, or accdent dsabty pan, or for medca or hosptas
ton e pense n connecton wth sckness or accdent dsabty. Dsmssa waffc
whch the empoyer Is not egay requred to pay, and payments by an empoy
of the worker s edera nsurance contrbutons, or a contrbuton requred
the worker under a State unempoyment-compensaton aw are aso e cuded
from ta .
4. Provson Is made, as n od-age Insurance, for the e empton of foregn
governments and ther nstrumentates from the unempoyment-compensatoo
5. Provson Is made for the e empton of servces performed by an ndvdua
for a person as an Insurance agent or as an nsurance soctor, If a
servces performed by such ndvdua for such person are performed w
remuneraton soey by way of commsson. .
6. Provson Is made for the e empton of servces performed by an ndMdM
under the age of 1 In the devery or dstrbuton of newspapers or shupp1
news, not ncudng devery or dstrbuton to any pont for subsequent deutw
or dstrbuton.
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(Msc
T. The aw s changed wth respect to servces of an empoyee performng
both ncuded and e cuded empoyment for the same empoyer so that the
servces whch predomnate n a pay perod determne hs status wth that
empoyer for the perod. The same proTson s made n connecton wth od-
age nsurance.
. The mert ratng or ndvdua empoyer e perence ratng provsons
are carfed.
9. provson has been nserted requrng the State aws to provde for the
e pendture of edera grants for the admnstraton of ther unempoyment com-
pensaton aws n accordance wth the edera ct and requrng the repace-
ment of any moneys ost or e pended for other purposes.
10. tenson of tme s gven for the aowance of credt aganst the edera
ta n cases where the empoyer has pad hs State ta on tme but has pad t
to the wrong State.
11. The tme s aso e tended n those cases where ta payer s assets are n the
custody or contro of a recever, trustee, or other fducary under the contro
of a court.
12. The ta on empoyers of eght or more now contaned In Subchapter O
of Chapter 9 of the Interna Revenue Code (formery Tte I of the Soca
Securty ct) Is gven the short tte edera Unempoyment Ta ct

Genera.
Two amendments of a genera character are contaned n the b. These are:
. n amendment to prohbt the dscosure of nformaton obtaned by the
oard or ts empoyees e cept under certan restrcted condtons reated to
proper admnstraton.
2. Penates are provded for certan frauds and for mpersonaton n securng
Informaton concernng an ndvdua s date of brth, empoyment, wages, or
benefts of any ndvdua.
detaed e panaton op the b.
Short Tte.
Secton 1 of the b provdes that the ct may be cted as the Soca
Securty ct mendments of 1939.

Trn I mendments to the Interna Revenue Code.
D R L INSUR NC CONTRI UTIONS CT.
T UND R S CTIONS 1400 ND 1410 O T INT RN L R NU COD ( ORM RLY
S CTIONS 01 ND 04 O T SOCI L S CURITY CT).
Sectons 601 and 604: Under the e stng provsons of sectons 1400 and 1410
of the Interna Revenue Code (formery sectons 01 and 04, respectvey, of the
Soca Securty ct) the rate of ta on empoyees and the rate of ta on em-
poyers are each schedued to ncrease on anuary 1,1940, from 1 per cent of the
wages to 1 per cent wth a further ncrease of | per cent at the e praton of
succeedng 3 -year perods unt the ma mum rate of 3 per cent on empoyees and
3 per cent on empoyers s reached n 1949. Under the amendment the ncrease
schedued for anuary 1, 1940, woud be emnated, and the rate of each ta
woud be as foows:
Per cent.
or the caendar years 1939, 1940,1941, and 1942 1
or the caendar years 1943, 1944, and 1945 2
further change Is made by ths amendment. Sectons 1400 and 1410 at the
Interna Revenue Code now provde that the rate of ta appcabe to wages s
the rate n effect at the tme of the performance of the servces for whch the
wages are pad. Ths w unnecessary compcate the makng of returns and
the coecton of the ta es n ater years when the rate of ta has been ncreased.
or e ampe, n 1943 the rate of ta Increases from 1 per cent to 2 per cent.
Thus, wuges whch are pad n 1943 for servces performed n 1942 w be sub|ect
to the 1 per cent rate, whe wages pad n 1043 for servces performed n that
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574
year w be sub|ect to the 2 per cent rate. Provson mast therefore be made
In the return for 1943 for the reportng of wages sub|ect to the dfferent rates,
and, n audtng the returns, .It w be necessary to ascertan not merey the tns
when the wages were pad and receved, but aso the year of the rendton of the
servces for whch the wages are pad. If empoyers have faed to make the
proper dstncton, many refunds and addtona assessments w doubtess be
necessary and confuson w resut. Under the amendment the rate appucste
woud be the rate n effect at the tme that the wages are pad and receved wth-
out reference to the rate whch was n effect at the tme the servces were
performed.
D USTM NTS O O RP YM NT ND UND RP YM NT O MPLOY S T , ND SP CU1
R UNDS O MPLOY S T .
Secton 602(a) : Present secton 1401(c) of the Interna Revenue Co
(formery secton 02(b) of the Soca Securty ct) s desgned to permt the
empoyer to ad|ust, wthout nterest, overpayments and underpayments of em-
poyees ta wthout the necessty n the former case of requrng the fng of
cam for refund and In the atter case of the makng of a demand by the co-
ector for the addtona ta . The e stng provsons of the secton requre tha:
the ad|ustment be made n connecton wth subsequent wage payments. Tss
dfferent types of stuatons obtanng at the tme the error s dscovered and
shoud be corrected are numerous. or e ampe, the empoyee may be c
tnuousy empoyed and recevng remuneraton at reguar ntervas, or he m
be entted to no remuneraton for some tme to come, or f he s entted t
remuneraton, t may not be ta abe because hs servce s rendered tenporarU .
or for an ndefnte tme, In a foregn country, or because he has aready receved
3,000 from the empoyer for servces rendered durng the caendar year, the
ma mum ta abe remuneraton under secton 1426(a) of the Interna Revests
Code (formery secton 11 (a) of the Soca Securty ct), or the empoyee s
connecton wth the empoyer who made the error may have been severed. More-
over, undercoectons requre a procedure dfferent from that n the case t
overcoectons. The use of the term wage payments causes dffcuty snce the
term wages has a restrcted meanng for the purpose of ths ta . urther-
more, t may prove desrabe n certan crcumstances to provde for ad|ustments
at tmes other than n connecton wth subsequent payments of remuneraton
to the ndvdua. Ths amendment, by use of the word remuneraton nstead
of wage and by eavng the manner and tme of the ad|ustment to be pre-
scrbed by reguatons, w enabe the admnstratve offcers to meet the vared
stuatons whch arse.
Secton 602(b) : Your commttee has added ths subsecton to secton 602 of the
ouse b, whch woud add a new subsecton (d) to secton 1401 of the Interna
Revenue Code. Under e stng aw, remuneraton receved by an empoyee w
respect to empoyment durng any caendar year s ta abe up to and ncudng
3,000 receved by the empoyee from each empoyer he may have durng the
year. ence, an empoyee who has more than one empoyer may be requred
to pay the od-age-nsurance empoyee s ta on aggregate wages n e cess of
3,000. The commttee beeve ths bears harshy on the Indvdua havng more
than one empoyer durng a caendar year, and has accordngy ncorporated as
amendment whch permts the empoyee to obtan a refund, wthout nterest, of
the ta pad on the aggregate n e cess of 3,000 earned after December 31, 193 ,
provded a tmey cam s fed. or admnstratve reasons the commttee has
not dsturbed the abty of the empoyee havng more than one empoyer for ta
on each 3,000 of wages from each empoyer or the requrement that each em-
poyer sha deduct the empoyee s ta from wages whch he pays hs empoyee
wthn the 3,000 ma mum. No ground for reef e sts In the case of the em-
poyer s ta . ach empoyer w and shoud be abe for ta wth respect to the
frst 3,000 pad to each empoyee notwthstandng the empoyee may be recev-
ng, or may ater n the year receve, wages from another empoyer. No refund
s authorzed n any case uness the empoyee s ta wth respect to at east 3#
of wages for empoyment durng the caendar year has been actuay deducted
and pad to the coector of nterna revenue.
R C IPTS OR MPLOY S.
Secton 603: Ths secton amends Subchapter of Chapter 9 of the Interna
Revenue Code (formery Tte III of the Soca Securty ct) by nsertng a
new secton n such subchapter. Subsecton (a) of the new secton requres
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Mso,
every empoyer to furnsh each empoyee wth n wrtten statement or state-
ments, n a form sutabe for retenton by the empoyee, showng the ta -abe
wages pad to the empoyee after December SI, 1930, for servces rendered n
hs empoy, and the amount of ta mposed by secton 1400 wth respect to
such wages. In addton, the names of the empoyer and empoyee, and the
perod covered by the statement, are to be shown. ach statement, or recept,
must cover one or more, but not more than four, caendar quarters. Under
e stng Treasury reguatons the empoyer s requred to fe a return for each
caendar quarter wth the coector of nterna revenue, showng the amount of
wages pad to each empoyee. Iy requrng the recepts to cover one or more
caendar quarters, the empoyer s enabed. In makng out such recepts, to use
the amounts of wages of each empoyee as shown on the copes of the quartery
returns whch the empoyer retans. Returns, under e stng Treasury regua-
tons, must be fed wth the coector wthn the caendar month foowng
the cose of the quarter. The secton gves empoyers an addtona month
wthn whch to furnsh ther empoyees wth the recepts. owever, when an
empoyee eaves the empoy of the empoyer, the fna recept, coverng the
perod from the termnaton of the perod covered by the ast precedng recept
furnshed the empoyee, s to be gven the empoyee when the fna payment of
wages s made to hm. If the empoyer chooses, he may under the secton
furnsh a recept to an empoyee at the tme of each payment of wages durng
a caendar quarter, n eu of coverng In a snge recept the tota wages
pad to the empoyee durng such quarter.
Subsecton (b) provdes that any empoyer who wfuy fas to furnsh a
statement to an empoyee n the manner, at the tme, and showng the nforma-
ton, requred under subsecton (a), sha for each such faure be sub|ect to a
cv penaty of not more than 5.
T S UND R S CTION 1410 O T INT RN L R NU COD ( ORM RLY S CTION
04 O T SOCI L S CURITY CT).
Secton 604: See secton 601, supra.
D USTM NT O MPLOY RS T .
Secton 605: The amendment made by ths secton to secton 1411 of the
Interna Revenue Code (formery secton 05 of the Soca Securty ct), re-
atng to ad|ustments of empoyers ta , s ntended to accompsh the same
purpose as the correspondng amendment to secton 1401(c) of the Code,
reatng to ad|ustments of empoyees ta . See secton 602(a), supra.
D INITIONS.
Secton 600: Ths secton, effectve anuary 1, 1940, amends secton 1425 of
the Interna Revenue Code, contanng defntons appcabe In the case of the
od-age Insurance ta es.
Defnton of wages. Secton 1426(a) : Ths subsecton contnues the present
defnton of wages, carfes t n certan respects, and e cudes certan pay-
ments heretofore ncuded. Paragraph (2) n the ouse b e cudes a pay-
ments made by the empoyer to or on behaf of an empoyee or former empoyee,
under a pan or system provdng for retrement benefts (ncudng pensons)
or dsabty benefts (ncudng medca and hosptazaton e penses), but not
fe nsurance. Your commttee have added an e cuson of payments on ac-
count of death (ncudng fe Insurance) where It Is cear that the empoyee
whe vng does not have certan rghts and optons. Generay, such payments
are e cuded under e stng aw f the empoyee does not have those rghts
and optons, but t s deemed desrabe for purwses of certanty to provde an
e press e cuson. The payments under paragraph (2) of the ouse b and
under the b, as amended, w be e cuded even though the amount or poss-
bty of suc payments s taken nto consderaton n f ng the amount of
remuneraton and even though such payments are requred, ether e pressy
or mpedy, by the contract of empoyment. Snce t s the practce of some
empoyers to provde for such payments through Insurance or the estabsh-
ment and mantenance of funds for the purpose, the premums or nsurance
payments and the payments made nto or out of any fund w kewse be
e cuded from wages. Your commttee has made no change n paragrnphs
(3) and (4) of the ouse b. Paragraph (3), whch merey carfes e stng
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576
aw, e pressy e cudes from wages the payment by an empoyer (wthout t-
dueton from the remuneraton of, or other rembursement from, the at
poyee) of the empoyee s ta mposed by secton 1400 of the Interna Reras
Code (formery secton 01 of the Soca Securty ct) and empoyee contrh-
tons under State unempoyment compensaton aws. Paragraph (4) edute
dsmssa payments whch the empoyer Is not egay obgated to make.
Defnton of empoyment. Secton 1426(b): Ths term s defned to nes
any servce performed pror to anuary 1, 1940, whch consttuted empov
as defned n ths secton pror to such date and to mean any servce pa-
formed after December 1, 1939, by an empoyee for the person empoyng tn
rrespectve of the ctzenshp or resdence of ether, ( ) wthn te Unted
States or ( ) on or n connecton wth an mercan vesse (defned n suc-
ton (h)) under a contract of servce entered nto wthn the Unted States
or durng the performance of whch the vesse touches a port theren, f
empoyee s empoyed on and n connecton wth the vesse when outsde fe
Unted States. No substantve change In e stng aw s effected by the to
ductory paragraph of ths provson e cept the e tenson of the defnton
ncude servce on mercan vesses. Ths e tenson Is desgned to nch ,
wth the quafcatons noted, a servce whch s attached to or connected
the vesse (e. g., servce by offcers and members of the crew and other empoye-
such as those of concessonares). Indvduas who are passengers on tfe
vesse n the generay accepted sense, such as an empoyee of an meas
department store gong abroad, w not be Incuded because snch sems
has no connecton wth the vesse. Servce performed on or n connects
wth an mercan vesse wthn the Unted States w be on the same
as regards ncuson as other servce performed wthn the Unted States.
Under e stng aw servce performed wthn the Unted States (whch other-
wse consttutes empoyment) s covered rrespectve of the ctzenshp or n
dence of the empoyer or empoyee. The amendment makes cear that ths f
be true aso n te case of martme servce covered by the amendment, repf-
ess of whether performed wthn or wthout the Unted States. The b s
reasons whch caused the orgna coverage to be made wthout dstnctons
account of ctzenshp or resdence appy In the case of seamen. The must1
of foregn seamen who may be empoyed on mercan vesses engaged In trade
s mted under our shppng aws.
The defnton of the term empoyment under the amendment, as appM
to servce rendered pror to anuary 1, 1940, retans the e emptons contate
that date contnues unchanged some of the present e emptons, revses otters,
and adds certan addtona ones.
Paragraph (1) contnues the e cepton of agrcutura abor, but a new f
secton (h) defnes the term for purposes of the e cuson.
prvate home, but adds to te e cepton such servce n a oca coege dub.
oca chapter of a coege fraternty or sororty (not ncudng aumn dots
or chapters). Thus servces of cook, water, chambermad, and the hot
mother, performed for these oca cubs and chapters, are e empt.
Paragraph (3) contnues the present e cepton of casua abor not In the
course of the empoyer s trade or busness.
new paragraph (4) e cudes servce performed by an ndvdua In n
empoy of hs son, daughter, or spouse, and servce performed by a chd un r
the age of 21 n the empoy of hs parent. Ths e cuson s aready contan
n the edera unempoyment ta provsons of the e stng aw. The od para-
graph (4), whch e cuded servce performed by an ndvdua who hasartan
the age of 65, s repeaed. (See secton 905(a) of the b, whch makes art
repea effectve anuary 1, 1939.)
Paragraphs (5) to (15), ncusve, are dentca wth the same parasnp
n secton 209(b) of the Soca Securty ct or detaed anayss of art
paragraphs see the e panaton of such secton 209(b) n ths report. P
matera referred to s as foows:
Paragraph (5), whch takes the pace of the e stng e cuson of Wy
on documented vesses, e cudes servce performed on or n connecton wta
vesse not an mercan vesse, f the empoyee s empoyed on and n cow
ton wth such vesse when outsde the Unted States. Ths provson
a servce, athough performed wthn the Unted States, whch s renders t
an empoyee who was renderng servce on and n connecton wth such a
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upon ts entry Into the Unted States or who Is renderng such servce upon
departure of the vesse from the Unted States. Thus, offcers and members of
the crew and other empoyees whose servce s rendered both on and n con-
necton wth the vesse (such as empoyees of concessonares and others whose
servce s smary connected wth the vesse) when on ts voyage are e cuded
even though the vesse s wthn the Unted States, f they come nto or go
out of the Unted States wth the vesse.
Paragraph (6) contnues the e empton of servce performed In the empoy of
the Unted States but, wth respect to nstrumentates of the Unted States,
tre Unted States or ( ) e empt from the ta mposed by secton 1410 of the
ths tte of the ct certan edera nstrumentates not fang wthn cause
( .) or ( ), above, such as natona banks.
Paragraph (7) contnues the e empton of servce for State governments,
ther subdvsons and Instrumentates, but mts the e empton wth respect to
nstrumentates so that t appes ony to an Instrumentaty whch Is whoy
ta mposed by secton 1410 f the Interna Revenue Code (formery secton 04
nto conformty wth the correspondng e empton from ncome ta under secton
101 (6) of the Interna Revenue Code, by addng a specfc dsquafyng cause
appcabe where any substanta part of the actvtes of the organzaton s
Paragraph (9) contnues wthout change the present provsons of aw e empt-
ng servces of empoyees covered by the raroad retrement system. Ths pro-
vson eaves unchanged the e empton of the servce of an Indvdua n the
empoy of an empoyer sub|ect to the raroad retrement system even though
the ndvdua receves remuneraton n a form, e. g., tps, not recognzed as
compensaton under the Raroad Retrement ct and Subchapter of Chapter
9 of the Interna Revenue Code (formery the Carrers Ta ng ct of 1037),
and eaves unchanged the ncuson of servce n case t s performed by an
empoyee n the segregabe nonraroad actvtes of an empoyer where seg-
regaton of the raroad actvtes from nonraroad actvtes s found necessary
n the nterpretaton and admnstraton of the aws reatng to the soca securty
system and the raroad retrement system.
Paragraph (10) provdes severa new e cusons from empoyment. Cause
( ) e empts certan servce n any caendar quarter performed In the empoy
of an organzaton e empt from ncome ta under secton 101 of the Interna
Revenue Code, f () the remuneraton for such servce does not e ceed 45
or () wthout regard to amount of remuneraton, f the servce s performed n
connecton wth the coecton of dues or premums (away from the home offce)
for a fraterna benefcary socety, order, or assocaton, or s rtuastc servce
(wherever performed) n connecton wth such an organzaton or ( ), wth-
out regard to amount of remuneraton, f the servce s performed by a student
enroed and reguary attendng casses at a schoo, coege, or unversty.
Organzatons so e empt from ncome ta and thus wthn ths provson ncude
the foowng: Certan abor, agrcutura, and hortcutura organzatons, mu-
tua savngs banks, fraterna benefcary socetes, budng and oan assoca-
tons, cooperatve banks, credt unons, cemetery companes, busness eagues,
chambers of commerce, rea estate boards, boards of trade, cvc eagues, oca
assocatons of empoyees, soca cubs, oca benevoent fe nsurance assoca-
tons, mutua rrgaton and teephone companes, farmers or other mutua ha,
cycone, casuaty, or fre Insurance companes or assocatons, farmers coopera-
tve marketng and purchasng assocatons, corporatons organzed to fnance crop
operatons, vountary empoyees benefcary assocatons, and regous or apos-
toc assocatons or corporatons.
Paragraph (10), cause ( ), of the ouse b e cepts servce n the empoy
of an agrcutura or hortcutura organzaton, regardess of the amount of
remuneraton. The commttee report of the Ways and Means Commttee states
that these organzatons are dentca wth agrcutura and hortcutura or-
ganzatons e empt from ncome ta under secton 101(1) of the Interna
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57
Revenue Code. The proposed amendment of your commttee woud be to dtrfr
the provson.
Paragraph (10), cause (C), e cepts servce In the empoy of a vountrr
empoyees benefcary assocaton, provdng for payment of fe, sck, acddea
or other benefts to the members of such assocaton or ther dependents, f
no part of Its net earnngs nures (other than through such payments) to the
beneft of any prvate sharehoder or ndvdua, and (11) 5 per cent or re
of e ncome conssts of amounts coected from members for the soe purpose
of makng such payments and meetng e penses. Ths e empton s detw
wth that of these organzatons under secton 101(16) of the Interna evetD
Code and w have the same scope.
Paragraph (10), cause (D), of the ouse b e cepts a servce perornr
n the empoy of a vountary empoyees benefcary assocaton provdng Is
the payment of fe, sck, accdent, or other benefts to the members of sock
assocaton or ther dependents or desgnated benefcares, f () admsson u
membershp n such assocaton s mted to ndvduas who are empoyee (
the Unted States Government, and () no part of the net earnngs of eoct
assocaton nures (other than through such payments) to the beneft d
any prvate sharehoder or ndvdua. The proposed amendment s merey
carfyng.
Paragraph (10), cause ( ), e cepts servce performed n any caen
quarter In the empoy of a schoo, coege, or unversty, not e empt ns
ncome ta , f such servce Is performed by a student enroed and reguar.
attendng casses at such schoo, coege, or unversty, and the renunerata
for such servce does not e ceed 45. In determnng the remuneraton. U
purposes of the 45 mtaton, the vaue of room, board, and tuton,
furnshed by the schoo, coege, or unversty as part of the remunerat
woud be e cuded.
caendar quarter s any perod of three caendar months endng on Marc-
31, une 30, September 30, or December 31.
Paragraph (11) e cepts servce performed n the empoy of a foregn gores
ment, and paragraph (12) smary e cepts, on a bass of recprocty, serrs
performed n the empoy of an nstrumentaty whoy owned by a foreff
government. These paragraphs are, by secton 902(f) of the b, made re .
actvey effectve to the date of the enactment of the Soca Securty ct
Paragraph (13) e cepts servce performed as a student nurse n the empe|
of a hospta or a nurse s tranng schoo by an ndvdua who s enroed ft
s reguary attendng casses n such a schoo chartered or approved pursut
to State aw and servce performed as an nterne (as dstngushed from s
resdent doctor) n the empoy of a hospta by an ndvdua who has competed
a four years course n a medca schoo chartered or approved pursuant
State aw.
Paragraph (14) s a new paragraph proposed by your commttee.
amendment woud e cude fshermen from coverage. It woud aso e cude
offcers and members of crews (even though not fshermen) of any vesse I
than 400 tons or of any sa vesse regardess of tonnage If the vesse s
engaged n specfed fshng actvtes. The tonnage of vesses w be detennte
by methods empoyed for determnng tonnage for the purpose of regstry.
Paragraph (15) s a new paragraph proposed by your commttee, wW-
woud e cude servces performed by an ndvdua under the age of 15 k
makng street saes of newspapers, and n makng house-to-house devery
newspapers or shoppng news, ncudng handbs and other smar types
advertsng matera. It does not ncude the handng of newspapers aw
advertsng matera pror to tme they are turned over to the ndvdua we
makes the sae, the house-to-house, or other fna dstrbuton.
Secton 1426(c) : Ths subsecton reates to an empoyee who has both ndodf|
and e cuded servce for the same empoyer durng a pay perod. It provde
that f one-haf or more of the servces consttutes Incuded empoyment, a
such servce w be ncuded but that f ess than one-haf consttutes Incude),
empoyment, a w be e cuded.
The provson does not appy to the servce of an empoyee n a pay per01 11
any of the servce of the empoyee In the pay perod s covered under SuhcnapW
of Chapter 9 of the Interna Revenue Code (formery the Carrers Ta ng rt
of 1937). The amendment proposed by your commttee to the ast sentence
ths subsecton s merey carfyng.
Defntons of empoyee and empoyer. The nouse proposa to e tend COTeI
to saesmen who are not empoyees has been strcken out by the commttee b
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beeved ne pedent to change the e stng aw whch mts coverage to em-
poyees. Ths acton of the commttee renders unnecessary the new defnton of
empoyer whch was contaned n subsecton (e) of secton 1426 as passed by the
ouse. Subsecton (e) s therefore strcken, and subsequent subsectons of
secton 1426 have been reettered.
Secton 1426 (e) and (f), defnng the terms State and person, respec-
tvey, makes no change n the e stng defntons of those terms.
Defntons of mercan vesse and agrcutura abor. Subsectons (g) and (h)
of secton 1426 are dentca wth subsectons (d) and (1) of secton 209 of the
Soca Securty ct. or detaed anayss see dscusson of those subsectons n
ths report. The matera referred to s as foows:
Defnton of mercan vesse. Secton 200(d) : Ths term Is defned to mean
any vesse documented or numbered under the aws of the Unted States and aso
to ncude any vesse nether so documented nor numbered nor documented under
the aws of any foregn country whe the crew s n the empoy ony of ctzens
or resdents of the Unted States or corporatons organzed under the aws of the
Unted States or of any State.

Defnton of agrcutura abor. Secton 209(1) : The present aw e empts
agrcutura abor wthout defnng the term. It has been dffcut to demt
the appcaton of the term wth the certanty requred for admnstraton and for
genera understandng by empoyers and empoyees affected.
Your commttee beeves that greater e actness shoud be gven to the e cep-
ton and that t shoud be broadened to ncude as agrcutura abor certan
servces not at present e empt, as such servces are an ntegra part of farmng
actvtes. In the case of many of such servces, t has been found that the
ncdence of the ta es fas e cusvey upon the farmer, a factor whch, n
numerous nstances, has resuted n the estabshment of compettve advantages
on the part of arge farm operators to the detrment f the smaer ones.
The defnton of agrcutura abor contaned n the b as reported by
the commttee s n substantay the same form as n the ouse b however,
the commttee does recommend some changes desgned to further carfy the
e tent of the e empton.
Paragraph (1) of ths subsecton e empts servce performed on a farm, n
the empoy of any person, n cutvatng the so, or n rasng or harvestng any
agrcutura or hortcutura commodty, ncudng the rasng, shearng, feed-
ng, carng for, tranng, and management of ve stock, bees, poutry, and fur-
bearng anmas and other wdfe. Such servces are e empt under e stng
aw ony f performed In the empoy of the owner or tenant of the farm on
whch they are rendered. Servces performed on a farm n the rasng, feedng,
and management of fur-bearng anmas, such as fo es, not now e empted, w
be e empt under paragraph (1). Ths paragraph aso contnues the e stng
e cuson of servces performed on a farm In the rasng or harvestng of hort-
cutura commodtes, ncudng fowers and nursery products, such as young
frut trees, ornamenta pants, and shrubs.
Paragraph (2) of the subsecton e cepts servces n the empoy of the owner
(whether or not such owner s n possesson) or tenant or other operator of a
farm n connecton wth the operaton, management, conservaton, mprovement,
or mantenance of such farm and ts toos and equpment, f the ma|or part of
those servces are performed on a farm. Under ths anguage certan servces
are to be regarded as agrcutura even though they are not performed n con-
ductng any of the operatons referred to n paragraph (1). Servces e empt
under ths paragraph may Incude, for e ampe, servces performed by car-
penters, panters, farm supervsors, rrgaton engneers, bookkeepers, and other
sked or semsked workers whose servces contrbute n any way to the
proper conduct of the farm or farms operated by ther empoyer. Some of these
servces at present consttute covered empoyment under some crcumstances but
not under other crcumstances. It s stpuated that the servces referred to n
ths paragraph must be performed n the empoy of the owner or tenant or
other operator of the farm so that the e empton w not e tend to servces
performed by such persons as empoyees of a commerca pantng concern, for
e ampe, whch contracts wth a farmer to renovate hs farm propertes.
Paragraph (3) e tends the e cepton to servces performed n connecton
wth certan specfed products and operatons. Ordnary these servces are
performed on a farm or are of such a character as to warrant no dfferent
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treatment than Is accorded servces performed In connecton wth fannng ab-
tes. In order that n unform rue may be apped n the case of these servces,
they w be e cepted whether or not performed on a farm or n the empoy of
the owner or tenant of a farm. In the case of mape sap, the e empton w
e tend to servces n connecton wth the processng of the sap nto mape supr
or mape srup, but not n the subsequent bendng or other processng of sod)
sugar or srup wth other products. Under the present e cepton servces re-
formed n connecton wth the producton of mape srup or mape sugar do not
consttute agrcutura abor. Smary, the e stng e cepton does not e -
tend to servces performed n connecton wth the growng, harvestng, process-
ng, packng, and transportng to market of oeoresn, gum sprts of turpentne,
and gum resn. Under ths paragraph, however, the e cepton w appy to
servces performed n connecton wth the producton or harvestng of erode
gum (oeoresn) from a vng tree and of the foowng products as process
ony by the orgna producer of the crude gum (oeoresn) : Gum sprts of
turpentne and gum resn, as defned n the grcutura Marketng ct, as
amended. Servces performed n connecton wth any hatchng of poutry am
In connecton wth the gnnng of cotton w aso be e cepted. Servces per-
formed n connecton wth the rasng or harvestng of mushrooms constrate
agrcutura abor under e stng aw, ony when performed on a farm. The
fact that mushrooms are not usuay grown under ordnary fed condtons bt
are grown n cears, caves, barns, or n sheds specay constructed for the pur-
pose has resuted n the empoyees of some growers beng covered whe em-
poyees of others are not. Under ths paragraph a such servces w k
e cepted. Servce performed n connecton wth the operaton or mantenance
of dtches, canas, reservors, or waterways used e cusvey for suppyng acd
storng water for farmng purposes w aso be e cepted under ths paragraph.
Thus, a servce performed n the empoy of an organzaton operatng edt-
svey for the purpose of suppyng water to farms woud be e empt Most of
such organzatons are e empt under the present aw as governmenta agencte
The others are usuay nonproft companes formed by the farmers who use te
water.
Paragraph (4) of the subsecton e tends the e empton to servce (thou0
not performed n the empoy of the owner or tenant or other operator of s
farm) performed n the handng, pantng, freezng, gradng, storng, or dev-
erng to storage or to market or to a carrer for transportaton to market, any
agrcutura or hortcutura commodty, provded such servce s performed as
an ncdent to ordnary farmng operatons or, n the case of fruts and vege-
tabes, as an ncdent to the preparaton of such fruts or vegetabes for marset.
The provsons of the paragraph, however, do not e tend to servces performed
In connecton wth commerca cannng or commerca freezng, nor to servce
performed n connecton wth any agrcutura or hortcutura commodty after
ts devery to a termna market for dstrbuton for consumpton. The e pres-
son as an ncdent to ordnary farmng operatons s, n genera, ntewW
to cover a servces of the character descrbed In the paragraph whch are
ordnary performed by the empoyees of a farmer or by empoyees of a farmers
cooperatve organzaton or group, as a prerequste to the marketng, n ts
unmanufactured state, of any agrcutura or hortcutura commodty produced
by such farmer or by the members of such organzaton or group. The e pres-
son aso ncudes te devery of such commodty to the pace where, n the
ordnary and natura course of the partcuar knd of farmng operatons n-
voved, the commodty accumuates n storage for dstrbuton nto the usna
channes of commerce and consumpton. To the e tent that such fanner
organzatons, or groups, engage n the handng, etc., of commodtes other
than those of ther own producton or that of ther members, such handr
etc., s not regarded as beng carred on as an ncdent to ordnary farrnn
operatons. In such a case the rues set forth n subsecton (c) of ths secuw
appy.
In the case of fruts and vegetabes, however, whether or not of a persh-
abe nature, servces performed n the handng, dryng, packng, etc, of those
commodtes consttute agrcutura abor even though not performed as 1
ncdent to ordnary farmng operatons, provded they are rendered m
ncdent to the preparaton of such fruts or vegetabes for market Under th
porton of the paragraph, for e ampe, servces performed n the sortng, P 1
ng, or storng of fruts or n the ceanng of beans, as an Incdent to ther
preparaton for market, w be e cepted Irrespectve of whether performed u
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the empoy of a farmer, a farmers cooperatve, or a commerca hander of such
commodtes.
Snce the servces referred to n ths paragraph must be rendered In the
actua handng, dryng, etc., of the commodty, the paragraph does not e empt
servces performed by stenographers, bookkeepers, cerks, and other offce em-
poyees n the empoy of farmers, farmers cooperatve organzatons or groups,
or commerca handers. To the e tent that servces of ths character are
performed n the empoy of the owner or tenant of a farm, however, and are
rendered n ma|or part on a farm, they may be e empt under the provsons
of paragraph (2).
The ast sentence of the subsecton makes t cear that the term farm
as used n ths subsecton has a broad and comprehensve meanng. The term,
for e ampe, ncudes fur-bearng anma farms. Under present aw, servces
performed n connecton wth the operaton of such farms consttute covered
empoyment The term aso ncudes greenhouses or other smar structures
used prmary for the rasng of agrcutura or hortcutura commodtes,
regardess of ther ocaton. Under the e stng e cepton, abor performed n
some greenhouses s e cepted whe abor n others s not The Incuson of
greenhouses of the knd specfed, wthn the meanng of the term farm,
w make for a more unform treatment of greenhouse abor and essen the
admnstratve dffcutes whch ths cass of cases presents. Greenhouses used
prmary for purposes such as storage or dspay purposes or for the fabrcaton
of wreaths and corsages (usuay n connecton wth the operaton of a reta
estabshment) do not, of course, come wthn the e cepton.
S OUT TITL .
Secton 607: Ths secton nserts a new secton n Subchapter of Chapter ft
as the edera Insurance Contrbutons ct
edera, Unempoyment Ta ct.
ta es under secton 1600 of the nterna revenue code (formery secton
901 of the soca ecurtt act).
Secton 60 : Ths amendment changes the bass for determnng ta abty
under Subchapter C of Chapter 9 of the Interna Revenue Code (formery Tte
I of the Soca Securty ct) from wages payabe to wages pad. That
subchapter s thus brought nto conformty wth Subchapter of Chapter 9
(formery Tte III of the Soca Securty ct), whch aso mposes a ta on
wages pad. Wages, for the purpose of these ta es, are consdered pad when
they are actuay pad, or when they are constructvey pad, . e., credted to the
account of, or set apart for, the wage earner so that they may be drawn upon by
hm at any tme athough not then actuay reduced to possesson.
Under the e stng aw wages are payabe wth respect to empoyment dur-
ng a caendar year, even though the amount of wages s not f ed and no rght
e sts to enforce payment at any tme durng that year. Thus a bonus pad n
1939 for servces performed n 193 consttutes wages payabe for 193 , even
though the amount of the bonus may not have been known n 193 and no ob-
gaton to pay t e sted n that year.
In cases n whch remuneraton for servces of an empoyee n a partcuar
year s based on a percentage of profts, or on future royates, the amount of
whch can not be determned unt ong after the cose of the year, the empoyer
has been requred to estmate unascertaned amounts and pay ta es and con-
trbutons on that bass. If he has overestmated, subsequent correctons on the
return must be made wth consequent refunds. If the empoyer has underest-
mated, addtona ta es may become due and he may aso be compeed to pay
addtona State contrbutons, whch are usuay not aowabe as credt be-
cause not tmey pad. The attendant dffcutes and confuson cause a burden
on empoyers and admnstratve authortes ake. The pacng of ths ta on
the wages pad bass w reeve ths stuaton.
Wth both the od-age-nsurance ta and the unempoyment-compensaton ta
on the wages pad bass, the keepng of records by empoyers w be smpfed.
The new bass of ta aton w appy to a wages for servces rendered after
the begnnng of 1939. In so far as the amendment woud be retroactve wth
respect to the year 1939, t woud not ncrease the ta abty of any ta payer.
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5 2
CR DIT G INST T .
Secton 609: Ths secton reates ony to the ta wth respect to servces tat
dered n 1939 and thereafter.
Contrbuton to State unempoyment funds. Secton 1601(a): The preset
secton 1601(a) of the Interna Revenue Code (formery secton 902 rf tn
Soca Securty ct) provdes that a ta payer may credt aganst the edea
ta ony contrbutons pad by hm under a State aw wth respect to empcf
ment, as defned In secton 1607 of the Code (formery secton 907 of the ct).
Snce the defnton of empoyment In secton 1607 restrcts the meanng o
the term to certan types of servce, the ta payer s not gven credt for coo-
trbutons made under a State aw wth respect to servces not covered by tn
edera aw. Subdvson (1) emnates the references n e stng aw to em-
poyment, thus aowng the ta payer to credt aganst the ta the contrbuton
whch he s requred to pay, and whch he actuay pays, under a State aw
The amendment aso ncudes a requrement that credt sha be aowed oc|
for contrbutons to an unempoyment fund whch has been mantaned dors
the ta abe year as specfed n the amendment to secton 1607(f) of the ntena
Revenue Code. (See secton 614, nfra.)
Subdvson (2) provdes that credt sha be permtted aganst the tas for
the ta abe year ony for the amount of contrbutons pad wth respect w
such year. Ths effects no substantve change n the present aw.
Subdvson (3) berazes e stng aw by gvng empoyers more amewtb:
whch to pay ther contrbutons to the State and secure credt therefor agan
the edera ta . Under e stng aw credt s aowabe ony for contrbu L-
wth respect to the ta abe year pad to the State before the due date of the
edera return for such year. The amendment permts fu credt for contrte
tons pad on (as we as before) the due date. The amendment further per-
mts a credt for contrbutons pad after the due date of the edera return W
on or before une 30 ne t foowng the due date, but ths credt s not k
e ceed 90 per cent of the amount whch woud have been aowabe as credt a
account of such contrbutons If they had been pad on or before the dne da
or e ampe, f an empoyer s gross abty for edera ta at the 3 per tm
rate s 100, and hs abty for the same year for State contrbutons s s
100, and he pad such contrbutons on or before the due date of the eta
return, he woud be entted to the ma mum credt (under the mtaton pro-
vded n secton 1601(c)) of 90 per cent of the edera ta , or 90, and hs net
edera ta woud be 10. If, however, the empoyer pad the 100 n t
trbutons after the due date but not ater than une 30 ne t foowng, hs cret
woud be 90 per cent of 90, or 1, and hs net edera ta woud be 19 -N
credt s aowabe for contrbutons pad after une 30.
Thus, substanta reef s gven empoyers for 1939 and future years. Tt
Commttee on nance agrees wth the ouse that further berazaton of us
condtons under whch ths credt woud be aowabe mght endanger the own
functonng of the system. It s desrabe not to remove the ad provded a
e stng aw to the State unempoyment-compensaton systems whch has e
secured through the nducement to empoyers to pay ther State contrbuton-
prompty. urthermore, any change shoud be avoded whch woud Impede t
audt of the edera returns or deay fna determnaton of the ta payers
bty beyond a reasonabe tme after the returns are fed. In proposng tt|
amendment consderaton has been gven these factors as we as to the n
for berazaton In favor of the ta payers.
Certan e ceptons to the foregong genera rue are made n the amendmer
however, to meet cases of genune hardshp.
Subdvson (3) removes the tme mtaton for payment of State m
tons n those cases where the assets of the ta payer are n the L|L
contro of a court at any tme begnnng wth the due date and endng u
the ne t foowng une 30, both dates ncusve. . t.
Subdvson (4) grants reef n cases of payments made through twstafc
under the wrong unempoyment-compensaton aw. In such a case P1-
under the proper State aw wth respect to the remuneraton n queston
be deemed, for the purposes of credt aganst the edera ta , to have b
made on the date of the erroneous payment. If the ta payer s e perence onu
the aw of the wrong State had entted hm to cease payng any contrbut -
for servces sub|ect to that aw and by reason thereof the ta payer had actuaw
pad no contrbutons wth respect to the remuneraton n queston, payn
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to the proper State w be treated, for such ta -credt purposes, as havng been
made on the date on whch the edera ta return was actuay fed.
Subdvson (5) provdes for refund of any ta (ncudng any penates
and Interest) whch has been coected but wth respect to whch credt aow-
abe under ths secton has not been taken. The aw (ncudng statutes of
mtatons) appcabe n the case of erroneous or ega coecton of ta w
appy to such refunds. No nterest w be pad on any such refund.
ddtona credt. Secton 1601(b) (formery secton 009(a) of the Soca
Securty ct): Ths amendment changes n some partcuars the e stng aw,
reatng to addtona credt aowance.
It e pressy condtons the aowance of an addtona credt upon certfca-
ton of the State aw under secton 1603(c) of the Interna Revenue Code
(formery secton 903(b) of the Soca Securty ct) and under the proposed
amendment to secton 1602(c). (See secton 610, nfra.)
It e tends the addtona credt to reduced rates of contrbutons requred
under a State aw wth respect to empoyment not covered by the edera ta ,
thus brngng ths subsecton nto conformty n that regard wth the proposed
amendment of subsecton (a) (reatng to contrbutons to State unempoyment
funds).
Under the amendment, addtona credt aowance w be based on the df-
ference between the amount of contrbutons the ta payer was requred to pay
under the State aw and the amount he woud have pad f throughout the
ta abe year he had been sub|ect to the hghest rate apped under the State
aw In the ta abe year to any empoyer, or to a rate of 2.7 per cent, whchever
rate s ower. Ths change, n addton to measurng the credt by the appcabe
per cent of the pay ro wth respect to whch contrbutons are requred under
the State aw, aso emnates the possbe necessty for measurng addtona
credts n terms of perods of ess than one year. The emnaton of the new
secton 1602(b) of the Code, contaned n the ouse b, has made unnecessary
the ouse b amendment of ths secton, estabshng ony 2.7 per cent of the
pay ro as the measure for addtona credt aowances.
Lmt on tota credt. Secton 1601(c) restates the e stng aw mtng
tota credts aganst the edera ta to not n e cess of 90 per cent of such ta .
Snce both the provson wth respect to credts for contrbutons actuay pad
and the provsons wth respect to addtona credts are now ncuded n one
secton of the aw as subsectons (a) and (b), respectvey, t s unnecessary to
ncude the mtaton separatey n respect to each subsecton.
CONDITIONS O DDITION L CR DIT LLOW NC .
Secton 610: Ths subsecton amends the provsons of e stng aw (secton
1602 of the Interna Revenue Code formery secton 910 of the Soca Securty
ct) reatng to the requrements wth respect to addtona credt aowance.
The terms empoyers, empoyment, and wages, whch are defned n
secton 1007 and have speca meanngs not appcabe here, are repaced by
terms such as persons havng ndvduas n ther empoy, servces, and
remuneraton, n order to make the requrements of ths subsecton more
easy understandabe n ther appcaton to State aws whose coverage dffers
from that of the edera aw. The phrase person (or group of persons) has
been used n the standards and defntons wth respect to a types of State
funds, to make cear that a State aw may measure, for ndvdua e perence
ratng purposes, ether an ndvdua empoyer s record, or may permt two or
more empoyers to combne ther records and be treated, for e perence ratng
purposes, as f they were a snge ega entty. Severa verba changes are sug-
gested n ths subsecton n the Interest of carty.
In order to factate the admnstraton of provsons n State aws aowng
varatons n rates of contrbutons, the term computaton date, defned n
subsecton (c)(7) of ths secton of the Code, has been adopted, and the phrase
year precedng the computaton date substtuted for terms such as preced-
ng year and year, to permt the States to compute reduced rates as of a
date pror to the date on whch such reduced rates w become effectve.
State standards. The ouse b amended secton 1602(a) of the Code by
addng a new standard wth respect to the aowance of addtona credt, whch
requres that rrespectve of the type of fund mantaned under the State aw,
the State aw w contan provsons whereby varatons n rates of contrbu-
tons as between dfferent empoyers w be so computed as to yed, wth re-
spect to each year, a tota amount of contrbutons substantay equvaent to
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2.7 per cent of the tota pay ros of empoyers, sub|ect to the contrbuton re-
qurements of the State aw. Your commttee has deeted ths new standard
because t beeves that at ths tme, the addton of a new standard wth respect
to ndvdua empoyer e perence ratng s premature.
Paragraph (1) : In order to permt States whch have pooed fund unempo|-
ment compensaton aws to aow varatons n rates of contrbutons at an
earer date, the commttee has changed ths paragraph as amended n the oose
b, to permt the aowance of reduced rates of contrbutons under pooed fund
aws on the bass of one rather than three years of e perence by an empoy
wth respect to unempoyment or other factors bearng a drect reaton to unem-
poyment rsk, but ony after compensaton has been payabe under the State
aw wth respect to such empoyer for one year. In other respects ths pus-
graph ncorporates the standards of e stng aw appcabe to a pooed fund
or partay pooed account, e cept that the phrase years of compensaton e -
perence In the present aw has been repaced by a broader phrase permttb:
the use of an empoyer s e perence wth respect to unempoyment or an
empoyer s e perence wth respect to other factors bearng a drect reaton
to unempoyment rsk as a bass for ndvdua e perence ratng under
pooed fund. Ths change Is made n order to e tend the possbe bases br
whch State aws may measure egbty for reductons n empoyers rates d
contrbutons to a pooed fund, thus addng fe bty to the present aw. e-
cause of ths change, the defnton of the phrase year of compensaton e per-
ence n subsecton (c) of ths secton of the Code s no omrer necessarv.
Paragraphs (2), (3), and (4) : The reserve requrements wth respect to
reserve accounts (under the amended new paragraph (3) to become efertre
anuary 1, 1942) and guaranteed empoyment accounts have been restated In
terms of 2 per cent of the pay ro for three years, rather than 7 per cent
of the pay ro for one year. The term pay ro Incudes ony the pay ro
sub|ect to the contrbuton requrements of the State aw. Ths bass of meas-
urng an empoyer s reserve or guaranteed empoyment account as more
equtabe from both the pont of vew of the empoyer and the State, snce t per
mts the averagng of pay-ro e perence over three years and avods the m-
reasonabe fuctuatons In rates whch may occur f pay ros are substantay
ncreased or decreased for a partcuar year. ecause the standard rate of con-
trbutons under most aws s 2.7 per cent (a very few State aws requre a
standard rate of 3 per cent), empoyers coud not accumuate a reserve equa
to 7 per cent of ther annua pay ro n ess than three years, e cept to
very unusua stuatons. ence, t s beeved that the change n the reserr
requrement to 2 per cent of pay ros for three years In pace of 7 per cent
of pay ro for one year w not, n practca effect ater the present reserw
requrements. The addtona requrement wth respect to three years of con-
trbutons s deemed necessary to carfy the provson reatng to reserves
equa to 2 per cent of the pay ro for three years. Uness the empoyer ba
actuay been sub|ect to the contrbuton requrements of the State aw f r
three years, the provson measurng the reserve n terms of 2 per cent of
pay ros for the three precedng years woud operate to reduce the reserve re
qurements. Under these two paragraphs, an empoyer may not be permtted
reduced rate of contrbutons to hs guaranteed empoyment account uness
has fufed hs guaranty wth respect to the precedng year, and an empoye:
may not be permtted a reduced rate of contrbutons to hs reserve account
uness compensaton has been payabe from hs account throughout the pre-
cedng year.
Paragraph (4) ncorporates the new standards wth respect to Indvdua
reserve accounts. In order to permt States mantanng such accounts to con-
form therewth wthout Incurrng the e pense of speca egsatve sesson
these new standards w not become effectve unt anuary 1, 1942. Pror to
that date, the standards In paragraph (3), whch ncorporate the present a ,
w be appcabe.
The ouse b added a new subsecton (b) to secton 1602 of the Code, under
whch a State woud be permtted to adopt ether of two aternatve course
of acton If Its aw meets the standards set forth n paragraphs (1) and (2)
of the new subsecton: (1) It mght reduce a empoyers rates unformy: or
(2) t mght vary ndvdua empoyers rates of contrbutons under e perto
ratng provsons whch compy wth the appcabe standards In parasrrap
or (3) or (4) of subsecton (a) of ths secton as amended In the ouse M-
but wthout so cacuatng the respectve rates as to secure an annua yed m
an amount substantay equvaent to 2.7 per cent of the State pay ro,
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requrement of paragraph (1) of subsecton (a) of ths secton as amended In
the ouse b. The nance Commttee has deeted ths new subsecton be-
cause t beeves that the States short e perence n the payment of compensa-
ton and ack of e perence In the actua operaton of ther present provsons
for varatons In rates of contrbutons does not warrant substanta changes
n the edera standards.
Certfcaton by the oard wth respect to addtona credt aowance. Sec-
ton 1602(b): Ths s a new subsecton, requrng the Soca Securty oard
to certfy to the Secretary of the Treasury, n the same manner as t certfes
State aws under secton 1603(c), State aws whch t fnds compy wth the
requrements of subsecton (a) of ths secton. Provson s made for parta
certfcaton where two knds of funds are mantaned under the same State
aw, one of whch fas to compy wth subsecton (a) of ths secton, or where a
contrbuton s dvded between two knds of funds under a State aw, so that
addtona credts w be aowed ony wth respect to reduced rates aowed n
compance wth the requrements of ths secton.
Under these provsons a State aw whch compes n a respects wth the
requrements of ths secton w receve an unquafed certfcaton. In some
States, provson s made for the mantenance of two parae systems (such
as a reserve account system and a guaranteed empoyment account system). In
such States, some empoyers may be covered by the one system and other
empoyers may be covered by the other. In such States there woud be no
dffcuty n certfyng one system, even though the other faed to compy wth
the requrements of ths secton, and the oard woud accordngy be drected
to do so by paragraph (2) of ths subsecton. In other States, contrbutons wth
respect to partcuar wage payments are requred to be dvded between two
knds of funds (such as the requrement that a part of each empoyer s con-
trbuton be credted to hs own reserve account and a part to a partay
pooed fund whch s operated as a rensurance fund). If n ths type of
stuaton the provsons of the State aw wth respect to one or the other such
fund do not compy wth the requrements of ths secton, the oard s drected
to make such certfcaton as w permt the aowance of addtona credts
ony wth respect to those reduced rates whch have been aowed n accordance
wth the requrements of ths secton.
In addton, ths new subsecton ncudes a paragraph requrng the Soca
Securty oard to advse the States, n the same manner as t advses the States
of ts fndngs under secton 1603, whether or not ther aws compy wth the
requrements of ths secton after fndng such compance, the oard may there-
after deny certfcaton of a State aw for addtona credt purposes ony after
pror notce and opportunty for hearng to the State, and ony f t fnds the
State aw no onger contans the appcabe provsons specfed n subsecton
(a) or the State has faed to compy substantay wth any such provson.
The present subsecton (b) of ths secton s emnated because ts purpose s
acheved by the foregong provsons.
Defntons. Secton 1602(c) : Paragraphs (1) and (4) of ths subsecton are
amended to make cear that from a partcuar empoyer s reserve account or
guaranteed empoyment account, a compensaton payabe on the bass of serv-
ces performed for hm and ony compensaton payabe on the bass of servces
performed for hm, s to be pad. Ths ncorporates n part the e cepton
cause n the present defnton of a pooed fund, 1 e., that compensaton may
not be pad from a parta poo or rensurance fund uness the reserve account
or guaranteed empoyment account of the empoyer on the bass of whose serv-
ces the beneft camant had earned hs beneft rghts, s e hausted or termnated.
The present paragraph (2) s revsed and dvded nto paragraphs (2) and
(3) n order to dstngush more ceary between a fuy pooed fund and a par-
tay pooed (or rensurance) fund. The new paragraph (3) permts the
mantenance of a partay pooed fund n connecton wth a guaranteed empoy-
ment account, as we as n connecton wth a separate reserve account The
defnton of the partay pooed account aso makes cear that a State may,
wthout endangerng ts compance wth the defntons of the term reserve
account and guaranteed empoyment account, provde for transfers from
reserve accounts or guaranteed empoyment accounts to a partay pooed
account. Severa State aws now provde for such transfers.
Paragraph (4) (od paragraph (3)) amends the present aw to permt guar-
antees of empoyment to be operatve ony wth respect to ndvduas who con-
tnue to be avaabe for sutabe work n the guaranteed estabshment Ths
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5 6
provson Is deemed necessary because under the present provson It Is not dear
whether empoyers are reeved from ther guarantees wth respect to ndvdua
who qut vountary, or are unabe to work because of some ncapacty, or re
out on strke, etc. Ths paragraph Is aso amended to make cear the genera
understandng wth respect to ts requrements concernng the probatonar|
servce perod, I. e., that the probatonary perod must be served wthn a con-
tnuous perod Immedatey foowng the empoyee s frst week of servce and
may not be camed repeatedy wth respect to Intermttent perods of empoy-
ment whch never e ceed 12 consecutve weeks. The ast cause of ths defn-
ton Is amended to carfy the pont that guaranteed remuneraton and unem-
poyment compensaton are not the same, and that the guaranteed remuneraton
s not to be payabe out of the guaranteed empoyment account.
Paragraph (5) (od paragraph (4)) deetes the defnton of the term year of
compensaton e perence, because that term Is no onger used In paragraph (1
of secton 1602(a). The defnton of the term year, In ths paragraph, s
desgned to permt States to aow reduced rates on the bass of 12 consecutTe
months, as we as on the bass of a caendar year.
Paragraph (0), defnng the term baance, Is a new defnton added to
make cear that the amount of the reserve requred to be accumuated by em-
poyers wth respect to whom a reserve account or a guaranteed empoyment
account s mantaned, s to be made up of payments by such empoyers and may
not be made up of empoyee contrbutons or funds from other sources. If
empoyee contrbutons are requred under a State aw whch provdes for the
mantenance of reserve accounts or guaranteed empoyment funds, such con-
trbutons may be payabe nto the rensurance fund. The e cepton contaned
In ts defnton, whch permts the ncuson wthn a baance of payment
other than payments by empoyers If made to a reserve account or guarantetd
empoyment account pror to anuary 2, 1940, s desgned to reeve the States
of compcated computatons where payments, other than payments by empoyer-,
have been pad to such accounts durng eary months of the State s e perence.
Your commttee has advanced ths date one year beyond that prescrbed n the
ouse b n order to avod a hardshp In one State.
Paragraph (7) defnes the term computaton date to Incude any daw
occurrng wthn 27 weeks pror to the date that a reduced rate goes nto effect
s above ndcated, ths provson s desgned to gve the States ampe tme
wthn whch to make ther computatons wth respect to varatons n rates of
contrbutons. Such computatons are to be made at east once n each caendar
year.
Paragraph ( ), defnng the term reduced rate, Is desgned to make cear
that the requrements of subsecton (a) are not appcabe to a reducton from
an ncreased rate to a standard rate, . e., stuatons n whch empoyers wth
bad empoyment e perence have been requred to pay ncreased rates and are
subsequenty permtted to pay the standard or norma rate.
Secton 610(b) of the ouse b has been rendered unnecessary by the coo-
mttee amendment deetng from the ouse b, the new edera standard
ncorporated In secton 1602(a) of the Code.
PRO ISIONS O ST T UN MPLOYM NT COMP NS TION L WS.
Secton 611: The changes made n paragraphs (1), (3), and (4) of secton
C03(a) of the Interna Revenue Code (formery secton 903(a) of the Soca
Securty ct) by ths secton correspond to those made n paragraphs (2), (4d
and (5) of secton 303(a) of the Soca Securty ct by secton 302, supra.
T NSION O TIM O ILING T R TURNS UND R SU C PT R C O C .1PTO
O T INT RN L R NU COD .
Secton 612: Ths secton amends secton 1604(b) of the Interna erenW
Code to authorze a onger e tenson of tme for fng the return of the edera
unempoyment ta . stng aw permts an e tenson of as much as 60 day
The amendment woud provde an addtona 30 days, or 90 days n a. The
e tensons under secton 1604(b) are granted under rues and reguaton
prescrbed by the Commssoner of Interna Revenue wth the approva of t
Secretary of the Treasury. n empoyer fndng t Impossbe to make h
return on anuary 31, the due date prescrbed n secton 1604(a), or to pW
hs State contrbutons by that date, may make appcaton n accordance w
such rues and reguatons for an e tenson of tme for fng hs edera
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return. If granted, the empoyer has unt the e tended due date, as granted,
to make hs return and pay hs State contrbutons. No denquency penaty
w be ncurred for ate fng and no oss of credts w be suffered f the
return s fed, and the contrbutons pad to the State, on or before such,
e tended due date.
INT RST T O OR IGN COMM RC ND D R L INSTRUM NT LITI S.
Secton 613: Ths secton desgnates e stng secton 1606 of the Interna
Revenue Code (formery secton 906 of the Soca Securty ct) as subsecton
(a). carfyng amendment to the provson makes t cear beyond any
possbe doubt that an empoyer engaged n foregn commerce s on the same
bass as respects authorty of a State to requre payments nto an unempoy-
ment fund as empoyers engaged n Interstate commerce.
Ths secton aso amends secton 1606 by addng subsectons (b) and (c),
reatng to edera nstrumentates, and (d), reatng to empoyment on ands
hed by the Government
Subsecton (b) as passed by the ouse confers on State egsatures authorty
to requre nstrumentates of the Unted States (e cept those whoy owned
by the Unted States or e empt from the ta es mposed by sectons 1410 and
1600 of the Interna Revenue Code (formery sectons 04 and 901, respectvey,
of the Soca Securty ct) by any other provson of aw) to compy wth
State unempoyment compensaton aws. Snce ony the unempoyment ta
Is nvoved, your commttee has strcken from the ouse b the reference to
the od-age ta mposed by secton 1410. Under ths amendment the States
woud be abe to cover under ther unempoyment compensaton systems na-
tona banks and certan other edera nstrumentates. Protecton aganst
any possbe dscrmnaton aganst nstrumentates of the Unted States s
afforded by the two provsos, whch make the permsson to requre compance
wth the State aw condtona upon equaty of treatment and upon the ap-
prova and certfcaton of the State aw under secton 1603 of the Interna
evenue Code (formery secton 903 of the Soca Securty ct).
Subsecton (c) makes provson for e amnaton by the Comptroer of the
Currency of returns and reports made to the States by natona banks.
Subsecton (d) authorzes the States to cover under ther unempoyment
compensaton aws servces performed upon and hed by the edera Govern-
ment, such as servces for hotes ocated n natona parks.
D INITIONS.
Secton 614: Ths secton, effectve anuary 1, 1940, amends secton 1G07 of
the Interna Revenue Code, contanng defntons appcabe n the case of the
edera unempoyment ta .
Defnton of empoyer. Secton 1607(a): The ouse made no change from
e stng aw n ths defnton. Tour commttee have nserted a carfyng
amendment provdng e pressy that, n determnng whether a person empoys
eght or more empoyees, ony those empoyees empoyed n empoyment (as
defned n secton 1607(c)) are to be counted.
Defnton of wages. Secton 1607(b) : Ths subsecton contnues the present
defnton of wages, carfes t n certan respects and e cudes certan payments
heretofore ncuded. Paragraph (1) e cudes that part of the remuneraton
whch, after remuneraton equa to 3,000 has been pad to an ndvdua by an
empoyer wth respect to empoyment durng any caendar year, s pad to such
Indvdua by such empoyer wth respect to empoyment durng such caendar
year. Paragraph (2) n the ouse b e cudes a payments made by the
empoyer to or on behaf of an empoyee or former empoyee, under a pan or
system provdng for retrement benefts (ncudng pensons), or dsabty
benefts (ncudng medca and hosptazaton e penses), but not fe nsurance.
Your commttee has added an e cuson of payments on account of death
(ncudng fe nsurance) where t s cear that the empoyee whe vng does
not have certan rghts and optons. Generay, such payments are e cuded
under e stng aw f the empoyee does not have those rghts and optons, but
t s deemed desrabe for purposes of certanty to provde an e press e cuson.
The payments under paragraph (2) of the ouse b and under the b, as
amended, w be e cuded even though the amount or possbty of such pay-
ments s taken nto consderaton n f ng the amount of remuneraton and even
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5
though snch payments are requred, ether e pressy or mpedy, by the con-
tract of empoyment. Snce t s the practce of some empoyers to provde for
such payments through nsurance or the estabshment and mantenance of foods
for the purpose, the premums or nsurance payments and the payments made
nto or out of any fund w kewse be e cuded from wages. Your commttee
has made no change n paragraphs (3) and (4) of the ouse b. Paragraph
(3), whch merey carfes e stng aw, e pressy e cudes from wages te
payment by an empoyer (wthout deducton from the remuneraton of, or other
rembursement from, the empoyee) of the empoyee s ta mposed by sectoa
14U0 of the Interna Revenue Code (formery secton 01 of Soca Securty ct)
and empoyee contrbutons under State unempoyment compensaton aws.
Paragraph (4) e cudes dsmssa payments whch the empoyer s not egay
obgated to make.
Defnton of empoyment. Secton 1607(c) : The defnton of the term em-
poyment under the amendment, as apped to servce rendered pror to ano-
ary 1, 1940, retans the e emptons contaned n the present aw. The defnton
appcabe to servce rendered on and after that date contnues unchanged some
of the present e emptons, revses others, and adds certan addtona ones. No
substantve change n e stng aw s effected by the ntroductory paragraph of
the defnton.
Paragraph (1) contnues the e cepton of agrcutura abor, but a new
subsecton (1) defnes the term for purposes of the e cuson.
prvate home, but adds to the e cepton such servce n a oca coege cub or
oca chapter of a coege fraternty or sororty (not ncudng aumn cubs or
chapters). Thus servces of cook, water, chambermad, and the housemother,
performed for these oca cubs and chapters, are e empt.
Paragraph (3) adds an e cepton of casua abor not n the course of the
empoyer s trade or busness. Ths e cepton s aready contaned n amended
secton 209(b) of the Soca Securty ct and amended secton 1420(b) of the
Paragraph (4) contnues the e stng e cepton of servce performed as an
offcer or member of the crew of a vesse on the navgabe waters of the Unted
States.
Paragraph (5) contnues the e stng e cepton of servce performed by ao
ndvdua n the empoy of hs son, daughter, or spouse, and servce performed
by a chd under the age of 21 n the empoy of hs father or mother.
Paragraph (6) contnues the e empton of servce performed n the empoy
of the Unted States, but wth respect to nstrumentates of the Unted States,
the Unted States or ( ) e empt from the ta mposed by secton 1600 of the
the unempoyment ta provsons certan edera nstrumentates not fang
wthn cause ( ) or ( ) above, such as natona banks.
Paragraph (7) contnues the e empton of servce for State governments, ther
subdvsons and nstrumentates, but mts the e empton wth respect to n-
strumentates so that t appes ony to an nstrumentaty whch s whoy
ta mposed by secton 1600 of the Interna Revenue Code (formery secton 901
Paragraph ( ) contnues the e empton of regous, chartabe, scentfc, ter-
ary, or educatona organzatons, but brngs the anguage of the e empton nto
conformty wth the correspondng e empton from ncome ta under secton
101(0) of the Interna Revenue Code, by addng a specfc dsquafyng cause
appcabe where any substanta part of the actvtes of the organzaton s
Paragraph (9) e cepts servces of empoyees covered by the raroad unem-
poyment nsurance system. Ths provson eaves unchanged the e empton of
the servce of an ndvdua u the empoy of an empoyer sub|ect to such system
even though the ndvdua receves remuneraton n a form (e. g., tps) not
recognzed as compensaton under the Raroad Unempoyment Insurance ct,
and eaves unchanged the ncuson of servce n case t s performed by an
empoyee n the segregabe nonraroad actvtes of an empoyer where segrega-
ton of the raroad actvtes from nonraroad actvtes s found necessary n
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the Interpretaton and admnstraton of the aws reatng to the soca securty
system and the raroad unempoyment nsurance system.
Paragraphs (10) to (13), ncusve, are dentca wth the same paragraphs
In secton 209(b) of the Soca Securty ct or detaed anayss see the
e panaton of such paragraphs n ths report.1
Paragraph (14) emnates from coverage nsurance agents and soctors f
the remuneraton for whch they perform ther servces Is on a commsson bass
soey. If any part of such remuneraton Is a f ed saary the agent or soctor
Is covered and the ta s computed on the bass of hs aggregate remuneraton
(for e ampe, saary or saary pus commssons). No smar e cuson, s made
from coverage under the edera Insurance Contrbutons ct.
Paragraph (15) Is dentca wth paragraph (15) of secton 209(b) of the
Soca Securty ct. or detaed anayss see the e panaton of that secton
In ths report.
Secton 1607(d) : Ths secton reates to an empoyee who has both Incuded
that f one-haf or more of the servces consttutes ncuded empoyment, a of
such servce w be ncuded but that If ess than one-haf consttutes n-
cuded empoyment, a w be e cuded. The provson does not appy to the
servce of an empoyee n a pay perod If any of the servce of the empoyee
In the pay perod s covered under the raroad unempoyment-Insurance system.
The amendment made by your commttee to the ast sentence s merey
carfyng.
Secton 1607(e), defnng State agency, makes no change In the e stng
defnton of that term.
Defnton of unempoyment fund. Secton 1607(f): Ths defnton s
amended by addng two new sentences. The frst of these added sentences s
a carfyng amendment provdng that a sums standng to the credt of the
State n the ( edera) unempoyment trust fund and money wthdrawn from
that fund by the State but une pended sha consttute a part of the State
fund. Ths removes any possbe doubt whether such moneys reman a part of
the State fund. The second added sentence provdes that an unempoyment
fund sha be deemed to be mantaned durng a ta abe year ony f no part
of the moneys of such fund was e pended for purposes other than payment of
unempoyment compensaton and refunds of sums erroneousy pad nto the
fund. Ths provson, n con|uncton wth an amendment to secton 1601(a)
(see supra, secton 609), makes t cear that an empoyer s entted to credt
aganst the edera ta ony so ong as the State uses Its fund for a proper
purpose.
Defnton of contrbutons. Secton 1607 (g): Ths provson Is changed so
as to avod use of defned terms and thus to ncude n the term contrbu-
tons payments requred by a State aw wth respect to servces not covered
by the edera aw.
Defnton of compensaton. Secton 1607(h): No change n e stng aw s
made In ths defnton.
Defnton of empoyee. Secton 1607(1): The term empoyee s defned
as n e stng aw to Incude an offcer of a corporaton.
y the amendment to subsecton (c), contaned n paragraph (10) ( )
thereof, uncompensated offcers of any organzaton e empt from ncome ta
under secton 101 of the Interna Revenue Code are e cuded from the count
n determnng whether the organzaton s an empoyer of eght or more and
abe for the ta . owever, uncompensated offcers of corporatons not so
e empt are not e cuded for purposes of such determnaton merey because
they are uncompensated.
Secton 1607( ) and (k), defnng the terms State and person, re-
spectvey, make no change n the e stng defntons of those terms.
Defnton of agrcutura abor. Secton 1607(1) s Identca wth secton
209(1) of the Soca Securty ct or detaed anayss see dscusson of that
secton n ths report
Secton 615: Ths secton nserts a new secton n Subchapter C of Chapter 9
as the edera Unempoyment Ta ct.

1 See pages 576-67 . ths uetn.
See pages 570-57 , ths uetn.
See pages 570-5 1, ths uetn.
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590
Tte III mendments to Tte I op the Soca Securty ct.
D INITIONS.
Secton 01: Ths secton amends the defnton of State contaned n secton
1101(a) of the Soca Securty ct so as to ncude Puerto Rco for the purposes of
Ttes (e cept secton 531) and I of such ct
The ouse proposa to e tend coverage to saesmen who are not empoyees has
been strcken out by the commttee. It s beeved ne pedent to change the
e stng aw whch mts coverage to empoyees. Ths acton of the commttee
renders unnecessary the new defnton of empoyer whch was contaned n para-
graph (6) of subsecton (a) of secton 1101 as amended by the ouse. Para-
graph (6) of subsecton (a) of the present aw therefore woud reman un-
changed under the commttee proposa, and paragraph (7) of that subsecton as
added by the ouse, woud be emnated.
P N LTY S CTIONS.
Secton 02: Ths secton amends Tte I of the Soca Securty ct by addng
the foowng two sectons:
Dscosure of nformaton n possesson of oard. Secton 1100: Ths secton
prohbts the dscosure, e cept pursuant to oard reguatons, of any returns or
statements fed wth the Commssoner of Interna Revenue under Tte III
of the Soca Securty ct or the edera Insurance Contrbutons ct, or regua-
tons thereunder, whch have been transmtted by the Commssoner to the oard.
The prohbton aganst dscosure, e cept pursuant to oard reguatons, aso
e tends to any fe, record, report, paper, or nformaton obtaned by the oard
or any of ts offcers or empoyees In the course of offca dutes, nnd any such
matera obtaned by any person from the oard or any of ts offcers or em-
poyees. oaton of the prohbton s punshabe as a msdemeanor.
Penaty for fraud and msuse of oard s name. Secton 1107(a) provdes that
anyone who makes any fase representaton, wth ntent to defraud any person,
knowng the representaton to be fase, concernng the requrements of ths ct.
or the edera Insurance Contrbutons ct, or the edera Unempoyment Ta
ct, sha be guty of a msdemeanor.
Secton 1107(b) provdes that anyone who, wth ntent to obtan nformaton
as to the date of brth, empoyment, wages, or benefts of any ndvdua, fasey
represents to the oard that he s such Indvdua or the wfe, parent, or chM
of such ndvdua, or such Indvdua s agent, or the agent of such wfe, parent,
or chd, or fasey represents to any person that he s an empoyee or agent of
the Unted States, sha be guty of a msdemeanor.
Tte I Msceaneous Provsons.
Secton 901: Ths secton makes cear that the amendment of Tte III of the
Soca Securty ct and secton 1603 of the Interna Revenue Code sha not be
construed to amend or ater those provsons of the Raroad Unempoyment In-
surance ct whch provde mted e ceptons to the provsons of secton 303 (a
(4) and (5) of the Soca Securty ct and 1003(a) (3) and (4) of the Interna
Revenue Code.
Secton 902: Subsectons (a), (b), (c), and (d) substantay berase the
condtons of aowance of credt aganst the edera unempoyment ta m-
posed by Tte I of the Soca Securty ct for the years 1930, 1937, and 193 .
Ths commttee agree wth the ouse that the perodca grantng of reef
after the cose of the ta abe year affected woud destroy the effectveness of
the condtons of aowance of the credt provded n permanent aw and woud
prove costy n that t woud ca for the reopenng and reconsderaton of
cases prevousy cosed, the ad|ustment of cams, the abatement of assessments,
and the payment of refunds. owever, the need shoud not arse n the future
for grantng reef of the type provded n the present secton snce substanta
berazaton for 1939 and subsequent years s provded n secton G09 of the
b, amendng secton 1601(a) of the Interna Revenue Code.
Subsecton (a) provdes for the aowance of credt aganst the ta for
1936, 1937, or 193 , for contrbutons pad to the State for such year before
the s teth day after the date of enactment of ths ct. Under secton 10 of
the Revenue ct of 193 ta payers were aowed credt aganst the ta for 1936
for contrbutons pad before uy 27, 193 . Snce a few ta payers dd not take
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591
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advantage of that reef provson, t s fet desrabe to ncude credt aganst
the ta for 1936 n the present provsons. Thus, the same fna date for payng
contrbutons to the State, n order to secure credt aganst the ta namey,
the ffty-nnth day after the date of enactment of ths ct s provded for the
ta for each of the three past years durng whch the ta has been n effect
Under cause (2) of subsecton (a) credt s aowabe for contrbutons pad
on or after the s teth day after the date of enactment of ths ct wth respect
to wages pad after the forteth day after such date of enactment Ths s de-
sgned to permt credt n cases n whch, because the wages payabe bass of
the ta for the years 193G, 1937, and 103 s st retaned, credt woud otherwse
be ost snce some wages are st beng pad wth respect to those years, and
t may not be possbe to estmate the amount thereof or the amount thereof
may have been underestmated.
Cause (3) of subsecton (a) permts credt for contrbutons pad to the
State, wthout regard to the date of payment, f the assets of the ta payer are
n the custody or contro of a fducary apponted by, or under the contro of,
a court of competent ursdcton at any tme durng the 59-day perod foow-
ng the date of enactment
Subsecton (b) of ths secton makes the same provson wth respect to the
ta abe years 1930, 1937, and 193 as are made n secton 1601(a)4 of the
Interna Revenue Code, as amended, for the ta abe year 1939 and thereafter
for cases n whch the ta payer pays hs contrbutons to the wrong State. (See
secton 609, supra.)
Subsecton (c) preserves the defntons of secton 907 of the Soca Securty
ct, the 90 per cent ma mum credt aganst the edera ta , and other prov-
sons of Tte I of the Soca Securty ct essenta to the operaton of the
reef provsons n subsectons (a), (b), and (h) of ths secton for the ta abe
years 193 , 1937, and 193 .
Subsecton (d) provdes for refund of any ta (ncudng penates and n-
terest) whch has been coected but wth respect to whch credt s aowabe
under ths secton. The aw (ncudng statutes of mtatons) appcabe n
the case of erroneous or ega coecton of ta w appy to such refunds.
No Interest w be pad on any such refund.
Subsecton (e) of ths secton s desgned to permt credt aganst the ta
for the years 1940, 1941, and 1942 f n those years wages are pad for servces
rendered after December 31, 193 , but durng a year pror to that n whch
payment occurs, and contrbutons wth respect to such wages have not been
credted aganst the ta for any pror ta abe year. Ths provson reeves
cases of hardshp whch mght arse by reason of the change n the bass of the
edera ta from wages payabe to wages pad. (See secton 60 , supra.)
Subsecton (f) s desgned to make retroactve to the date of enactment of
the Soca Securty ct the e emptons from edera nsurance and unempoy-
ment compensaton coverage contaned, respectvey, n amended sectons
209(b) (11) and (12) of the Soca Securty ct and amended sectons 1426(b)
(11) and (12) and 1607(c) (11) and (12) of the Interna Revenue Code of
servce n the empoy of foregn governments and certan of ther nstrumenta-
tes. If any ta (Incudng Interest and penates) has been coected wth respect
to servce thus e empt t s to be refunded, wthout aowance of nterest, n
accordance wth the provsons of aw (ncudng statutes of mtatons) app-
cabe n the case of erroneous or ega coecton of the ta .
Subsecton (g) provdes that no ump-sum payments sha be made under the
provsons of secton 204 of the Soca Securty ct after the date of the enact-
ment of ths b, e cept to the estate of an ndvdua who des pror to anuary
1, 1940.
In the case of ndvduas dyng pror to anuary 1, 1940, the ump-sum pay-
ments provded under sectons 203 and 204 of the present ct w be payabe
to the estate (or to the persons entted thereto under State aw) whether
appcaton for such payment Is fed pror to anuary 1, 1940, or on or after
anuary 1, 1940.
Subsecton (h) grants reef to ta payers as we as States n cases n whch
the hghest court of a State has hed contrbutons pad under the State aw
wth respect to the ta abe years 1936 or 1937 not to have been requred pay-
ments under the State aw. or e ampe, certan States enacted ther unem-
poyment compensaton aws durng the atter porton of 1936, evyng contrbu-
tons thereunder retroactvey wth respect to servces performed on and after
anuary 1 of that year State ta payers In good fath pad such contrbutons
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592
and camed and receved credt therefor aganst ther edera ta . If sone
tme ater, the retroactve mposton of such contrbutons s hed by the hnrfS
court of such State to have been nvad, such ta payers may be entted to
refunds under the State aw, but by vrtue of that fact, such ta payers aso
become nbe for the fu edera ta wth respect to such year.
Under ths subsecton, so much of any such payments as are not refunded to
the ta payer may be credted aganst the ta mposed by secton 901 of the
Soca Securty ct for the caendar year 19 6 or 1937. Moreover, f, s the
e ampe cted, the State had pad benefts wth respect to unempoyment occur-
rng durng 193S, ths secton safeguards the status of the State aw under sec-
ton 903 of the Soca Securty ct by provdng that so much of such payments
as are not returned to the ta payer sha be consdered contrbutons for te
purposes of that secton. Ths secton aso postpones the perods of mtaton
prescrbed by secton 3312(a) of the Interna Revenue Code n the ease of te
ta for 1936 or 1937 of any such ta payer to whom any such payment s
returned, unt the ast such payment s returned to the ta payer.
Subsecton (1) has been added by your commttee. The edera unempm-
ment ta Is a unform ta on empoyers of eght or more eved at the rate of 3
per cent of ther ta abe pay ros. If the condtons prescrbed by the
mposng such ta are satsfed, an empoyer may credt aganst the ta te
amount of contrbutons, whch he has pad or has been reeved from payng
nto a State unempoyment fund, not e ceedng 90 per cent of the edera tu
aganst whch such contrbutons are credted. If those condtons are not
satsfed, the empoyer s abe for the fu 3 per cent ta . Severa dstrct
courts have hed that the coecton of the fu 3 per cent edera ta (wthout
aowance of the 90 per cent credt) from a bankrupt estate, whch faed to
quafy for credt, Is not prohbted by secton 57| of the ankruptcy ct, a
amended, whch secton provdes that debts owng to the Unted States as
penaty or forfeture sha not be aowed. owever, some dstrct courts have
hed otherwse. Subsecton (I) effects no substantve change n the aw but s
desgned to set at rest the queston nvoved by e pressy provdng that no
part of the ta mposed by the edera Unempoyment Ta ct or by Tte
of the Soca Securty ct sha be deemed a penaty or forfeture wthn the
meanng of secton 57| of the ankruptcy ct, as amended. The new subsec on
does not affect the berazaton n subsecton (a), or n secton 1601(a)3 o
the edera Unempoyment Ta ct, of the condtons for credt In the case of an
empoyer whose assets are n the custody of a court
Secton 903: Ths secton amends secton 1430 of the Interna Revenue Me
by strkng out the reference theren to secton 3762 of the Code and nsertM
n eu thereof a reference to secton 3661. The change merey corrects a typo-
graphca error made n secton 1430 when the Code was enacted.
Secton 904: Ths amendment to the ouse b merey conforms the reference
n secton 142 of the Interna Revenue Code to the revson of the numbern|
of the paragraphs n secton 1426(b) of the Code.
Secton 905: Ths amendment to the ouse b woud ncude In the measure
of the empoyer s and empoyee s ta es, wages pad, wth respect to empoyment
after December 31, 193 , to empoyees who have attaned age 65. The abty
of the empoyer for the empoyee s ta wth respect to servce performed pror
to the enactment of ths ct s mted, however, to the amount of wages n te
contro of the empoyer at any tme after 90 days after the enactment of te
ct. Ths confnes the empoyer s abty for the empoyee s ta to stnatoa--
where ampe opportunty e sts for the empoyer to deduct the empoyee s tu
from hs empoyee s wage.
Secton 906: Ths s a new secton whch the commttee has added to te
ouse b to reeve certan States from an undue hardshp whch woud
otherwse resut from the faure on the part of such States egsatures to
enact necessary egsaton wthn the tme requred under the Raroad Cnem-
poyment Insurance ct, approved une 25, 193 . Under that ct, the Soca
Securty oard s requred to determne for each State certan sums descrbed
n the ct as the State s premnary amount and the State s qudate
amount. These sums represent an appro maton of the dfference between
the tota amount coected by the State from raroad empoyers who have ceased
to be sub|ect to the State aws and have become sub|ect to the Raroad Unem-
poyment Insurance ct, and the tota amount of compensaton na d b-T ,C
States on the bass of wages earned from such empoyers. The Raroad rt
requres the Soca Securty oard to wthhod admnstratve grants under
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Tte III of the Soca Securty ct from each State whose frst reguar egs-
atve sesson after the date of enactment of that ct dd not authorze the
tmey fng by the State of ts authorzaton and drecton to the Secretary of
the Treasury to transfer from the State s account the unempoyment trust fund
to the raroad unempoyment nsurance account n the unempoyment trust
fund, the sums as determned by the Soca Securty oard.
The commttee has been advsed that n a mted number of States, reguar
egsatve sessons whch convened durng 1939 have ad|ourned wthout enact-
ng the necessary egsaton requred under the Raroad Unempoyment Insur-
ance ct and wthout makng any provson for fnancng the admnstratve
e penses of ther unempoyment compensaton aws durng the perod wth
respect to whch the Soca Securty oard s requred to wthhod from them
grants under Tte III of the Soca Securty ct. In order to permt the con-
tnued admnstraton of the unempoyment compensaton aws n each of these
few States, ths secton e tends unt 30 days after the cose of such States
ne t reguar egsatve sesson, the tme wthn whch such States may effect
the necessary transfers of funds. The net effect of ths postponement w not
deprve the raroad unempoyment Insurance account of any moneys to whch
It s entted under the present provsons of the Raroad Unempoyment Insur-
ance ct. The secton w appy ony to States In whch the frst reguar
egsatve sesson whch began after une 25, 193 , has ad|ourned pror to 30
days after the date of enactment of ths ct Ths mtaton s necessary n
order that States whose frst reguar egsatve sessons whch begn after une
25, 193 , and after the date of enactment of ths ct, w not be authorzed to
postpone the enactment of the egsaton requred under the Raroad Unem-
poyment Insurance ct.
Secton 907 s a new amendment proposed because n the case of persons 65
or over there may be beneft credts because of wages earned durng any part
of 1939. Ths amendment woud provde that where the empoyee s ta has
not been deducted from the empoyee over 65 and where the empoyer has not
made any ta payment for hs empoyment n 1939, deducton of an amount
equa to the empoyee s ta wthout nterest woud be made from hs monthy
benefts or other benefts payabe wth respect to hs wages.
1939-37-10011
Mr. Doughton, from the commttee of conference, submtted the foowng
conference report to accompany . R. 6635 :

The managers on the part of the ouse at the conference on the dsagreeng
votes of the two ouses on the amendments of the Senate to the b ( . R.
6635) to amend the Soca Securty ct, and for other purposes, submt the
foowng statement n e panaton of the effect of the acton agreed upon by
the conferees and recommended n the accompanyng conference report:

mendment No. 9: The ouse b provded that the admnstratve e penses
of the Soca Securty oard and the Treasury Department for the admns-
traton of Tte II and Tte III of the Soca Securty ct, and the edera
Insurance Contrbutons ct, shoud be estmated monthy by the charman of
the oard and the managng trustee of the edera od-age and survvors trust
fund. The managng trustee was drected to pay each month from the trust
fund nto the Treasury as msceaneous recepts the amount so estmated.
The Senate amendment provdes that such amount sha be estmated quartery
and that such payments sha be covered Into the Treasury as repayments to the
account for rembursement of e penses ncurred n connecton wth the admns-
traton of such Ttes II and III and such edera Insurance Contrbutons
ct The amendment aso provdes that such repayments sha not be ava-
abe for e pendture but sha be carred to the surpus fund of the Treasury.
If the payments made by the trust fund to the Treasury for such cost of ad-
mnstraton were covered Into the Treasury as provded n the ouse b, the
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594
recepts and e pendtures woud be overstated n te account of the Treasury
by the amounts so deposted. Coectons, when orgnay receved, are cassfed
In the Treasury accounts as soca securty ta es, and subsequenty, und
the ouse b, a porton woud be deposted as msceaneous recepts, thus
overstatng actua recepts. so, when funds are e pended from appropra-
tons for such admnstraton, such tems woud be shown as e pendtures under
Soca Securty oard and departmenta, and the rembursements for sacb
e penses from the trust fund woud aso be shown as e pendtures, uness sock
tems are deposted as repayments nstead of msceaneous recepts. The
Senate amendment cures ths admnstratve probem. The ouse recedes.

mendments Nos. 26 and 27: Under the ouse b as under e stng aw,
empoyees who worked for more than one empoyer n a year and who have t
tota saary from such empoyers of more than 3,000 are ta abe upon the
frst 3,000 of such saares from each empoyer. These Senate amendment
provde that no more than 3,000 tota remuneraton for any caendar year after
1939 s counted for beneft purposes. (See amendment No. 5 for speca ta
refund on such saares n e cess of 3,000.) The ouse recedes.

mendments Nos. 29 and 3f: These amendments e cude from the defnton
of wages payments made by an empoyer under certan condtons on behaf of
bs empoyees on account of death (ncudng fe nsurance) where t s cear
that the empoyee, whe vng, does not have certan rghts and optons. The e
sght changes from e stng aw are effectve as to wages from empoyneat
after 1930. The ouse recedes.

mendment No. 35: Under present aw servces performed by an ndvdua
after he attans age 65 are not counted for benefts under Tte II nor are
they ta ed under the edera Insurance Contrbutons ct. The ouse b
provded that such servces performed after 1939 woud be counted as empoy-
ment and ta ed the wages for such servces after such year. The Senate amend-
ment provdes that such servces performed after 193 by such an ndvdua
sha be counted as empoyment. ( mendment No. 173 ta es such wages and
amendment No. 175 deducts from any beneft under Tte II an amount eqna
to 1 per cent of any wages pad to any such ndvdua for servces performed
n 1939 f ta es on such wages were not pad.) The ouse recedes.
mendment No. 36: The ouse b e empted from the defnton of empoy-
ment servce performed n the empoy of an agrcutura or hortcutura
organzaton. The Senate amendment carfes ths e empton to make certan
that these organzatons are dentca wth agrcutura and hortcutura
organzatons e empt from ncome ta under secton 101(1) of the Interna
Revenue Code. The ouse recedes.
mendments Nos. 37 and 3 : These amendments made a carfyng change
to brng ths provson nto conformty wth a smar provson contaned t
the Revenue ct of 1939. The ouse recedes.

mendment No. 40: Ths amendment woud e cude fshermen from coverage-
It woud aso e cude offcers and members of crews (even though not fsbtr-
men) of any vesse ess than 400 tons, or of any sa vesse regardess of tonnage
f the vesse s engaged n the specfed fshng actvtes. There was no com-
parabe provson n the ouse b. The ouse recedes wth an amendment
whch e empts from coverage servce performed by an ndvdua n (or as an
offcer or member of the crew of a vesse whe t s engaged n) the catchng,
takng, harvestng, cutvatng, or farmng of any knd of fsh, shefsh, Crusta-
cea, sponges, seaweeds, or other aquatc forms of anma and vegetabe fe
(ncudng servce performed by any such ndvdua as an ordnary ncdent W
any such actvty), e cept (a) servce performed n connecton wth the catch-
ng or takng of samon or habut, for commerca purposes, and (6) servce
performed on or n connecton wth a vesse of more than 10 net tons (deter-
mned In the manner provded for determnng the regster tonnage of merchant
vesses under the aws of the Unted States).
mendment No. 41: Ths amendment e cudes servce performed by an nd-
vdua under the age of 1 n makng street saes of newspapers, and n makng
house-to-house deveres of newspapers and shoppng news, ncudng handbs
and other smar types of advertsng matera. It does not ncude the ban-
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595
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dng of newspapers and advertsng matera pror to the tme they are turned
over to the ndvdua who makes the sae, the house-to-house, or other fna
dstrbuton. There was no comparabe provson In the ouse MIL The ouse
recedes.

mendments Nos. 57 and 5 : The ouse b defned agrcutura abor to
Incude a servces performed on a farm, n the empoy of any person, n con-
necton wth cutvatng the so, or n connecton wth rasng or harvestng
any agrcutura or hortcutura commodty. These Senate amendments struck
out the words connecton wth. The conference acton restores such words
and the Senate recedes.
mendments Nos. 59, 60, 62, 63, and 66: These amendments make carfyng
changes to the defnton of agrcutura abor. The ouse recedes.
mendment No. 61: Ths amendment ncudes n the defnton of agrcutura
abor servce performed on a ftrm wth respect to other wdfe n the same
manner and to the same e tent as servce performed wth respect to fur-bearng
anmas. The ouse recedes wth a carfyng amendment.
mendment No. 64: Ths amendment ncudes wthn the term agrcutura
abor servce performed n the empoy of the owner or tenant or other oper-
ator of a farm, n connecton wth the mantenance of the toos and equpment
on such farm. It aso ncudes servce performed n the empoy of any such
owner, tenant, or other operator In savagng tmber or cearng and of brush or
other debrs eft by a hurrcane. oth amendments are sub|ect to the mta-
ton contaned n the b that the ma|or part of such servce must be performed
on a farm. The ouse recedes.
mendment No. 65: Ths amendment ncudes as agrcutura abor, n add-
ton to the servces ncuded n the ouse b, servce performed In connecton
wth the operaton or mantenance of dtches, canas, reservors, or waterways
used e cusvey for suppyng and storng water for farmng purposes. The
ouse recedes.

mendment No. 5: Under e stng aw, remuneraton receved by an em-
poyee wth respect to empoyment durng any caendar year s ta abe up to
and ncudng 3,000 receved by the empoyee from each empoyer he may have
durng the year. ence, an empoyee who has more than one empoyer may
be requred to pay the od-age Insurance empoyees ta on aggregate wages
n e cess of 3,000. The Senate amendment permts the empoyee to obtan a
refund, wthout nterest, of the ta pad on the aggregate In e cess of 3,000
earned after December 31, 1939, provded a tmey cam s fed. Ths amend-
ment s compementary to amendment No. 27. There was no comparabe pro-
vson n the ouse b. The ouse recedes.
mendments Nos. 6 and 7: These amendments e cude from the defnton
of wages payments made by an empoyer under certan condtons on behaf
of hs empoyees on account of death (ncudng fe nsurance) where t s
cear that the empoyee, whe vng, does not have certan rghts and optons.
The ouse recedes.

ment servce performed n the empoy of an agrcutura or hortcutura
organzaton. The Senate amendment carfes ths e empton to make certan
that these organzatons are dentca wth agrcutura and hortcutura
organzatons e empt from ncome ta under secton 101(1) of the Interna
Revenue Code. The ouse recedes.
mendments Nos. 90 and 91: These amendments make a carfyng change
to brng ths provson nto conformty wth a smar provson contaned In
the Revenue ct of 1939. The ouse recedes.

mendment No. 93: Ths amendment woud e cude fshermen from coverage.
It woud aso e cude offcers and members of crews (even though not fsher-
men) of any vesse ess than 400 tons, or of any sa vesse regardess of
tonnage f the vesse s engaged n the specfed fshng actvtes. There was
no comparabe provson n the ouse b. The ouse recedes wth an amend-
ment whch e empts from coverage servce performed by an Indvdua n
(or as an offcer or member of the crew of a vesse whe t s engaged n) the
catchng, takng, harvestng, cutvatng, or farmng of any knd of fsh, she-
fsh, Crustacea, sponges, seaweeds, or other aquatc forms of anma and
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596
vegetabe fe (ncudng servce performed by any such ndvdua as ta
ordnary ncdent to any such actvty), e cept (a) servce performed n con-
necton wth the catchng or takng of samon or habut, for commerca
purposes, and (6) servce performed on or n connecton wth a vesse of more
than 10 net tons (determned n the manner provded for determnng tbt
regster tonnage of merchant vesses under the aws of the Unted States).
mendment No. 94: Ths amendment e cudes servce performed by an
ndvdua under the age of 1 n makng street saes of newspapers, and t
makng house-to-house deveres of newspapers and shoppng news, ncudng
handbs and other smar types of advertsng matera. It does not ncude
the handng of newspapers and advertsng matera pror to the tme they are
turned over to the ndvdua who makes the sae, the house-to-house, or other
fna dstrbuton. There was no comparabe provson n the ouse b. Tte
ouse recedes.

mendments Nos. 97 and 9 : The ouse b e tended coverage to certan
saesmen who are not empoyees. The Senate amendment strkes out ths
e tenson of coverage and aso strkes out the new defnton of empoyer as
such defnton was rendered unnecessary f the e tenson of coverage to soea
saesmen s not retaned n the bL It s beeved ne pedent to change th
e stng aw whch mts coverage to empoyees. The ouse recedes.

mendments Nos. 103 and 104: The ouse b defned agrcutura abor ts
ncude a servces performed on a farm, n the empoy of any person. In con-
necton wth cutvatng the so, or n connecton wth rasng or harvestng
any agrcutura or hortcutura commodty. These Senate amendments struck
out the words connecton wth. The conference acton restores such words
and the Senate recedes.
mendments Nos. 105, 106, 10 , 109, and 112: These amendments make car-
fyng changes to the defnton of agrcutura abor. The ouse recedes.
mendment No. 107: Ths amendment ncudes n the defnton of agrcutura
abor servce performed on a farm wth respect to other wdfe In the same
manner and to the same e tent as servce performed wth respect to fur-bearng
anmas. The ouse recedes wth a carfyng amendment
mendment No. 110: Ths amendment ncudes wthn the term agrcutnra:
abor servce performed n the empoy of the owner or tenant or other operator
of a farm, n connecton wth the mantenance of the toos and equpment os
such farm. It aso ncudes servce performed n the empoy of any such owner,
tenant, or other operator n savagng tmber or cearng and of brush or other
debrs eft by a hurrcane. oth amendments are sub|ect to the mtaton
contaned n the b that the ma|or part of such servce must be performed cc
a farm. The ouse recedes.
mendment No. I: Ths amendment ncudes as agrcutura abor, n add-
ton to the servces ncuded n the ouse b, servce performed n connectc
wth the operaton or mantenance of dtches, canas, reservors, or waterways
used e cusvey for suppyng and storng water for farmng purposes. Tte
ouse recedes.
mendments Nos. 113 and 114: Under the ouse b, the addtona credt
aowance was based upon the amount, f any, by whch contrbutons requred
to be pad by a ta payer wth respect to the ta abe year were ess than the
contrbutons such ta payer woud have been requred to pay f throughout the
ta abe year he had been sub|ect under such State aw to a rate of 2.7 per ceut.
These Senate amendments were made necessary by reason of amendment No.
126, whch emnates the new secton 1602(b) of the Code contaned n the
ouse b. These amendments base the addtona credt aowance on tte
dfference between the amount of contrbutons the ta payer was requred to
pay under the State aw and the amount he woud have pad f throughout tte
ta abe year he had been sub|ect to the hghest rate apped under the State
aw In the ta abe year to any empoyer, or to a rate of 2.7 per cent, whchever
rate s ower. The ouse recedes.
mendment o. 115: The ouse b amended secton 1602(a) of the Interna
Revenue Code by addng a new standard wth respect to aowance of addtona
credt, whch requred that, rrespectve of the type of fund mantaned under
the State aw, such aw must contan provsons whereby varatons n rates of
contrbutons as between dfferent empoyers w be so computed as to yed, wth
respect to each year, a tota amount of contrbutons substantay equvaent to
2.7 per cent of the tota of pay ros of empoyers sub|ect to the contrbutos
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requrements of the State aw. The Senate amendment deetes ths new stand-
ard. The ouse recedes.

mendments Nos. 117 and 11 : Under the ouse b, States whch have pooed
fund unempoyment compensaton aws woud have been aowed to vary rates
of contrbutons and aow reduced rates of contrbutons on the bass of three
years of e perence by an empoyer wth respect to unempoyment or other
factors bearng a drect reaton to unempoyment rsk. The Senate amendments
change the three years to two years and further provde that such reducton
tnder pooed fund aws w be aowed ony after compensaton has been payabe
under the State aw wth respect to such empoyer for the two consecutve years
mmedatey precedng the computaton date. The Senate recedes.
mendment No. 126: The ouse b added a new subsecton (b) to secton
1602 of the Interna Revenue Code. Under ths subsecton a State woud have
been permtted to adopt ether of two aternatve courses of acton f Its aw mot
the standards set forth In paragraphs (1) and (2) of the new subsecton: (1)
It mght reduce a empoyers rates unformy or (2) t mght vary ndvdua
empoyers rates of contrbutons under e perence ratng provsons whch com-
ped wth the appcabe standards n paragraph (2), ( ), or (4) of subsecton
(a) of such secton 1002, but wthout so cacuatng the respectve rates as to
secure an annua yed of an amount substantay equvaent to 2.7 per cent
of the State pay ro. The Senate amendment deetes ths new subsecton. The
ouse recedes.

mendments Nos. 137 and 13 : Under the ouse b the term baance was
denned to make cear that the amount of the reserve requred to be accumuated
by empoyers wth respect to whom a reserve account or a guaranteed empoy-
ment account s mantaned. Is to be made up of payments by such empoyers and
may not be made up of empoyee contrbutons or funds from other sources.
The e cepton contaned In ths defnton, whch permts the ncuson wthn a
baance of payments other than payments by empoyers f made to a reserve
account or guaranteed empoyment account pror to anuary 2, 1939, Is desgned
to reeve the States of compcated computatons where payments, other than
payments by empoyers, had been pad to such accounts durng the eary months
of the State s e perence. These Senate amendments advance the date one year
beyond that prescrbed n the ouse b. The ouse recedes.
mendment No. 139: Subsecton (b) of secton 610 of the ouse b, whch
s deeted by ths amendment, has been rendered unnecessary because of Senate
amendment No. 115 whch deeted from the ouse b the average 2.7 per cent
contrbuton rate requrement The ouse recedes.
mendment No. 140: The ouse b conferred on State egsatures the au-
thorty to requre Instrumentates of the Unted States, e cept those whoy
owned by the Unted States or e empt from the ta es mposed by secton 1410
or 1600 of the Interna Revenue Code, to compy wth State unempoyment com-
pensaton aws. The Senate amendment strkes out the reference to the od-age
ta mposed by secton 1410 snce ony the unempoyment ta mposed by secton
1600 s nvoved. The ouse recedes.
mendment No. 141: Ths s a carfyng amendment to make cear that In
determnng whether a person empoys eght or more empoyees, ony those
empoyees empoyed n empoyment (as defned n secton 1607(c) of the Interna
Revenue Code) are to be counted. The ouse recedes.
mendments Nos. 142 and 143: These amendments e cude from the defnton
of wages payments made by an empoyer under certan condtons on behaf of
hs empoyees on account of death (ncudng fe nsurance) where t Is cear
that the empoyee, whe vng, does not have certan rghts and optons. The
ouse recedes.
ment servce performed In the empoy of an agrcutura or hortcutura organ-
saton. The Senate amendment carfes ths e empton to make certan that
these organzatons are Identca wth agrcutura and hortcutura organza-
tons e empt from ncome ta under secton 101(1) of the Interna Revenue Code.
The ouse recedes.
mendments Nos. 145 and 146: These amendments make a carfyng change
to brng ths provson Into conformty wth a smar provson contaned n the
Revenue ct of 1939. The ouse recedes.

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mendment No. 149: Ths amendment emnates from the edera Cnempby
meut Ta ct nsurance agents and soctors f the remuneraton for whch tber
perform ther servces s on a commsson bass soey. There was do compan
provson n the ouse b. The ouse recedes.
mendment No. 150: Ths amendment e cudes servce performed by an to-
dvdua under the age of 1 n makng street saes of newspapers, and n math
house-to-house deveres of newspapers and shoppng news, ncudng hamfc
and other smar types of advertsng matera. It does not ncude the bandt
of newspapers and advertsng matera pror to the tme they are turned uver s
the ndvdua who makes the sae, the house-to-house, or other fna dstrbuct
There was no comparabe provson n the ouse b. The ouse recedes.

mendments Nos. 153 and 154: The ouse b defned agrcutura abor tc
ncude a servces performed on a farm, n the empoy of any person, n e
necton wth cutvatng the so, or n connecton wth rasng or harvestngs:
agrcutura or hortcutura commodty. These Senate amendments struct rc
the words connecton wth. The conference acton restores such words u
the Senate recedes.
mendments Nos. 155,15 , 15 ,159, and 162: These amendments make dar-
ng changes to the defnton of agrcutura abor. The ouse recedes.
mendment No. 157: Ths amendment ncudes In the defnton of asrra-
tura abor servce performed on a farm wth respect to other wdfe n e
same manner and to the same e tent as servce performed wth respect to fa-
bearng anmas. The ouse recedes wth a carfyng amendment
mendment No. 160: Ths amendment ncudes wthn the term agrcnto .
abor servce performed n the empoy of the owner or tenant or other opa-
ator of a farm, n connecton wth the mantenance of the toos and equpot
on such farm. It aso ncudes servce performed n the empoy of any s
owner, tenant, or other operator n savagng tmber or cearng and of bra
or other debrs eft by a hurrcane. oth amendments are sub|ect to the fe-
taton contaned n the b that the ma|or part of such servce must be per-
formed on a farm. The ouse recedes.
mendment No. 161: Ths amendment ncudes as agrcutura abor, n ad -
ton to the servces ncuded n the ouse b, servce performed n connect)a
wth the operaton or mantenance of dtches, canas, reservors, or waterwaf
used e cusvey for suppyng and storng water for farmng purposes. 0
ouse recedes.

mendment No. 167: Ths amendment s compementary to amendments N
97 and 9 . Under secton 606 of the ouse b certan saesmen were ncraW
as empoyees for purposes of the od-age Insurance ta , and by secton 01
ncuded as empoyees for the purpose of recevng benefts under Tte II. S
ate amendments Nos. 97 and 9 struck out such e tenson of coverage for pa
poses of the ta and ths amendment strkes out such e tenson for purpose
the benefts under Tte II. It s beeved ne pedent to change the e stng 1
whch mts coverage to empoyees. The ouse recedes.

mendment No. 171: Ths s a technca amendment to set at rest certa.:
confctng dstrct court decsons, and provdes that the coecton of the fe|
3 per cent edera ta (wthout aowance of the 90 per cent credt) from a bant
rupt estate, whch faed to quafy for credt, s not prohbted by secton f
of the ankruptcy ct, as amended, whch secton provdes that debts owns
the Unted States as a penaty or forfeture sha not be aowed. There wasM
comparabe provson n the ouse b. The ouse recedes.
mendment No. 172: Ths amendment merey conforms the reference n
ton 142 of the Interna Revenue Code to the revson of the numbers of tt
paragraphs n secton 1426(b) of such Code. The ouse recedes.
mendment No. 173: Ths amendment s compementary to amendment
5 and mposes the od-age Insurance ta on wages pad after December 31,1
wth respect to empoyment after such date, to empoyees who have attaned f
age of 05. It provdes that the abty of the empoyer for the empoyees
wth respect to servce performed pror to the enactment of ths ct s 1
to the amount of remuneraton of such empoyee n the contro of the em,1 f
at any tme on or nfter 90 days after the enactment of ths ct There tC
comparabe provson n the ouse b. The ouse recedes.
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mendment No. 174: Ths amendment e tends the tme wthn whch certan
States may effect the transfer of certan funds from the State s account n the
unempoyment trust fund to the raroad unempoyment nsurance account n
the unempoyment trust fund. Ths postponement w not deprve the raroad
unempoyment nsurance account of any moneys to whch t s entted under
the present provsons of the Raroad Unempoyment Insurance ct There
was no comparabe provson In the ouse b. The ouse recedes.
mendment No. 175: Ths amendment s compementary to amendments Nos.
35 and 173. It provdes that where the empoyees ta wth respect to the year
1939 has not been deducted from the empoyee over 65 and where the empoyer
has not pad the empoyee s ta for such empoyee s empoyment n 1939, deduc-
ton of an amount equa to the empoyee s ta , wthout Interest, woud be made
from hs monthy benefts or other benefts payabe wth respect to hs wages.
There was no comparabe provson In the ouse b. The ouse recedes.
mendment No. 176: Ths amendment authorzes the estabshment of an
advsory counc on unempoyment nsurance to study certan specfed matters
concernng unempoyment nsurance and make a report thereon. There was no
comparabe provson n the ouse b. The Senate recedes.
mendment No. 177: Ths amendment authorzes the estabshment of an
advsory counc on dsabty nsurance to make a study of dsabty nsurance
and report thereon. There was no comparabe provson n the ouse b.
The Senate recedes

mendment No. 179: Ths amendment e tends coverage to ndvduas em-
poyed by certan edera savngs and oan assocatons affated wth the ed-
era ome Loan anks, who woud otherwse be e cuded from the od-ago
Insurance benefts, the edera Insurance Contrbutons ct, and the edera
Unempoyment Ta ct, snce under the ome Owners Loan ct they are
e empt from ta es mposed by the Unted States. There was no comparabe
provson n the ouse b. The ouse recedes.
mendment No. 1 0: Ths amendment reates to secton 213(f) of the Revenue
ct of 1939, whch deas wth the assumpton of abty n certan ta -free
e changes. There s no comparabe provson n the ouse b. Secton 213(f)
of the Revenue ct of 1939 retroactvey amended the Revenue cts of 1924
through 193 to provde that the assumpton of a abty or the acquston of
property sub|ect to a abty n certan ta -free e changes shoud not resut n
gan to be ta ed at the tme of the e change, e cept n cases where by a
prevous decson of a court or of the oard of Ta ppeas, or under a cosng
agreement, gan was recognzed to the transferor of property In the ta -free
e change by reason of such an assumpton or acquston by the transferee.
The Senate amendment removes from that e cepton a case n whch gan was
recognzed to a corporate transferor by a court or oard decson, the bass to
the transferee of the property acqured by It n the e change was f ed at cost
under the appcabe Revenue ct, and the corporate ta payer qudated mme-
datey subsequent to the e change. s the perod of mtatons may have
e pred wth respect to the fng of a refund cam In such a case, the amend-
ment provdes one year from the date of enactment of the Revenue ct of 1939
wthn whch to fe a refund cam. The ouse recedes wth an amendment
whch provdes that no nterest sha be aowed or pad on the amount of any
overpayment refunded or credted by reason of the provsons of ths secton.
mendment No. 1 1: Ths amendment e tends the tme to December 31, 1939,
for the fng of cams for refunds under subsecton (d) of secton 602 of the
Revenue ct of 1936, as amended. There was no comparabe provson In the
ouse b. The ouse recedes.
mendment No. 1 2: Ths amendment provdes that after 1940 the provsons
of the Soca Securty ct sha not be appcabe to foregn-born aens. It
aso provdes for refunds of any ta es they may have pad under such ct, and
that any empoyer usng aen abor sha pay a speca prvege ta equvaent
to that coected from mercan ctzens Subsecton (b) of the amendment pro-
hbts the payment of any od-age nsurance beneft to any ndvdua whe such
ndvdua s not a resdent of the Unted States or Its possessons uness such
Indvdua resdes wthn 50 mes of the Unted States. There was no com-
parabe provson n the ouse b. The Senate recedes.
The managers on the part of the ouse desre to state that the changes made
by ths b wth respect to agrcutura abor do not take effect unt anuary ,
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1 M0, and therefore have no effect whatsoever on any tgaton now In te
courts wth respect to what consttutes agrcutura abor under present aw.
The managers on the part of the ouse aso desre to state that there are r c
very mportant proposas to whch the conferees gave a great dea of attentr.
These are the so-caed Connay amendment, provdng for greater fedes
matchng n the case of od-age assstance, and the Massachusetts pan wfct
woud enabe the States to make a State-wde reducton n unempoyment
pensaton contrbuton rates under certan condtons. The conferees hero
that a comprehensve study of the sub|ect matter covered by these two prop .
shoud be undertaken whch w enabe the Congress to dea more ntegent
wth the probems nvoved than Is possbe at the present tme.
R. L. Doughton,
Thos. . Cues,
ohn W. McCobmack,
erk Cooper,
en T. Tbeadwat,
rank Cbowther,
Thomas . enkks.
Managers on the part of the ottt
1939-17-100
T SOCI L S CURITY ILL.
ouse of Representatves Report No. 61S, Seventy-fourth Congress, rst Sesaoa.1
pr 5, 1935.
Mr. Doughton, from the Commttee on Ways and Means, submtted the M
ng report to accompany . R. 7260 :

part . genera statement.
Contents of .
Ths b provdes for varous grants-n-ad to the States estabshes a rf-
era od-age beneft system and a Soca Securty oard and mposes carta
ta es, herenafter descrbed.

Tte III: n ncome ta , measured by a certan percentage of wages (te
gnnng wth 1 per cent n 1937 and ncreasng to 3 per cent by 1949), s cvf
on most wage earners, wth certan arge groups, such as domestc serra
and agrcutura aborers, e empted. n e cse ta , measured at the same rats
on wages pad, s eved on empoyers, wth smar e emptons. These tt
frst take effect on anuary 1, 1937.
Tte I : n e cse ta s eved on empoyers of 10 or more persons f-1-
certan e emptons), measured by 1 per cent of wages payabe for 193
ncreasng to 3 per cent by 193 . Ths ta goes nto effect on anuary 1, IS
and Is frst payabe a year ater. Credts aganst the ta are aowed (
contrbutons whch the ta payer may have made to State unempoyment fro1-
under State unempoyment compensaton aws.
Tte : Ths tte contans genera defntons and msceaneous prora
appyng to the whoe ct
story of Legsaton.
Legsaton on the sub|ect of soca securty was promsed the connn h1
Presdenta message of une , 1934, n whch he sad:
Our task of reconstructon does not requre the creaton of new and sW
vaues. It s rather the fndng of the way once more to known, bot to M#
degree forgotten, deas and vaues. If the means and detas are n some
stances new, the ob|ectves are as permanent as human nature.
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601
I Msc.
mong our ob|ectves I pace the securty of the men, women, and chdren of
the Naton frst.
Ths securty for the ndvdua and for the famy concerns tsef prmary
wth three factors. Peope want decent homes to ve n they want to ocate
them where they can engage n productve work and they want some safeguard
ganst msfortunes whch can not be whoy emnated n ths man-made word
t ours.
Subsequenty, the Presdent (by ecutve order) created the Commttee on
Sconomc Securty, composed of the Secretary of Labor (charman), the Secre-
ary of the Treasury, the ttorney Genera, the Secretary of grcuture, and
he edera mergency Reef dmnstrator, nstructng the commttee to
tudy the entre probem and to make recommendatons whch mght serve as
he bass for consderaton of egsaton by the present Congress.
The Commttee on conomc Securty devoted s months to ths study n
vhch t was asssted by a staff of specasts and by 14 advsory groups,
epresentatve of every nterest concerned wth the probems of economc
ceurty, Incudng capta, abor, and the genera pubc. The com-
nttee made a unanmous report to the Presdent n anuary of ths year, whch
e Presdent transmtted to both ouses of the Congress, wth hs ndorse-
nent of the egsaton recommended theren, n a speca message on anuary
.7, 1935 the concudng paragraphs of whch were as foows:
The estabshment of sound means toward a greater future economc secu-
ty of the mercan peope s dctated by a prudent consderaton of the
razards nvoved n our natona fe. No one can guarantee ths country
ganst the dangers of future depressons but we can reduce these dangers.
e can emnate many of the factors that cause economc depressons, and
ve can provde the means of mtgatng ther resuts. Ths pan for economc
ecurty s at once a measure of preventon and a method of aevaton.
We pay now for the dreadfu consequence of economc nsecurty and
eary. Ths pan presents a more equtabe and nfntey ess e pensve means
f meetng these costs. We can not afford to negect the pan duty before us.
strongy recommend acton to attan the ob|ectves sought n ths report.
These recommendatons were ncorporated n . R. 4120, on whch ths com-
nttee hed e tended hearngs from anuary 21 to ebruary 12, at whch more
han 1,000 pages of testmony were taken. Snce the concuson of the hearngs
he measure has receved the constant attenton of the commttee unt the
resent moment, and numerous changes n the content and form were agreed
pon. These changes nvoved a compete revson resutng n the draftng
,nd ntroducton of . R. 7200, herewth recommended for passage.
Pcepose and Scope.
The need for egsaton on the sub|ect of soca securty s apparent at ths
me. On every hand the ack of such securty s evdenced by human sufferng,
weakened morae, and ncreased pubc e pendtures.
Ths stuaton necesstates two compementary courses of acton: We must
eeve the e stng dstress and shoud devse measures to reduce desttuton
nd dependency n the future.
Thus far n the depresson, we have merey attempted to reeve e stng ds-
ress, but the tme has come for a more comprehensve and constructve attack
n nsecurty. The foundatons of such a program are ad n the present b.
Work for the empoyabes on reef s contempated n the work-reef b
second vta part of the program for securty s presented n ths b. The
s desgned to ad the States n takng care of the dependent members of
uer popuaton, and to make a begnnng n the deveopment of measures whch
a reduce dependency n the future. It deas wth four ma|or sub|ects: Od-
ge securty, unempoyment compensaton, securty for chdren, and pubc
eath. These sub|ects are a cosey reated, a beng concerned wth ma|or
a uses of dependency. Together they consttute an mportant step n a we-
ounded, unfed, ong-range program for soca securty.

Unempoyment Compensaton.

The faure of the States to enact unempoyment nsurance aws s due
rgey to the fact that to do so woud handcap ther ndustres n competton
209196 40 20
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602
wth the Industres of other States. The States have been unwng to pare t:
e tra fnanca burden upon ther ndustres. unform, Naton-wde ta upon
ndustry, thus removng ths prncpa obstace n the way of unempoym1:
nsurance, s necessary before the States can go ahead. Such a ta shoud mat
t possbe for the States to enact ths socay desrabe egsaton.
Ths s one of the purposes of Tte I of ths b. In ths tte a ta s
mposed upon empoyers throughout the country aganst whch credt
aowed of up to 90 per cent of the ta for contrbutons made by empoyers to
unempoyment compensaton funds estabshed pursuant to State aw.
That ths ta s mposed on empoyers Is ndcatve of the convcton tt
empoyers shoud bear at east a part of the cost of unempoyment compentata,
|ust as they bear the cost of workmen s compensaton. ach State s. of coors
free to assess not ony empoyers but empoyees and n ths connecton t m
he noted that n uropean countres, and under the aw recenty passed by tt
State of Washngton, empoyees are requred to contrbute.

Ta es.
There are three ta es Imposed n the b:
(1) n ncome ta on wage earners, begnnng In the year 1937 at a rate
1 per cent of wages, and ncreasng to 3 per cent n 1949. Large groups of w
earners are, for admnstratve reasons, e cuded from the operaton of tsu
but more than one-haf of the tota number of ganfu workers are covered.
Tabe III. stmate of number of empoyees covered under the ta prowM
n Tte III.
Rased upon 1930 Census.
Tota number of ganfu workers 4 , 30,09
Tota number of owners, operators, sef-empoyed (ncudng the
professons) 12,067, -
Tota of workers e cuded because of occupaton (farm abor,
domestcs, teachers, and governmenta and nsttutona workers). 9,3 9,M
Tota number of workers n egbe occupatons 27,3T4.(
cuded:
Casuas 500,000
Over Go 1,050,000
1.550
stmated coverage 25, S . .
(2) n e cse ta on empoyers, wth certan e emptons, based on
pad. Ths ta , ke the ncome ta mposed In ths tte, w become opera-
tve In 1037 at 1 per cent of wages, ncreasng thereafter and agan, t
admnstratve reasons, there are numerous e emptons.
Tabe I . Revenue estmates (from tares on empoyees and empoyert
bu Tte III, sectons 01 and 0-).1
Combned rate of ta
2 per cent
2 per cent
2 por cent
3 per cent
3 per cent
3 per cent
4 per cent
sca year
receved
Into
Treasury.
1:1:17
.m
.ff
n
m
1 42
n 1.1
stmated fs-
ca year re-
cepts.
27 , 00,000
560, 200, 000
565,600,000
714,600,000
RM. 00,000
73.000.000
1,02 , 00,000
Combned rate of t
4 per cent.
4 per cent
5 per cent.
5 per cent
5 per cent
6 per cent.
6 per cent
sca year
receved
nto
Treasury,
1944
1 45
11)16
1947
194
1919
1950
ach of the two ta es s estmated to produce one-haf of the tota recepts shown.
aywrfc
|, W
1,S5 , , ,
t,a
,.s m
1,7
I,f7(,)
stab
(3) n e cse ta on empoyers who mantan comparatvey arge est
ments, eved n Tte I and mentoned heretofore n ths report, nC0 Mcc
wth the dscusson of unempoyment compensaton.
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Tak . stmate of number of empoyees covered under the ta provded n
Tte I .
ased upon 1930 Census.
Tota number of ganfu workers 4 , 30,000
Tota number of owners, operators, sef-empoyed (Incudng the
professons) 12,0 7,000
Tota number of workers e cuded because of occupaton (farm abor,
domestcs, teachers, and governmenta and nsttutona workers) 9,3 9,000
Tota number of workers n egbe occupatons 27,354,000
stmated number of workers attached to estabshments wth nne
or ess empoyees 5, 400, 000
stmated number of workers attached to estabshments of 10 and
more empoyees (Incudng unempoyed) pr, 1930 21,954,000
verage 1936 (4 per cent ncrease) 22, 5 ,000
The actua number of empoyees covered by the ta woud be consderaby
smaer than 22, 5 ,000 due to unempoyment. workers empoyed durng a
part of the year, however, n estabshments covered by the ta , woud be
covered wth respect to that empoyment.
Tabe I. Revenue estmates (from taw on empoyers of 10 or more under
Tte I , wth no aowance for 90 per cent credt).
1
Caendar year
wth respeet
to whch ta
s eved.
sca year
receved
Caendar year
wth respect
to whch ta
s eved.
sca year
receved
nto
Treasury.
stmated
recepts.
Rate of
ta .
nto
Treasury.
stmated
recepts.
Rate of
ta .
Per cent.
1
2
3
Percent
3
1936
1937
193
1939
1940
22 ,000,000
601. 000, 000
7 6,000, 000
03,000,000
1940
1941
1943
194
1951
20,000, 000
46, 000, 000
72, 000, 000
906,000,000
1937
1942
s
a
193S
1945
1939
1950
Not. The ta eved by Tte I s sub|ect to a credt of 90 per cent of the amount of such ta for con-
trbutons nto State unempoyment funds. Therefore the mnmum amount of revenue each year from
ths ta w be 10 per cent of the above amounts. What part of the above estmates, greater than 10 per cent
of same, w be retaned by the Treasury s probematca, beng dependent on the number of States enact-
ng unempoyment nsurance aws, and the rates and coverage thereof.
Practcay no ob|ectons have been made to the mposton of the ta es
eved n ths b. What ob|ectons have been offered overook the fact that
the nta rates are very ow. The ony ta n the year 1936 (whch s not
payabe unt 1937) s the 1 per cent e cse ta on empoyers of 10 or more
empoyees aganst whch a credt s aowed for payments made under State
unempoyment compensaton aws. In 1937 the other ta es w aso come nto
operaton, but ony at the rate of 1 per cent upon empoyers.
cse ta es measured by pay ro w normay be added to prces. ut
agan, the effects are often e aggerated. The drect abor cost of a manu-
factured commodtes represents on the average about 21 per cent of the vaue
of the product. Ta es of 1, 2, and 3 per cent, and even the utmate 6 per cent
(not reached unt 1949) w, thus, ncrease the seng prce not by these
percentages, but by much ess than these fgures.
Ta es on pay ros and wages are mposed n a unempoyment-compensaton
systems the word over. Ta es on pay ros for ths purpose are |ustfed
because unempoyment compensaton s a egtmate part of the costs of pro-
ducton, as has ong been recognzed n the case of workmen s compensaton for
ndustra accdents (the costs of whch are, kewse, aways computed on a
pay-ro bass). Unempoyment compensaton beongs n the same category wth
wages, and t s no more than rght that the consumers shoud bear ths cost,
as s the case wth a other costs of producton.
In ths connecton t must not be forgotten that empoyers and consumers
must utmatey foot a arge part of the b for the reef of desttuton. ed-
era, State, and oca ta es and pubc ndebtedness have been greaty ncreased
by the tremendous probem of reef. Ths program w necessary reduce ths
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604
great oad for pubc ta es now requred for reef purposes. If the measures
we propose w reduce dependency, as we e pect, the burden upon empoyers
and consumers may we be smaer than t s at present.
Concuson.
The proposas n ths b are forward ookng. Ths b Is not to be con-
sdered a cure-a, nor a compete measure for economc securty. It w doubt-
ess have to be suppemented n the course of tme, as has been the hstory of
a other ma|or new egsaton. ut t makes a begnnng toward economc
securty whch has been ong overdue.
Ths begnnng s made aong nes whch are n accord wth our mercan
nsttutons and tradtons. It s not cass egsaton, but a measure whch wf
beneft the entre pubc. Whe humaney provdng for those n dstress, t
does not proceed upon the destructve theory that the ctzens shoud ook to tn
Government for everythng. On the contrary, t seeks to reduce dependency
and to encourage thrft and sef-support.
rom the governmenta pont of vew ths b contempates a unted attack
upon economc nsecurty by the edera and State Governments. It does t
vest dctatora powers n any edera offcas.
Of a ma|or countres the Unted States Is the ast to gve serous con-
sderaton to a comprehensve system of soca nsurance and reated measures
for economc securty. The e perence of ths country In the tryng years of
the depresson has ampy demonstrated the need for makng a sound begnnw:
n the deveopment of such a program. s the Presdent recommended, to
b shoud by a means be enacted Into aw at ths sesson.
P RT n. PL N TION OP T ILL.

Tte III. Ta es wth Respect to mpoyment.
Ths tte eves two ta es. The frst s an ncome ta on empoyees and te
second an e cse ta on empoyers.
INCOM T ON MPLOY S.
Secton 01: Ths secton mposes a ta upon the Income of every Indvdo
measured by the wages receved by hm wth respect to empoyment after
December 31, 1930. The ta does not appy to a wages but ony appes to
wages as defned n secton 11 of the b. Lkewse secton 11 restrct
the appcaton of the ta to empoyment as theren defned. The rates of
ta are as foows:
Per erst
or the caendar years 1937, 193 , and 1939 1
or the caendar years 1940, 1941, and 1942 tf
or the caendar years 1946, 1947, and 194 tf
or the caendar year 1949 and subsequent caendar years I
D DUCTION OP T ROM W G S.
Secton 02(a): Ths subsecton requres the empoyees ta to be coected
at the source by requrng the empoyer to deduct the ta from the empoyee s
wages at the tme they are pad. To nsure coecton of the ta , the empoyer
s made personay abe for t s abty attaches to the correct amoua
of ta whch he s requred to deduct from the empoyee s wages, regardess
of the amount actuay deducted. To protect the empoyer, he s ndemnfed
aganst any cams and demands wth respect to that part of the wages of
the empoyee whch he wthhed, up to the correct amount wthhed and pad
to the Unted States.
Secton 02(b): In case the ta Is underpad or overpad, ad|ustments re
permtted to be made n connecton wth subsequent wage payments made by
the empoyer to the empoyee. or nstance, f the empoyee receves a saary
of 100 per month for the caendar year 1937 and the empoyer by a mstake
deducts 0 cents nstead of 1, assumng ths to be the correct amount of te
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605
Msc.
ta , the ta to be deducted from the ne t wage payment of the empoyee
w be 1.20 nstead of 1. On the other hand, f the empoyer deducts from
the frst wage payment n the same e ampe 1.20 nstead of 1, the ta to be
deducted from the ne t wage payment w be 0 cents nstead of 1. Such
ad|ustments are to be made In accordance wth reguatons to be prescrbed
under ths tte.
D DUCTI ILITY ROM INCOM T .
Secton 03: Under secton 23(c) of the Revenue ct of 1934 edera ncome
ta es are not aowed as a deducton n computng the ncome ta mposed by
that ct. Snce the ta on empoyees s a edera ncome ta , ths secton
makes t cear that such a ta s not deductbe n computng the ncome ta
mposed by the Revenue ct of 1034 or n computng a correspondng ncome
ta mposed under any subsequent Revenue ct
CIS T ON MPLOY RS.
Secton 04: Ths secton mposes an e cse ta upon every empoyer for the
prvege of havng ndvduas n hs empoy. The ta s measured by the wages
pad to empoyees after December 31, 1936, wth respect to empoyment after
that date. s n the case of the ta on empoyees, the rate of ta on empoyers
s as foows:
Per cent.
or the caendar year 1949 and subsequent caendar years
Lke the ta on empoyees under secton 01, ths ta does not appy to a
wages or empoyments but ony to those defned as such n secton 11.
D USTM NTS IN C S O MIST Y MPLOY .
Secton 05: Ths secton permts the empoyer to correct errors In the ta
reported n connecton wth any wage payment made to hs empoyees by
makng proper ad|ustments n connecton wth subsequent wage payments. It
s smar n prncpe to secton 02(b) and the ad|ustments are to be made
under reguatons to be prescrbed under ths tte.
UNDS ND D ICI NCI S.
Secton 06: Ths secton reates to the ta mposed wth respect to both
empoyers and empoyees. If any part of the empoyer s or empoyee s ta s
underpad or overpad and the error can not be ad|usted n connecton wth
subsequent payments, the underpayment s to be coected or the overpayment
refunded under reguatons prescrbed under ths tte. Stuatons of ths
character w usuay arse when an empoyee eaves the servce of the em-
poyer so that t s mpossbe to make ad|ustments n subsequent wage pay-
ments.
COLL CTION ND P YM NT O T S.
Secton 07(a): Ths subsecton requres the ta due from empoyers and
empoyees to be coected by the ureau of Interna Revenue and to be de-
posted In the Treasury as nterna-revenue coectons.
Secton 07(b): Ths subsecton gves the Commssoner of Interna Revenue,
wth the approva of the Secretary of the Treasury, authorty to coect the
ta es mposed wth respect both to empoyers and empoyees by stamps, coupons,
tckets, books, or other devces, or by requrng the makng and fng of re-
turns. The admnstratve provsons reatng to the ta on pstos and re-
vovers mposed by secton 600 of the Revenue ct of 192C, as we as the pro-
vsons reatng to the stamp ta es mposed by secton 00 of that ct, are aso
appcabe to the ta es provded under ths tte wth respect to both empoyers
and empoyees. The admnstratve provsons are, therefore, not confned to
those contaned n sectons 600 and 00 of the Revenue ct of 1926, but em-
brace a admnstratve provsons not otherwse nconsstent, appcabe to the
ta es mposed by such sectons. or nstance, the perods of mtaton apon
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606
assessment and coecton set forth under secton 1109 of the Revenue rt sf
1926, as amended, aso appy to the ta es eved under ths tte. Lkewse U
perods of mtaton upon refunds and credts prescrbed n secton 322 of tfe
Revsed Statutes w appy to the ta es under ths tte. If the ta or aty
part thereof s not pad when due, the unpad porton w bear nterest at tt-
rate of 1 per cent per month from the tme the ta became due unt pad.
The oard of Ta ppeas has no |ursdcton over these ta es. If they arerc
pad when due, they may be coected by dstrant as provded n secton 3
the Revsed Statutes, eavng the ta payer to hs remedy by way of cam ted
sut for refund. In order that the empoyer, who coects and wthhods te
ta due from the empoyee, may he treated as a trustee or proceeded aganst t
dstrant, the provsons of secton 607 of the Revenue ct of 1934 are a
made to appy to ths tte. Secton 607 of the Revenue ct of 1934 mpress
the amount of ta es wthhed or coected wth a trust and makes appcabe U
the enforcement of the Government s cam the admnstratve provsons U:
assessng and coectng ta es.
or admnstratve reasons, a fractona part of a cent s dsregarded nnes
t amounts to one-haf cent or more, n whch event t s treated as 1 m
Ths corresponds to a smar provson appearng n the Revenue cts.
UL S ND R GUL TIONS.
Secton 0 : Ths secton gves the Commssoner of Interna Revenue, wt
the approva of the Secretary of the Treasury, authorty to make and puUbh
rues and reguatons for the enforcement of ths tte.
S L O ST MPS Y POSTM ST RS.
Secton 09: Ths secton authorzes the sae of stamps, coupons, or otbf
devces prescrbed for the coecton or payment of the ta es under ths tde
by the varous postmasters of the Unted States. The postmasters are n-
qured to depost the recepts from such saes wth the Postmaster Genen
and render accounts to hm at such tme and In such form as he sha prr
scrbe. The Postmaster Genera Is gven authorty to requre a bond
the varous postmasters recevng such stamps or other devces n such n-
creased amount as he may fnd necessary to protect the nterests of the Goren.-
ment. The Postmaster Genera s requred to transfer the recepts from t f
sae of such stamps or other devces monthy to the Treasury as nteru
revenue coectons,
P N LTI S.
Secton 10(a) : Ts subsecton mposes a fne of 10,000, or mprsonng
for not more than s months, or both, for usng, transferrng, e changng,
pedgng any stamp or other devce prescrbed by the Commssoner of uterc
Revenue for the coecton or payment of the ta es under ths tte n a
manner e cept as authorzed by aw or reguatons made thereunder.
Secton 10(b) : Ths subsecton mposes a fne of 3,000, or mprsonn t
for not more than fve years, or both, n the foowng cases where there s r-
Intent to defraud: (1) terng, forgng, or counterfetng any stamp or otter
devce prescrbed by the Commssoner of Interna Revenue for the coect
or payment of ta es due under ths tte (2) usng, seng, endng, or havu
n possesson any such atered, forged, or counterfeted stamp or other derke:
and (3) makng, usng, seng, or havng possesson of any matera n m -
ton of the matera used n the manufacture of such stamp or other devce.
D INITIONS.
Secton 11(a): Ths subsecton defnes wages. Wages ncude not oc
the cash payments made to the empoyee for work done, but aso compensate
for servces n any other form, such as room, board, etc The term wages
does not necessary appy to the tota remuneraton receved from the emp Tf
by the empoyee the term Incudes ony the frst 3,000 of wages receved by
empoyee from hs empoyer wth respect to empoyment durng the caendar
year. The foowng e ampe w ustrate how the rue appes: npo|tf
pays empoyee a saary of 500 a month begnnng wth the caendar
1937. t the end of the s th month has receved from hs empoyer 3,001
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607
Mso,
rhe baance of hs saary for 1937 s not sub|ect to ta aton ether wth
espect to the empoyer s ta or the empoyee s ta . owever, ths Is ony the
:ase where the empoyee contnues n the empoyment of the same empoyer
hroughout the year. If the empoyee eaves the servce of empoyer on
Tune 30, 1937, and enters the servce of empoyer C on that date and contnues
wth empoyer C at the same saary throughout the remander of the year, both
mpoyer C and empoyee w be abe for the ta n respect of the wages
eceved durng the remanng porton of the caendar year 1937.
Secton 11(b): Ths subsecton defnes the term empoyment as any
tervee of whatever nature performed wthn the Unted States by an empoyee
tor hs empoyer. It shoud be noted n ths connecton that secton 1001 (a)6
ncudes n the defnton of empoyee an offcer of a corporaton. or
nstance, resdent and nonresdent aens performng servces wthn the Unted
States are sub|ect to the ta under ths tte. On the other hand, servce per-
formed outsde the Unted States, whether by a ctzen of the Unted States
r by a nonresdent aen, s not sub|ect to the ta . The term Unted States
Is defned n secton 1001(a)2 to Incude the States, aska, awa, and the
Dstrct of Coumba. Due to the dffcutes n coectng the ta n the case
)f certan knds of empoyment, the foowng servces are e empt from ta aton
|ven though performed wthn the Unted States: (1) grcutura abor (2)
omestc servce n a prvate home (3) casua abor not n the course of the
ampoyer s trade or busness. Ths woud not e empt casua abor performed
n the course of an empoyer s trade or busness. or nstance, f a depart-
ment store empoyed emergency hep durng the rush season n connecton wth
ts trade or busness, the servces performed by such hep woud not be e empt
from ta aton under ths tte (4) servces performed by an offcer or a member
of a crew on a vesse documented under the aws of the Unted States or of any
foregn country are aso e empt from the ta es mposed by ths tte. The
admnstratve dffcuty of foowng the wages of offcers and seamen of crews
was regarded as amost nsurmountabe. or nstance, uness ths e empton
were granted, t woud be necessary to keep track of the wages of Chnese
cooes workng on mercan shps.
empton from ta aton under ths tte s aso granted n the case of
edera and State or potca subdvson empoyees.
Servces performed n the empoy of regous, chartabe, scentfc, terary,
or educatona nsttutons, no part of the net earnngs of whch nures to the
beneft of any prvate sharehoder or Indvdua, are aso e empt from the ta
mposed by ths tte. or the purpose of determnng whether such an organ-
zaton s e empt, the use to whch the ncome s apped s the utmate test
of the e empton rather than the source from whch the ncome s derved.
or nstance, f a church owns an apartment budng from whch t derves
ncome whch s devoted to regous, chartabe, educatona, or scentfc pur-
poses, t w not be dened the e empton. The organzatons whch w be
e empt from such ta es are churches, schoos, coeges, and other educatona
nsttutons not operated for prvate proft, the Y. M. C. ., the Y. W. C. ., the
Y. M. . ., the Savaton rmy, and other organzatons whch are e empt
from ncome ta under secton 101(6) of the Revenue ct of 1932.
empton s kewse granted from ta aton under ths tte n the case
of ndvduas who have attaned the age of 65 years.
Ta I . Ta on mpoyers op 10 ob More.
Ths tte eves upon empoyers an e cse ta payabe annuay, measured by
wages, and aows each ta payer to credt aganst hs ta the amount of con-
trbutons he has pad under State unempoyment compensaton aws.
IMPOSITION O T .
Secton 901: n annnn e cse ta s mposed on each empoyer (as defned
n secton 907) on the prvege of havng ndvduas n hs empoy. s ta ,
payabe annuay, w be at a rate of 1 per cent of the tota wages payabe by
hm wth respect to empoyment (as defned n secton 907) In the caendar year
1936. Ths means that the ta s measured by wages whch are payabe aa
remuneraton for servces performed durng that caendar year, regardess of the
tme when the actua payment s made.
The rate of ta , after beng 1 per cent for the year 1936, sha ncrease to 2
per cent for 1937, and 3 per cent thereafter.
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60
CR DIT G INST T
Secton 902: ta payer may credt aganst hs ta the tota amount of con-
trbutons he has pad to State unempoyment compensaton funds n accordance
wth State unempoyment compensaton aws. The credt aganst the ta meas-
ured by wages payabe wth respect to empoyment In a caendar year w be
aowed ony for contrbutons whch themseves are pad (before the date for
fng the ta return under ths tte for such year) wth respect to empoyment
n such year.
The tota credt whch a ta payer may cam aganst hs ta for any year
sha not be more than 90 per cent of the ta . Thus f the ta s 100 the tota
credt whch may be camed can not be more than 90, even though the tota
amount of contrbutons may be greater than that
C TI IC TION O ST T L WS.
Secton 903: (a) Credt sha be aowed ony for contrbutons made under
the aws of States certfed for the ta abe year under secton 903.
(b) If any State aw, submtted to the Soca Securty oard, fufs the
condtons enumerated n ths secton, the oard sha wthn 30 days approve
the aw, and sha notfy the State governor of ts acton. On December 31 of
each year, each State whch has an approved aw sha be certfed by the oard
to the Secretary of the Treasury, uness n the meantme the oard fnds that
the State has changed ts aw n some matera respect, or has faed substan-
tay to fuf any of the enumerated condtons. The oard s under the dot/
to warn the governor of the State whenever t has reason to beeve that n spte
of havng an approved aw a State may not be certfed at the end of the year.
State aw to be approved must provde that:
(1) unempoyment compensaton s to be pad through pubc-empoyment
offces n the State.
(2) No compensaton sha be payabe wth respect to any day of unempoy-
ment occurrng before the e praton of two years after the frst day of the frst
perod wth respect to whch contrbutons are requred. or e ampe, f March
15, 1936, s the begnnng of the frst perod wth respect to whch contrbutons
are requred under the State aw, then no compensaton may be pad for any
day of unempoyment occurrng before March 15, 193 .
(3) the money pad nto the State unempoyment fund (whether pad as
contrbutons for empoyers or pad n by empoyees or contrbuted by the State
tsef) sha prompty be pad over to the Secretary of the Treasury to te
credt of the unempoyment trust fund estabshed by secton 904.
(4) the money wthdrawn from the unempoyment trust fund by the State
agency sha be used soey n the payment of compensaton none of t may be
used to meet admnstratve costs.
(5) person otherwse egbe for compensaton sha not be dened It on the
ground that he has refused to take a new |ob when hs dena s due to the fact
that the poston offered to hm s vacant drecty to a strke, ockout, or otter
abor dspute, or s due to the fact that the wages, hours, or other condtons
of the work offered are substantay ess favorabe than those prevang for
smar work n the ocaty, or that, as a condton of takng or retanng the
now ob, he woud have to |on a company unon, or woud have to resgn from
a abor organzaton, or woud have to agree not to on a abor organzaton.
(6) The State aw must contan a provson ndcatng that any rghts, prv-
eges or mmuntes conferred under t may be taken away by the subsequent
amendment or repea of the aw.
UN MPLOYM NT T U T UND.
Secton 904: Subsecton (a) of ths secton estabshes n the Treasury of the
Unted States a trust fund wth the Secretary of the Treasury as trustee and
wth the respectve State agences, admnsterng the State unempoyment com-
pensaton aws, as benefcares of the trust. The Secretary of the Treasury Is
drected to receve and hod n such fund a moneys deposted wth hm or wth
any edera reserve bank or member bank of the edera Reserve System desg-
nated by hm to receve such deposts, by such State agences.
Under subsecton (b) t Is the duty of the Secretary of the Treasury to nvert
the fund (e cept such part as s, n hs opnon, requred to meet current wth-
drawas) n nterest-bearng obgatons of the Unted States or n obgatons
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609
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guaranteed as to both prncpa and nterest by the Unted States. In order to
provde sutabe nvestments for ths purpose, authorty s gven for the ssu-
ance of speca obgatons to the fund from tme to tme as requred. Such
obgatons sha bear an nterest rate equa to the average rate of nterest,
computed as of the end of the caendar month ne t precedng the date of such
ssue, borne by a nterest-bearng obgatons of the Unted States then formng
part of the pubc debt e cept that where such average rate s not a mutpe
of one-eghth of 1 per cent, the rate of nterest sha be the mutpe of one-
eghth of 1 per cent ne t ower than such average rate. In addton to such
speca obgatons, outstandng obgatons may be purchased at the market
prce, and orgna ssues may be acqured at par, f the yed thereupon w be
not ess than the yed whch woud be requred n the case of speca obga-
tons. Such speca obgatons (under the provsons of subsecton (c)) may
be redeemed at par pus accrued Interest, whe a other obgatons may be
sod at the market prce.
Subsectons (d) and (e) provde that the fund sha be nvested as a snge
fund, but that the Secretary of the Treasury sha mantan a separate book
account for each State agency and sha credt quartery to each such account
a proportonate part of the earnngs of the fund for such quarter.
The Secretary of the Treasury (under subsecton (f)) s drected to pay out
of the amount to the credt of a State agency such amounts as the State agency
sha duy requston, not to e ceed the amount standng to the credt of such
State agency.
DMINISTR TION, R UNDS, ND P N LTI S.
Secton 905: Subsecton (a) of ths secton provdes that the ta sha be
coected by the ureau of Interna Revenue and sha be pad nto the Treasury
as nterna-revenue coectons.
Subsecton (b) requres returns of the ta to be made by each empoyer not
ater than anuary 31 of each year n respect to empoyment n the precedng
caendar year.
Subsecton (c) makes the returns fed under ths tte open to Inspecton
accordng to the rues ad down for ncome-ta returns under the Revenue ct
of 192 .
Subsecton (d) aows the ta payer to pay hs ta n equa quartery nsta-
ments as s the case wth the edera ncome ta .
Subsecton (e) gves the Commssoner the rght to gve e tensons of tme
for the payment of ta or nstaments thereof, and subsecton (f) provdes
that n the payment of ta a fractona part of a cent sha not be counted
uness t amounts to one-haf cent or more, n whch case t sha be counted
as 1 cent.
INT RST T COMM RC .
Secton 906: Ths secton provdes that no person requred under a State aw
to make payments to an unempoyment fund sha be reeved from compance
therewth on the ground that he s engaged n nterstate commerce, or that the
State aw does not dstngush between empoyees engaged n nterstate com-
merce and those engaged n ntrastate commerce.
D INITIONS.
Secton 907: The defntons set up by ths secton are very mportant n
connecton wth the appcaton and scope of the entre tte. They are as
foows:
(a) mpoyer: The term empoyer ncudes ony those persons who, In
each of at east 20 weeks n the year, have a tota number of 10 or more em-
poyees. Ths means that f on 1 day a week for 20 weeks (whch need not be
consecutve) there are 10 empoyees, the empoyer s covered. The empoyees
(who need not necessary be the same peope) need not a bo empoyed at the
same moment t s enough f durng the day the tota number s at east 10.
The empoyees are not counted uness they are empoyed n empoyment as
defned n ths secton.
(6) Wages: The term wages s defned to mean a remuneraton for
empoyment, ncudng the cash vaue of a remuneraton pad n any other
medum than cash. That s, n addton to money payments, t ncudes pay-
ments n knd, rent, food, odgng, etc.
(c) The term empoyment s defned to mean any servce performed
wthn the Unted States by an empoyee for hs empoyer wth the foowng
e ceptons:
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610
(1) grcutura abor.
(2) Domestc servce In a prvate home.
(3) Servce performed as an offcer or member of the crew of a vesse ot
the navgabe waters of the Unted States. (Ths does not e empt the serrees
of ongshoremen and others who work n connecton wth oadng vesses.)
(4) Servce performed by an ndvdua n the empoy of hs son, d nshter.
or spouse, and servce performed by a chd under 21 In the empoy of hs
parent.
(5) Servce performed n the empoy of the Unted States Government or
of an nstrumentaty of the Unted States.
(6) Servce performed n the empoy of a State, or potca subdT-ot
thereof, or an Instrumentaty of one or more States or potca subdvstm
(7) Servce performed n the empoy of corporatons or organzatons or|s-
Ized e cusvey for regous, chartabe, scentfc, terary, or edncatnu
purposes, no part of the net earnngs of whch accrue to any prvate ndrdt
or sharehoder.
If the servce Is wthn the e cepted casses, the empoyer Is e empt froa
ta on the wages payabe wth respect to such servce.
( f) The term State agency s defned to mean any State offcer, boan
or other authorty, desgnated under a State aw to admnster the Sute unet
poyment fund.
(e) The term unempoyment fund Is defned to mean a speca ftm
estabshed by State aw and admnstered by a State agency, for the paymea
of unempoyment compensaton. It Is requred that the assets of the fund bs
mnged and undvded, and that no separate account be mantaned wth respert
to any person.
(f) The term contrbutons Is defned to mean payments requred to I
made by an empoyer under a State aw nto an unempoyment fund, ewfft
that any payments whch have been or may be deducted from the wages of
the ndvduas n hs empoy are not to be consdered as contrbutons unk
the defnton.
(ff) The term compensaton s defned to menn cash benefts payabe tc
ndvduas wth respect to ther unempoyment
RUL S ND R GUL TIONS.
Secton 90 : Ths secton authorzes and drects the Commssoner of a
terna Revenue, wth the approva of the Secretary of the Treasury, to mak-
and pubsh such rues and reguatons for the enforcement of ths tte as wt
necessary. The e cepton Is made, however, that the authorzaton and dree-
ton above noted do not appy to secton 903, reatng to certfcaton of Sste
aws, and to secton 904, reatng to the unempoyment trust fund.
Tte . Genera Provsons.
D INITIONS.
Secton 1001 contans defntons of State, Unted States, person, cor-
poraton, sharehoder, and empoyee.
Secton 1001(d) provdes that nothng n ths ct sha be construed s-
authorzng any edera offca n carryng out the provsons of ths ct t
take charge, n voaton of the aw of a State, of any chd over the ob|ecton
of the parents.
Secton 1002 provdes for the makng of reguatons by the Secretary of te
Treasury, the Secretary of Labor, and the Soca Securty oard, respectve|,
for carryng out the functons wth whch each s charged.
S P R ILITY.
Secton 1003 s the usua separabty cause.
R S R TION OP POW R.
Secton 1004 reserves to Congress the rght to ater, amend, or repea an|
porton of the ct
S ORT TITL ,
Secton 1005 provdes that the ct may be cted as the Soca Securty rt
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1939-4 -10106
T SOCI L S CURITY ILL.
Senate Report No. 62 , Seventy-fourth Congress, rst Sesson.
May 13 (caendar day, May 20), 1935.
Mr. arrson, from the Commttee on nance, submtted the foowng report
to accompany . R 7200 :

P RT I. G N R L ST T M NT.
Contents of the .

Tte III. Ta es wth respect to empoyment
Tte I . Ta upon empoyers of four or more.

Tte II. Genera provsons.
s the ttes of the b ndcate, t conssts of a seres of reated measures
desgned as a unfed, we-rounded program of attack upon the prncpa causes
of nsecurty n our economc fe. These measures may be dvded nto fve
broad feds: (1) Od-age securty, (2) unempoyment compensaton, (3) ad to
dependent chdren, (4) pubc heath measures, and (5) ad to the bnd.
The prncpa causes of desttuton and want of mons of mercan fames,
forcng them to rey upon pubc charty for an e stence, are we known. They
are unempoyment, dependency n od age, oss of the wage earner of the famy,
and ness. Upon these ma|or causes of dependency ths b makes a unfed
attack. ach measure s cosey reated to the others, and together they const-
tute a broad, practcabe pan to safeguard the securty of the mercan famy.
The pressng need for soca securty egsaton at ths tme s apparent on
every hand. or the ast fve years we have been payng a frghtfu cost of n-
securty n the to of human sufferng, weakened morae of our peope, and
mountng pubc e pendtures for pubc charty. So far n the depresson we
have taken emergency steps, desgned to reeve dstress, and to take care of
the mmedate stuaton. The tme has come for a comprehensve, constructve
program to avod the repetton of such a dsaster n the future. The founda-
ton for such a program s ad n ths b.
story of the Legsaton.
Neary a year ago, on une , 1934, the Presdent, n a message to the Congres ,
announced hs ntenton to present at ths sesson of Congress a program for
soca securty. Shorty afterward, by ecutve order, he created the Commttee
on conomc Securty, consstng of the Secretary of Labor (charman), the
Secretary of the Treasury, the ttorney Genera, the Secretary of grcuture,
and the edera mergency Reef dmnstrator. Ths commttee was nstructed
to study the whoe aspect of nsecurty n our economc fe, and to make recom-
mendatons. Snce that tme the Commttee on conomc Securty has carred on
e tensve studes of the varous probems nvoved, asssted by a staff of specasts
and by 14 advsory groups of ctzens, representng the varous nterests of socety
In securty egsaton. The Commttee had the advce of many outstandng
ctzens of broad e perence and e pert nformaton n the severa aspects of the
probem.
On anuary 17 of ths year the Presdent transmtted to both ouses of Congress
the unanmous report of the Commttee on conomc Securty, wth a message
endorsng the recommendatons made theren. Identca bs ncorporatng these
recommendatons were ntroduced n both ouses, upon whch the Ways and
Means Commttee of the ouse and the Senate nance Commttee hed e tended
pubc hearngs n anuary and ebruary. t these hearngs representatves of
a nterests concerned were gven a fu opportunty to present ther vews. The
pubshed hearngs of the nance Commttee of the Senate upon ths measure
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612
contan some 1,350 pages of prnted testmony, and the bearngs of the Ways u
Means Commttee of the ouse are of smar ength. or more than four months
ths measure has been under actve consderaton n both ouses of Congrea.
ew egsatve measures have ever receved such thorough and e tended m-
sderaton. . R. 7260, passed by the ouse on pr 19 of ths year, s herewth
reported wth the foowng prncpa changes:

6. The coverage of the ta upon empoyers n Tte I has been changed
from empoyers havng 10 or more empoyees, wthn 20 weeks durng the
your, to 4 or more empoyees, wthn 13 weeks durng any year. Ths chan
has been made to avod substanta admnstratve probems n connecton wt
empoyers who may attempt to avod the ta , and aso to e tend ts covers
7. The requrement that State unempoyment compensaton funds sha be o
the pooed type, n whch a funds are mnged and undvded, as a tra-
dton to quafy for the credt aganst the edera ta under Tte I , has
been strcken. Ths w permt States to enact whatever type of unempoy-
ment compensaton aw they desre.
. Two new sectons have been nserted (909 and 910) to gve addtom
credt to empoyers who, under State aws, are permtted to ower ther rate
of compensaton because of favorabe empoyment e perence. These secton
are desgned to permt States to gve an ncentve to empoyers to staba
empoyment.

Unempoyment Compensaton.
Unempoyment compensaton s fnanced the word over through contrba-
tons measured as a percentage of pay ro. These contrbutons are reqtw
ether from the empoyers aone, the empoyers and empoyees, or the em-
poyers, empoyees, and the State. Whe pay-ro contrbutons of ths knd
have sometmes been caed saes ta es they are no more saes taes tu
premums pad for workmen s compensaton nsurance, whch kewse n
aways measured on a pay-ro bass. Saes ta es are ta es upon cousumpta
for the genera support of Government, and are whoy unke pay-ro contrbu-
tons for unempoyment compensaton. Parta compensaton durng a reatftety
Short perod foowng unempoyment, whe a workman s seekng other em-
poyment or watng to return to hs od |ob, s very propery to be regarded as
a part of the egtmate costs of producton, to be pad for by the consumer
Ths b does not set up a edera unempoyment compensaton system
What t seeks to do s merey to make t possbe for the States to estabsh
unempoyment compensaton systems and to stmuate them to do so. 1M
ob|ectve s carred out through grants-n-ad to the States (n Tte I) f
the admnstraton of unempoyment compensaton aws and through the m-
poston of a unform pay-ro ta on empoyers (n Tte I ) aganst whcb
a credt s aowed for contrbutons made by them to unempoyment com-
pensaton funds set up pursuant to State aw.
The rate of the edera ta s 1 per cent for the year 193G, 2 per cent for
1937, and 3 per cent n 193 and thereafter. No ta w actuay be payabe,
however, unt 1937. ganst the ta a credt s aowed up to 90 per cent ot
the ta for contrbutons to State unempoyment compensaton funds, wnot
are estabshed under aws whch meet the condtons prescrbed n secton 903-
These condtons do not prescrbe what sort of unempoyment compensaton
aws the States sha enact they are ntended merey to make certan Oat
the States actuay have unempoyment compensaton aws, rather than mere
reef measures. In States whch have genune unempoyment compensaton
aws the empoyers can present as a credt aganst the edera ta the con-
trbutons whch they have made to the unempoyment compensaton funds
of these States. Ths credt, however, s aowed ony up to 90 per cent of
the edera ta , 10 per cent beng payabe nto the edera Treasury n any
event.
Ths ta offset devce s modeed after the provson n the edera estate ttf
aw, under whch a credt s aowed up to 0 per cent of the edera ta f
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613
Msc.
amounts pad under State nhertance ta aws. Wth a unform ta and
ths offset devce, empoyers n a States w be put n an equa compettve
poston. No State can gan any advantage through fang to estabsh an
unempoyment compensaton system. Ths provson w equaze compettve
condtons and thus enabe States to enact unempoyment compensaton aws
wthout handcappng ther ndustres.
The nterest throughout the country n unempoyment compensaton s such
that t s to be e pected that neary a States w enact unempoyment com-
pensaton aws wthn a very short tme. ve States aready have such aws
and n 10 or more States the egsatures are st n sesson and are prepared
to act upon ths sub|ect as soon as the edera b has become aw. In other
States acton can be taken n speca sessons to be hed ater n the year.
That ths Invoves no great hardshp s ndcated by the fact that n 1933, 36
States had speca sessons of ther egsatures, and 32 n 1934.
cept for a few standards whch are necessary to render certan that the
State unempoyment compensaton aws are genune unempoyment compensa-
ton acts and not merey reef measures, the States are eft free to set up any
unempoyment compensaton system they wsh, wthout dctaton from Wash-
ngton. The States may or may not add empoyee contrbutons to those
requred from the empoyers. Of the fve States whch have thus far enacted
unempoyment compensaton aws, two requre empoyee contrbutons, and
three do not. Lkewse, the States may determne ther own compensaton
rates, watng perods, and ma mum duraton of benefts. Such attude Is
very essenta because the rate of unempoyment vares greaty n dfferent
States, beng twce as great n some States as n others.
Under the b, as we recommend that t be amended, the States w aso have
freedom of choce wth regard to the type of unempoyment compensaton aw
they wsh to enact. Three dfferent types are represented n the fve aws thus
far enacted. In the New York and the Washngton aws, there Is a pooed unem-
poyment nsurance fund, n whch a contrbutons are commnged and from
whch payments of compensaton are made to unempoyed workmen wthout
reference to the empoyer for whom they work.
Utah and Wsconsn have unempoyment compensaton aws of the ndvdua
empoyer account type. In these aws the contrbutons of each empoyer are
segregated, and payments of compensaton therefrom are made ony to workmen
of these partcuar empoyers who become Invountary unempoyed. New amp-
shre has st another type, provdng for a pooed unempoyment nsurance fund
from whch a payments are made, but In whch the empoyers contrbutons are
segregated (for accountng purposes ony) and charged wth ther own costs,
wth a vew toward read|ustment of the rate of contrbutons whch these respec-
tve empoyers roust make to the pooed fund n accordance wth ther own
e perence. Under the ouse b, a States are requred to have pooed unem-
poyment nsurance funds. Ths woud compe New ampshre, Utah, and
Wsconsn to drop ther present aws and start a over agan. In Wsconsn, t
woud requre the return of the 5,000,000 coected durng the past year for unem-
poyment compensaton purposes to the empoyers from whom coected, the
workmen n that State osng the advantages of these reserves aready
accumuated.
There are good arguments to be made n favor of each of these types of unem-
poyment compensaton aws. In accordance wth the entre sprt of the Soca
Securty ct, we beeve that the edera Government shoud not attempt to dc-
tate to the States whch type of unempoyment compensaton aw they shoud
adopt The amendment we suggest to the ouse b w emnate a such
dctaton and eave the States free to decde for themseves whch type best suts
ther pecuar condtons.
To effectvey carry out ths purpose, we propose, as a further amendment, a
provson that the edera Government sha recognze credts n the form of
ower contrbuton rates whch may be granted by the States to empoyers who
have stabzed ther empoyment. Provsons for such credts are Incuded n the
New ampshre, Utah, and Wsconsn aws. The Commttee on conomc Se-
curty recommended that such credts shoud be recognzed n the edera aw,
sub|ect to certan restrctons. The ouse emnated ths part of the commttee s
proposas, consstent wth ts determnaton to permt ony one type of
unempoyment compensaton aw, namey, the pooed-fund type. s we
deem t desrabe to permt the States freedom of choce n ths respect, we aso
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614
beeve that the edera aw shoud provde for recognton of credts aowed
by the States to empoyers who have reguarzed ther empoyment In hs mes-
sage deang wth the sub|ect of soca securty, the Presdent urged to
unempoyment compensaton shoud be set up under condtons whch w tend
toward the reguarzaton of empoyment unempoyment can not be pre-
vented by any empoyers, but many empoyers can do much more than thf|
have done In the past to reguarze empoyment veryone w agree that t
s much better to prevent unempoyment than to compensate t
The same fundamenta dea that unempoyment compensaton shoud be set
up under condtons whch w tend toward the stabzaton of the empoyment,
rather than the reverse, underes another mportant feature of the pan recon-
mended that of vestng n the edera Government the responsbty for to
nvestment of a unempoyment reserve funds. Ths method of handng to
reserve funds was suggested by the Presdent n hs message of une ,1931, and
agan n hs soca securty message of anuary 17, 1935. It was ncuded nto
ouse b, and has not been changed by any amendment that we recommend.
The pan contempated s that contrbutons to State unempoyment compena-
ton funds, whether of the pooed or ndvdua empoyer account type, sha be
deposted In the Unted States Treasury n a trust fund n whch a separate
account s to be mantaned for each State whch has an unempoyment compensa-
ton aw. The money so deposted s to be nvested by the Treasury, and nterest
s to be pad thereon at a rate equa to the average rate of nterest borne by
nterest-bearng obgatons of the Unted States, ad|usted to the mutpe of one-
eghth of 1 per cent ne t ower to such average rate. The Treasury may nvest
these funds ether n outstandng obgatons of the Unted States or obgaton
whch are guaranteed as to prncpa and nterest by the Unted States, or msr
ssue speca nonnegotabe obgatons bearng the specfed rate of nterest
When these reserve funds have to be qudated, the Treasury does not neces-
sary have to se the securtes but can acqure them for the Unted States, of,
n the case of the nonnegotabe certfcates, merey cance them as they are paw-
The States can draw upon the unempoyment trust fund soey for unempormff
compensaton purposes, but t s ntended that they sha be abe to get te
amounts standng to ther credt as needed.
It s contempated that the wthdrawas w be rather arge amounts, to
Treasury servng merey as the banker and trustee of the funds, whe the States
w make the actua payments of compensaton to the ndvduas entted thereto.
Ths method of handng the unempoyment reserve funds recognzes the f
that demands upon such reserve funds w vary greaty wth changng economc
condtons. They w be drawn upon most heavy n the eary stages of de-
presson. t such tmes, f the reserve funds are not handed as requred n ths
b, t woud be necessary to se the securtes n whch they are nvested, to
the eary stages of depresson there s amost certan to be a gut n the seeort|
market. If at such tmes t s necessary to se the securtes n whch tbe b
empoyment reserve funds are nvested at any prce they w brng, consderabe
osses are amost certan to be sustaned and the net effect w be to ncrease the
tendency toward defaton. ad unempoyment compensaton been naugurates
n 1922 throughout the country wth a 3 per cent contrbuton rate, the reserve
funds whch woud have yecu avaabe when the depresson set n n 1929 woow
have totaed at east 2,500,000,000. The dumpng on the market of such an
amount n securtes n a perod when there s aready a pronounced tendency
toward defaton, woud oTset any open-market operatons of the edera Reserve
oard to mantan credt stabty.
The pan provded n the b avods a of these dffcutes. Securtes w
not have to be dumped on the markets n order that the reserve funds may
qudated. Instead of ncreasng the tendency toward defaton, the handng
the reserve funds n the manner provded n the b w make possbe ther ns
to promote stabty. When depresson sets n, the funds can be qudated|n
out actua sae of the securtes on the markets, and, snce they w be used to
pay compensaton to unempoyed workmen, the net effect w be to mantan
purchasng power wthout any offsettng effects toward defaton.
The proposas reatng to unempoyment compensaton, vewed as a whoe, are,
we beeve, practca and dstncty worth puttng nto operaton. The dept
son has demonstrated how very costy t s to make no provsons for n
unempoyment Ths country has e pended far more for unempoyment re
durng ths depresson than the tota e pendtures of a other countres tn
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615
Msc.
have unempoyment compensaton systems durng the entre tme these systems
were n operaton. Unempoyment compensaton w not competey emnate
the necessty for unempoyment reef. To the e tent, however, that unempoy-
ment reserves are accumuated, they w reduce the necessty for reef. In
norma perods, unempoyment compensaton w provde a suffcent safeguard
for most of the unempoyment that w occur, and n depresson perods, w very
materay reduce the burden of reef costs. It w tend to mantan purchasng
power at tmes when most needed, and shoud encourage the reguarzaton of
empoyment
Unempoyment compensaton, under the pan we propose, w not nvove any
mpossbe burdens on empoyers, or materay ncrease costs to consumers. No
edera ta w be payabe under Tte I unt 1037, and the rate then w be
ony 1 per cent of the pay ro. The ma mum rate under ths tte w be
3 per cent, whch w not come nto operaton unt the thrd year. Snce ths
rate s computed upon the pay ro, t affects ony the abor Item n the cost of
producton. or a manufactured goods, the drect abor costs, as shown by
the Census of Manufactures of 1933, averaged ony 21 per cent of the vaue of
the manufactured products. The tota abor cost, ncudng a stages of pro-
ducton and dstrbuton, amounts to ess thnn two-thrds of the consumer s cost.
owever, arge groups of workers (agrcutura workers, empoyees n sma
estabshments, etc.) embracng appro matey one-haf of a ganfu workers
w not be brought under unempoyment compensaton. Ths means that, on
the average, a 1 per cent contrbuton rate for unempoyment compensaton pur-
poses w ncrease costs to the consumers by ony about one-thrd of 1 per cent.
Such sma ncreased costs may we be offset by reductons n costs brought about
through reguarzng empoyment and mantanng the purchasng power of unem-
poyed workers.
The present Is a most opportune moment for aunchng unempoyment com-
pensaton n ths country. Not ony s there great nterest n the sub|ect, but
wth mprovng ndustra condtons, there s every prospect that consderabe
reserves can be but up n the ne t years. Whe many workmen are st unem-
poyed, the turnover rate n ndustry s now much ess than n the best years of
the past decade. Shoud the estabshment of unempoyment compensaton funds
be deayed, the reserves whch w be avaabe when the ne t crss comes w
be correspondngy essened and the burden of reef costs Increased.
Unempoyment compensaton n ths country has been ong deayed. The prn-
cpa e panaton s that the States have not been abe to estabsh unempoyment-
compensaton aws because, n dong so, they woud have been compeed to hand-
cap ther ndustres n competton wth those of other States not havng such
aws. Under the pan proposed n ths b, ths handcap w be removed, and
t w be possbe to set up unempoyment-compensaton aws through State
acton.

Ta es.
Two types of ta es are eved n Tte III, namey, (1) an Income ta upon
empoyees, and (2) an e cse ta upon empoyers based upon wages pad. The
provsons of these ta es are summarzed n Tabe III and the estmated number
of empoyees covered and the revenue recepts are gven n the tabes foowng.
Tabe III. Summary of provson reatng to ta es under Tte III.
CO R G (S CTION 11( )).
mpoyment n any servce performed wthn the Unted States, aska, and
awa, or upon vesses documented under the aws of the Unted States, e cept:
1. grcutura abor.
2. Domestc servce n a prvate home.
3. Casua abor not n the course of empoyer s busness.
4. mpoyees of the Unted States Government
5. mpoyees of a State or potca subdvson.
6. mpoyees of nsttutons operated for regous, chartabe, scentfc,
terary or educatona purposes, or for the preventon of cruety to
chdren or anmas, and whch are not operated for proft
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616
R T S (W G S O NT INDI IDU L IN C SS O 13,000 P S T ROT OOTTSTff.
Income ta on empoyees (secton 01): fcrrat
1937, 103 , and 1939 1
1940, 1941, and 1942 14
1943, 1944, and 1945 2
1946, 1947, and 194 4
1949 and thereafter 3
Income ta on empoyees coected by empoyer by deductng the ta from wags
(Secton 02a.)
cse ta on empoyers (secton 04): Perm.
1937, 193 , and 1939 1
1940, 1941, and 1942 14
1943, 1944, and 1945 1
1946, 1947, and 194 24
1949 and thereafter 3
D R L DMINISTR TION.
Ta es coected by ureau of Interna Revenue under drecton of Secretary of
Treasury and pad nto Unted States Treasury as nterna-revenue coecton
(secton 07a).
Ta es coected ether by makng and fng returns or by stamps, conposs,
tckets, books, or other reasonabe devces or methods as prescrbed by the Coo-
mssoner of Interna Revenue, who furnshes to the Postmaster Genera a sutabs
quantty to be kept on sae at post offces (secton 09).
Taue I . stmate of number of empoyees covered under the ta protUe
Tte III.
Tota number of ganfu workers
4 , 30.
professons) 12,0 7. P
Tota of workers e cuded because of occupaton (farm abor, do-
mestcs, teachers, and governmenta and nsttutona workers) .5 ,1
Tota number of workers n egbe occupatons 27,354, W
cuded:
Casuas 500,000
Over 65 1,050,000
stmated coverage
Tabe . Revenue estmates (from ta es on empoyees and empoyer mpot
by Tte III, sectons 01 and 0)).
Combned rate of ta .
2 per cent.
2 per cent.
2 per cent.
3 per cent
3 per cent.
3 per cent
4 per cent
sca year
receved
nto
Treasury.
1937
193
1939
1940
1941
1942
1943
stmated
fsca year
recepts.
27 , 00, 000
660. 2( ), 000
665.600,000
714,600,000
04, 00,000
73,000.000
1,02 , 00,000
Combned rate of ta .
4 per cent
4 percent
6 per cent
5 per cent
5 per cent _
6 per cent
6 per cent
sca year
receved
nto
Treasury.
1944
1945
1946
1947
MIS
tn
1 acb. of the two ta es Is estmated to produce one-haf of the tota recepts sbown.
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617
(Msc.
Tte I provdes an e cse ta upon empoyers of four or more empoyees,
wth certan casses e empted, startng at 1 per cent of wages pad n 1936,
2 per cent n 1 37, and 3 per cent n 11)3 , and thereafter. credt of up to 00
per cent of ths ta s aowabe for payments nto State unempoyment com-
pensaton funds meetng certan condtons. The detas of ths ta are set
forth n the second part of ths report, and the operaton of the ta s dscussed
under the secton above on unempoyment compensaton. The estmated number
of empoyees covered and the revenue recepts are gven n the tabes beow.
Tabe I. stmate of number of empoyees covered under the ta provded n
Tte I .
Tota number of ganfu workers 4 , 30, 000
professons) 12, 0S7, 000
Tota of workers e cuded because of occupaton (farm abor, domes-
tcs, teachers, and governmenta and Insttutona workers) 9,3 9,000
Tota number of workers n egbe occupatons 27,354,000
stmated number of workers attached to estabshments wth 3 or
ess empoyees 2,600,000
stmated number of workers attached to estabshments of 4 and
more empoyees (ncudng unempoyed) pr, 1930 24,754,000
verage 1936 (4 per cent ncrease) 25,744,000
The actua number of empoyees covered by the ta woud be consderaby
smaer than 25,744,000 due to unempoyment. workers empoyed durng a
part of the year, however, n estabshments covered by the ta , woud be covered
wth respect to that empoyment.
Tabe II. Revenue estmates from ta on empoyers of h or more under Tte
I , wth no aowance for 90 per cent credt).
sca
year
receved
nto
Treas-
ury.
Caendar year wth respect to whch ta s eved.
stmated
recepts.
Rate of
ta .
Per cen
1936 .
1937
1933
I .. )
1940
1941
1943
194
1951
247,000,000
69 .000, 000
2 ,000,000
31.000,000
3 .0011. 000
49. 000. 000
76.000.000
90 .000.000
1
2
3
3
t
1
1
3
1937
193
1939
1045 ..... .....
1950 . .
Not . The ta eved by Tte I Is sub|ect to a credt of 90 per cent of the amount of such ta for con-
trbutons Into State unempoyment funds. Therefore the mnmum amount of revenue each year from
ths ta w be 10 per cent of the above amounts. What part of the above estmates, greater than 10 per cent
of same, w be retaned by the Treasury s probematca, beng dependent on the number of States enactng
unempoyment nsurance aws, and the rates and coverage the
Concuson.
The depresson has demonstrated the great cost to the pubc, as we as to
the vctms, of the faure to make tmey provson for soca securty. The
vast amount of human sufferng and the enormous reef costs, whch nevtaby
w resut n Increased ta es, show concusvey the foy of faure to gve
thought to the securty of men, women, and chdren.
Compete securty s unattanabe and t we may be doubted whether absoute
securty s desrabe. That we must have a greater degree of securty than has
prevaed heretofore, however, f our soca order s to endure, s tragcay
evdent.
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61
In the words of the Presdent, a compete program of economc securty,
because of many ost years, w take many future years to fufL The
Soca Securty ct w not usher In the mennum. Lke a ma|or new egs-
aton, t w doubtess, n the course of tme, have to be suppemented a
changed n many matera respects. ut, t represents a begnnng whch h-
ong been overdue and whose effects, as far as they can be foreseen, w be
dstncty benefca.
There s nothng revoutonary In any of the nnovatons n ths b. ts|
measure proposed has been tested by word e perence and found practo
nd every measure proposed s n accord wth the tred mercan nsttutons
and tradtons. gan to quote the Presdent, we seek securty through tested
bera tradtons, through processes whch contan a the deep essentas of that
repubcan form of government frst gven to a troubed word by the Unted
States.
The Soca Securty ct has been evoved after thorough consderaton and
represents a mnmum of what the mercan peope have a rght to e pect ron
ths Congress n the way of provdng a greater measure of securty. Is otr
opnon t s, fundamentay, a sound measure whch w go far toward reasag
the ambton of the ndvdua to obtan for hm and hs a proper securty,
a reasonabe esure, and a decent vng throughout fe.
P RT II. PL N TION OP T ILL.

Tte III. Ta es wth Respect to mpoyment.
Ths tte eves two ta es. The frst s an Income ta on empoyees and the
second an e cse ta on empoyers.
INCOM T ON MPLOY S.
Secton 01: Ths secton mposes a ta upon the ncome of every ndvta
measured by the wages receved by hm wth respect to empoyment after Decem-
ber 31, 1936. The ta does not appy to a wages but ony appes to wages as
defned n secton 11 of the b. Lkewse secton 11 restrcts the appcaton of
the ta to empoyment as theren defned. The rates of ta are as foows:
Per cut
or the caendar years 1940, 1941, and 1942 IS
or the caendar years 1943, 1944, and 1945 -
or the caendar years 1940, 1947, and 194
D DUCTION OP T OM W G S.
Secton 02(a) : Ths subsecton requres the empoyees ta to be coected
at the source by requrng the empoyer to deduct the ta from the empoye
wages at the tme they are pad. To nsure coecton of the ta , the empoys
s made personay abe for t. s abty attaches to the correct amount
of ta whch he s requred to deduct from the empoyee s wages, regard
of the amount actuay deducted. To protect the empoyer, he s wdemnDM
aganst any cams and demands wth respect to that part of the wages of the
empoyee whch he wthhed, up to the correct amount wthhed and pad
the Unted States.
Secton 02(b): In case the ta s underpad or overpad, ad|ustments are
permtted to be made n connecton wth subsequent wage payments made by
the empoyer to the empoyee. or nstance, f the empoyee receves a saat
of 100 per month for the caendar year 1937 and the empoyer by a maafce
deducts 0 cents nstead of 1, assumng ths to be the correct amount of tw
ta , the ta to be deducted from the ne t wage payment of the empoyee w
be 1.20 nstead of 1. On the other hand, f the empoyer deducts from the
frst wage payment n the same e ampe 1.20 nstead of 1 the ta to t
deducted from the ne t wage payment w be 0 cents nstead of 1. Snca
ad|ustments are to be made n accordance wth reguatons to be prescrbe
under ths tte.
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D DUCTI ILITY ROM INCOM T .
Secton 03: Under secton 23(c) of the Revenue ct of 1034 edera ncome
tn es are not aowed as a deducton In computng the ncome ta mposed by
that ct. Snce the ta on empoyees s a edera ncome ta , ths secton
makes t cear that such a ta s not deductbe n computng the ncome ta
Imposed by the Revenue ct of 1934 or n computng a correspondng ncouo
ta mposed under any subsequent Revenue ct
CIS T ON MPLOY RS.
Secton 04: Ths secton mposes an e cse ta upon every empoyer for the
prvege of havng ndvduas n hs empoy. The ta s measured by the
wages pad to empoyees after December 31, 1036, wth respect to empoyment
after that date. s n the case of the ta on empoyees, the rate of ta on
empoyers s as foows:
Per cent.
Lke the ta on empoyees under secton 01, ths ta does not appy to a
wages or empoyments but ony to those defned as such n secton 11.
D USTM NTS IN C S O MIST Y MPLOY R.
Secton 05: Ths secton permts the empoyer to correct errors In the ta
reported n connecton wth any wage payment made to hs empoyees by makng
proper ad|ustments n connecton wth subsequent wage payments. It s smar
In prncpe to secton 02(b) and the ad|ustments are to be made under regu-
atons to be prescrbed under ths tte.
R UNDS ND D ICI NCI S.
Secton 06: Ths secton reates to the ta mposed wth respect to both
empoyers and empoyees. If any part of the empoyer s or empoyee s ta s
underpad or overpad and the error can not be ad|usted n connecton wth subse-
quent payments, the underpayment s to be coected or the overpayment refunded
under reguatons prescrbed under ths tte. Stuatons of ths character w
usuay arse when an empoyee eaves the servce of the empoyer so that t s
mpossbe to make ad|ustments n subsequent wage payments.
COLL CTION ND P YM NT O T .
Secton 07(a): Ths subsecton requres the ta due from empoyers and
empoyees to be coected by the ureau of Interna Revenue and to be deposted
n the Treasury as nterna-revenue coectons.
Secton 07(b) : Ths subsecton gves the Commssoner of Interna Revenue,
wth the approva of the Secretary of the Treasury, authorty to coect the ta es
mposed wth respect both to empoyers and empoyees by stamps, coupons, tckets,
books, or other devces, or by requrng the makng and fng of returns. The
admnstratve provsons reatng to the ta on pstos and revovers mposed
by secton 600 of the Revenue ct of 1926, as we as the provsons reatng to
the stamp ta es mposed by secton 00 of that ct, are aso appcabe to the
ta es provded under ths tte wth respect to both empoyers and empoyees.
The admnstratve provsons are, therefore, not confned to those contaned
n sectons 600 and 00 of the Revenue ct of 1926, but embrace a admnstra-
tve provsons not otherwse nconsstent, appcabe to the ta es mposed by
such sectons. or nstance, the perods of mtaton upon assessment and co-
ecton set forth under secton 1109 of the Revenue ct of 1926, as amended, aso
appy to the ta es eved under ths tte. Lkewse the perods of mtaton upon
refunds and credts prescrbed n secton 322 of the Revsed Statutes w appy
to the ta es under ths tte. If the ta or any part thereof s not pad when
due, the unpad porton w bear nterest at the rate of one-haf of 1 per cent
per month from the tme the ta became due unt pad. The oard of Ta
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ppeas has no ursdcton over these ta es. If they are not pad when to,
they may be coected by dstrant as provded n secton 31 7 of the Revse
Statutes, eavng the ta payer to hs remedy by way of cam and sut for refm
In order that the empoyer, who coects and wthhods the ta due from the
empoyee, may be treated as a trustee or proceeded aganst by dstrant, the
provsons of secton 607 of the Revenue ct of 19 4 are aso made to appy tofts
tte. Secton 607 of the Revenue ct of 1934 mpresses the amount of ta es
wthhed or coected wth a trust and makes appcabe for the enforcement d
the Government s cam the admnstratve provsons for assessng and eoecuD|
ta es.
or admnstratve reasons, a fractona part of a cent Is dsregarded uness It
amounts to one-haf cent or more, n whch event t s treated as 1 cent Tha
corresponds to a smar provson appearng n the Revenue cts.
ST L S ND R GUL TIONS.
Secton 0 : Ths secton gves the Commssoner of Interna Revenue, wth the
approva of the Secretary of the Treasury, authorty to make and pubsh rues
and reguatons for the enforcement of ths tte.
S L O ST MPS Y POSTM ST RS.
Secton 09: Ths secton authorzes the sae of stamps, coupons, or other
devces prescrbed for the coecton or payment of the ta es under ths tte b|
the varous postmasters of the Unted States. The postmasters are requred to
depost the recepts from such saes wth the Postmaster Genera and render
accounts to hm at such tme and n such form as he sha prescrbe. The PoS-
master Genera s gven authorty to requre a bond from the varous post-
masters recevng such stomps or other devces n such ncreased amount as be
may fnd necessary to protect the nterests of the Government The Postmaster
Genera s requred to transfer the recepts from the sae of such stamps or other
devces monthy to the Treasury as nterna revenue coectons.
Defntons sc Penates.
Secton 10(a): Ths subsecton mposes a fne of 10,000, or Imprsonment for
not more than s months, or both, for usng, transferrng, e changng, or pedf
any stamp or other devce prescrbed by the Commssoner of Interna Rever|
for the coecton or payment of the ta es under ths tte n any manner eeept
as authorzed by aw or reguatons made thereunder.
Secton 10(b) : Ths subsecton mposes a fne of 5,000, or mprsonment for
not more than fve years, or both, n the foowng cases where there Is an ntent
to defraud: (1) terng, forgng, or counterfetng any stamp or other deree
prescrbed by the Commssoner of Interna Revenue for the coecton or pay-
ment of ta es due under ths tte (2) usng, seng, endng, or bavn s
possesson any such atered, forged, or counterfeted stamp or other devce aw
(3) makng, usng, seng, or havng possesson of any matera n mtatons
the matera used n the manufacture of such stamp or other devce.
Defntons,
Secton 11(a): Ths subsecton defnes wages. Wages ncude not ony the
cash payments made to the empoyee for work done, but aso compensaton for
servces n any other form, such as room, board, etc. The term wages does not
necessary appy to the tota remuneraton receved from the empoyer by
empoyee the term ncudes ony the frst 3,000 of wages receved by an empoy
from hs empoyer wth respect to empoyment durng the caendar year. Tee
foowng e ampe w ustrate how the rue appes: mpoyer pays
poyee a saary of 500 a month begnnng wth the caendar year 19 7.
the end of the s th month has receved from hs empoyer 3,000. The Mta
of hs saary for 1937 s not sub|ect to ta aton ether wth respect to the em-
poyer s ta or the empoyee s ta . owever, ths s ony the case where tM
empoyee contnues n the empoyment of the same empoyer throughout the year
If the empoyee eaves the servce of empoyer on une 30, 1937, and ente-
the servce of empoyer C on that date and contnues wth empoyer C at the sar.
saary throughout the remander of the year, both empoyer C and empoy
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w be abe for the ta In respect of the wages receved durng the remanng
porton of the caendar year 1937.
Secton 11(b): Ths subsecton defnes the term empoyment as any
servce of whatever nature performed wthn the Unted States or on an
mercan vesse by an empoyee for hs empoyer. It shoud be noted n ths
connecton that secton 1001 (a)6 ncudes n the defnton of empoyee an
offcer of a corporaton. or nstance, resdent and nonresdent aens perform-
ng servces wthn the Unted States are sub|ect to the ta under ths tte. On
the other hand, servce performed outsde the Unted States (uness on an
mercan vesse), whether by a ctzen of the Unted States or by a non-
resdent aen, s not sub|ect to the ta . The term Unted States s defned
n secton 1001(a)2 to ncude the States, aska, awa, and the Dstrct of
Coumba. Due to the dffcutes n coectng the ta n the case of certan
knds of empoyment, the foowng servces are e empt from ta aton even
though performed wthn the Unted States: (1) grcutura abor (2) do-
mestc servce n a prvate home (3) casua abor not n the course of the
empoyer s trade or busness. Ths woud not e empt casua abor performed n
the course of an empoyer s trade or busness. or Instance, f a department
store empoyed emergency hep durng the rush season n connecton wth ts
trade or busness, the servces performed by such hep woud not be e empt
from ta aton under ths tte.
empton from ta aton under ths tte s aso granted n the case of edera
and State or potca subdvson empoyees.
Servces performed n the empoy of regous, chartabe, scentfc, terary,
humane, or educatona nsttutons, no part of the net earnngs of whch n-
ures to the beneft of any prvate sharehoder or ndvdua, are aso e empt
from the ta mposed by ths tte. or the purpose of determnng whether
such an organzaton Is e empt, the use to whch the ncome s apped s the
utmate test of the e empton rather than the source from whch the ncome
s derved. or nstance, f a church owns an apartment budng from whch
t derves Income whch s devoted to regous, chartabe, educatona, humane,
or scentfc purposes, t w not be dened the e empton. The organzatons
whch w be e empt from such ta es are churches, schoos, coeges, and
other educatona nsttutons not operated for prvate proft, the Y. M. C. .,
the Y. W. C. ., the Y. M. . ., the Savaton rmy, and other organzatons
whch are e empt from ncome ta under secton 101(6) of the Revenue ct
of 1 32.
The commttee amended the ouse b, so that servce on an mercan vesse
s now consdered as empoyment under ths tte and further amended the
ouse b so that Indvduas over 65 years of age are not e empt from
ta aton under ths tte.
Tte I . Ta on mpoyers op our ob More.
Ths tte eves upon empoyers an e cse ta payabe annuay, measured
by wages, and aows each ta payer to credt aganst hs ta the amount of
contrbutons he has pad under State unempoyment compensaton aws.
IMPOSITION O T .
Secton 901: n annua e cse ta s Imposed on each empoyer (as defned
n secton 907) on the prvege of havng ndvduas n hs empoy. s ta ,
payabe annuay, w be at a rate of 1 per cent of the tota wages payabe by
hm wth respect to empoyment (as defned n secton 907) n the caendar year
1936. Ths means that the ta Is measured by wages whch are payabe as
remuneraton for servces performed durng that caendar year, regardess of
the tme when the actua payment s made.
The rate of ta , after beng 1 per cent for the year 1936, sha ncrease to 2
per cent for 1937, and 3 per cent thereafter.
CR DIT G INST T .
Secton 902: ta payer may credt aganst hs ta the tota amount of
contrbutons he has pad to State unempoyment compensaton funds n accord-
ance wth State unempoyment compensaton aws. The credt aganst the ta
measured by wages payabe wth respect to empoyment n a caendar year w
be aowed ony for contrbutons whch themseves are pad (before the date
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622
for fng the ta return under ths tte for such year) wth respect to aper
ment n such year.
The tota credt whch a ta payer may cam aganst hs ta tor an| |ar
sha not be more than 90 per cent of the ta . Thus f the ta s 100 the too
credt whch may be camed can not be more than 90, even though the tm
amount of contrbutons may be greater than that. Credt sha be aowed ot|
for contrbutons made under the aws of States certfed for the ta abe yo
under secton 903.
C RTI IC TION OP ST T L WS.
Secton 903(a): State aw to be approved must provde that
(1) Unempoyment compensaton s to be pad through pubc empoym:
offces n the Sate, to the e tent that such offces e st and are desgnated fc|
the State for the purpose. Under the ouse b, unempoyment compensaton
was requred to be pad through pubc empoyment offces n the State.
(2) No compensaton sha be payabe wth respect to any day of unempo|-
ment occurrng before the e praton of two years after the frst day of thers
perod wth respect to whch contrbutons are requred. or e ampe, f Man
15, 193(3, s the begnnng of the frst perod wth respect to whch contrbutka
are requred under the State aw, then no compensaton may be pad for s
day of unempoyment occurrng before March 15, 193 .
(3) the money pad nto the State unempoyment fund (whether pad a.-
contrbutons for empoyers or pad n by empoyees or contrbuted by the Sts f
tsef) sha prompty be pad over to the Secretary of the Treasury to thecm
of the unempoyment trust fund estabshed by secton 904.
(4) the money wthdrawn from the unempoyment trust fund by theSfcm
agency sha be used soey n the payment of compensaton none of t may bt
used to meet admnstratve costs.
(5) person otherwse egbe for compensaton sha not be dened t
the ground that he has refused to take a new |ob when hs dena s due to rt
fact that the poston offered to hm s vacant due drecty to a strke, octa
or other abor dspute, or s due to the fact that the wages, hours, or other ew
dtons of the work offered are substantay ess favorabe than those prevato-
for smar work In the ocaty, or that, as a condton of takng or retaas
the new |ob, he woud have to |on a company unon, or woud have to rest
from a abor organzaton, or woud have to agree not to |on a abor organzaton
(6) The State aw must contan a provson Indcatng that any rghts, prm-
egos, or mmuntes conferred under t may be taken away by the subscqnts
amendment or repea of the aw.
(b) If any State aw, submtted to the Soca Securty oard, fufs th
condtons enumerated n ths secton, the oard sha wthn 30 days approw
the aw, and sha notfy the State governor of ts acton. On December 31 of
each year, each State whch has an approved aw sha be certfed by the
to the Secretary of the Treasury, uness n the meantme the oard fnd
the State has changed ts aw n some matera respect, or has faed substan-
tay to fuf any of the enumerated condtons. The oard s under the dot
to warn the governor of the State whenever t has reason to beeve that to
spte of havng an approved aw a State may not be certfed at the end of u
year.
UN MPLOYM NT T T T UND.
Secton 904: Subsecton (a) of ths secton estabshes n the Treasury rf
the Unted States a trust fund wth the Secretary of the Treasury as trustee art
wth the respectve State agences, admnsterng the State unempoyment cob-
pensaton aws, as benefcares of the trust. The Secretary of the Treasury
drected to receve and hod n such fund a moneys deposted wth bm or wth
any edera reserve bank or member bank of the edera Reserve System ths
Dated by hm to receve such deposts, by such State agences.
Under subsecton (b) t s the duty of the Secretary of the Treasury touw
the fund (e cept such part as s, n hs opnon, requred to meet current
drawas) n nterest-bearng obgatons of the Unted States or n obgaton
guaranteed as to both prncpa and nterest by the Unted States. In ord I
provde sutabe nvestments for ths purpose, authorty s gven for the ssnaw
of speca obgatons to the fund from tme to tme as requred. Such ohp
tons sha bear an nterest rate equa to the average rate of Interest, compot
as of the end of the caendar month ne t precedng the date of such ssue, bo
by a nterest-bearng obgatons of the Unted States then formng part of u
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623
Msc.
pubc debt e cept that where such average rate a not a mutpe of one-eghth
of 1 per cent, the rate of nterest sha be the mutpe of one-eghth of 1 per cent
ne t ower than such average rate. In addton to such speca obgatons, out-
standng obgatons may be purchased at the market prce, and orgna ssues
may be acqured at par, f the yed thereupon w be not ess than the yed
whch woud be requred n the case of speca obgatons. Such speca obga-
tons (under the provsons of subsecton (c)) may be redeemed at par pus
accrued nterest, whe a other obgatons may be sod at the market prce.
Subsectons (d) and (e) provde that the fund sha be nvested as a snge
fund, but that the Secretary of the Treasury sha mantan a separate book
account for each State agency and sha credt quartery to each such account
a proportonate part of the earnngs of the fund for such quarter.
The Secretary of the Treasury (under subsecton (f)), s drected to pay out
of the amount to the credt of a State agency such amounts as the State agency
sha duy requston, not to e ceed the amount standng to the credt of such
State agency.
DMINISTR TION, R UNDS, ND P N LTI S.
Secton 905: Subsecton (a) of ths secton provdes that the ta sha be
coected by the ureau of Interna Revenue and sha be pad nto the Treasury
as nterna-revenue coectons.
Subsecton (b) requres returns of the ta to be made by each empoyer not
ater than anuary 31 of each year n respect to empoyment n the precedng
caendar year.
Subsecton (c) makes the returns fed under ths tte open to nspecton ac-
cordng to the rues ad down for ncome-ta returns under the Revenue ct
of 1926.
Subsecton (d) aows the ta payer to pay hs ta n equa quartery nsta-
ments as s the case wth the edera ncome ta .
Subsecton (e) gves the Commssoner the rght to gve e tensons of tme
for the payment of ta or nstaments thereof, and subsecton (f) provdes that
In the payment of ta a fractona part of a cent sha not be counted uness t
amounts to one-haf cent or more n whch case t sha be counted as 1 cent
INT RST T COMM RC .
Secton 906: Ths secton provdes that no person requred under a State
aw to make payments to an unempoyment fund sha be reeved from com-
pance therewth on the ground that he s engaged n nterstate commerce,
or that the State aw does not dstngush between empoyees engaged n nter-
state commerce and those engaged n ntrastate commerce.
D INITIONS.
Secton 907: The defntons set up by ths secton are very mportant n
connecton wth the appcaton and scope of the entre tte. They are as
foows:
(a) mpoyer: The term empoyer ncudes ony those persons who, In each
of at east 13 weeks n the year, have a tota number of 4 or more empoyees.
(In the ouse b t was 20 weeks and 10 or more empoyees.) Ths means
that f on 1 day a week for 13 weeks (whch need not be consecutve) there are
4 empoyees, the empoyer s covered. The empoyees (who need not necessary
be the same peope) need not a be empoyed at the same moment t s enough
f durng the day the tota number s at east 4. The empoyees are not
counted uness they are empoyed n empoyment as defned n ths secton.
(b) Wages: The term wages s defned to mean a remuneraton for em-
poyment, ncudng the cash vaue of a remuneraton pad n any other medum
than cash. That s, n addton to money payments, t ncudes payments n
knd, rent, food, odgng, etc.
(c) The term empoyment s defned to mean any servce performed wthn
the Unted States by an empoyee for hs empoyer wth the foowng e -
ceptons:
(1) grcutura abor.
(2) Domestc servce In a prvate home.
(3) Servce performed as an offcer or member of the crew of a vesse on
the navgabe waters of the Unted States. (Ths does not e empt the servces
of ongshoremen and others who work n connecton wth oadng vesses.)
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G24
(4) Servce performed by an Indvdua n the empoy of hs son, daughter,
or spouse, and servce performed by a chd under 21 In the empoy of hs parent.
(5) Servce performed In the empoy of the Unted States Government or of
an nstrumentaty of the Unted States.
(6) Servce performed n the empoy of a State, or potca subdvson
thereof, or an nstrumentaty of one or more States or potca subdvsons.
(7) Servce performed n the empoy of corporatons or organzatons
organzed e cusvey for regous, chartabe, scentfc, terary, or educaton
purposes, no part of the net earnngs of whch accrue to any prvate ndvdua
or sharehoder.
If the servce Is wthn the e cepted casses, the empoyer s e empt from
ta on the wages payabe wth respect to such servce.
(d) The term State agency s defned to mean any Stnte offcer, board, or
other authorty, desgnated under a State aw to admnster the State unem-
poyment fund.
(e) The term unempoyment fund s defned to mean a speca fund
estabshed by State aw and admnstered by a State agency, for the payment
of unempoyment compensaton. commttee amendment strkes out the re-
qurement of the ouse b that the assets of the fund be mnged and un-
dvded, and that no separate account be mantaned wth respect to any person.
(f) The term contrbutons s defned to mean payments requred to he
made by an empoyer under a State aw nto an unempoyment fund, e c-ept
that any payments whch have been or may be deducted from the wages of
the ndvduas n hs empoy are not to be consdered as contrbutons under
the defnton.
(g) The terra compensaton s defned to mean cash benefts payabe to
Indvduas wth respect to ther unempoyment.
UL S ND R GUL TIONS.
Secton 90 : Ths secton authorzes and drects the Commssoner of Interna
Revenue, wth the approva of the Secretary of the Treasury, to make and
pubsh such rues and reguatons for the enforcement of ths tte as are neces-
sary. The e cepton s made, however, that the authorzaton and drecton above
noted do not appy to secton 903, reatng to certfcaton of State aws, and to
secton 904, reatng to the unempoyment trust fund.
LLOW NC O DDITION L CR DIT.
Secton 909: The commttee has added ths secton, and Its companon secton
910, to the ouse b. Subsecton (a) provdes that a ta payer under secton
901 may, for 193 or any ta abe year thereafter, obtan an addtona credt
aganst hs ta , under certan condtons. Let us assume, for the purpose of
gvng a reatvey smpe e ampe, that he carres on busness n ony one State.
e w credt aganst the ta the amount of hs contrbutons under the aw rf
that State and, under ths new secton, he w aso credt the amount by
whch hs contrbutons are ess than they woud have been f he had beea
contrbutng at the ma mum rate n the State. The addtona credt, however,
s mted by not aowng t to e ceed the dfference between the actua amount
pad and the amount he woud have pad at a 2.7 per cent rate and subsecton
(b) aso provdes for mtng the addtona credt to the proper dfference
aowed by the State aw, dmnshng t f the empoyer has faed to make any
of the contrbutons requred of hm.
In fgurng what contrbutons the empoyer woud have pad at the ma mum
rate, the hghest rate appcabe to any empoyer each tme when contrbutons
are payabe s the rate consdered.
Subsecton (c) provdes that even f an empoyer s gettng credt under
secton 002 and addtona credt under ths secton, he sha never credt aganst
ta more than 90 per cent of the ta .
CONDITIONS OP DDITION L CR DIT LLOW NC .
Secton 010: Ths secton paces restrctons on the aowance of the addtona
credt under secton 009.
(1) The ta payer whose case was consdered n the dscusson of secton 909
may have been contrbutng to a pooed fund n the State. If he s contrbutng
at a ower rate than that mposed on other empoyers n the State, he w g C
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(Msc.
the addtona credt but ony f he has had at east three years of compensaton
e perence under the State aw, and ony f hs ower rate s f ed as a resut
of hs comparatvey favorabe e perence. State rate mght, therefore, vary
at the outset among dfferent empoyers or ndustres, but the addtona credt
woud not be gven unt the compensaton e perence of the favored empoyer
bad |ustfed the varaton.
(2) The ta payer may have guaranteed the empoyment of hs empoyees,
and be contrbutng to a guaranteed empoyment account mantaned by the
State agency. In ths case, f he camed the addtona credt uuder secton 909,
he woud get t ony f hs guaranty had been fufed, and ony f hs guaranteed
empoyment account amounted to at east per cent of hs guaranteed pay ro.
(3) The ta payer may be contrbutng to a separate reserve account, from
whch benefts are payabe ony to hs empoyees. If he cams the addtona
credt under secton 909, t woud be aowed ony f, n the precedng year, those
of hs empoyees who became unempoyed and were egbe for compensaton
receved compensaton from the reserve account. urthermore, the addtona
credt woud be aowed ony f the reserve account amounted to 7 per cent of
hs pay ro, and was at east fve tmes arger than the amount pad out from t,
n compensaton, n that year (among the three precedng years) when the great-
est amount was thus pad out from t.
Subsecton (c) defnes terms used n ths secton the commttee havng added
sectons 909 and 910 as a new and dstnct addton supermposed upon the tte,
these defntons were paced here rather than n secton 907.
(1) Reserve account s defned as a separate account n a State unempoy-
ment fund, from whch compensaton s payabe ony to the former empoyees of
the empoyers contrbutng to the account The account may be mantaned wth
respect to one empoyer or a group of empoyers.
(2) Pooed fund s an unempoyment fund (or part of such a fund, f some
empoyers are mantanng separate accounts n the fund) n whch a contrbu-
tons are mnged and undvded. Compensaton s payabe from It regardess of
whether the camant was formery n the empoy of an empoyer contrbutng to
the pooed fund but where some empoyers n the State have reserve accounts,
ther former empoyees get compensaton from the pooed fund ony f the reserve
accounts are e hausted.
(3) Guaranteed empoyment account s, ke a reserve account, a separate
account n an unempoyment fund, but t can be mantaned ony wth respect
to certan empoyers. Compensaton s payabe from t to those of such em-
poyer s empoyees who, havng been guaranteed empoyment, nevertheess become
unempoyed due to a faure to fuf the guaranty, or become unempoyed at the
end of the year for whch the guaranty was made, due to the nonrenewa of the
guaranty. To be a guaranteed empoyment account, such separate account
woud have to be mantaned wth respect to an empoyer who had guaranteed
the wages of a of hs empoyees (or, f he mantans more than one dstnct
busness estabshment, of a the empoyees In at east one such estabshment),
for at east 40 weeks n a 12-month perod. The wages guaranteed shoud be for
at east 30 hours a week but f 41 weeks, for nstance, were guaranteed nstead
of 40, the weeky hours guaranteed coud be cut from 30 to 29 and f 42 weeks
were guaranteed, ony 2 hours wages per week woud need to be guaranteed.
Whe ordnary a the empoyees woud have to be covered, the empoyer woud
not have to e tend the guaranty to any new empoyee unt the atter had served
a probatonary perod of not more than 12 consecutve weeks.
(4) Year of compensaton e perence, used ony n reaton to an empoyer,
Is defned as any caendar year durng whch, at a tmes n the year, a former
empoyee of such empoyer, If there was one who was egbe for compensaton,
coud receve compensaton under the State aw.

Tte II. Genera Pbovsons.
D INITIONS.
Secton 1201 contans defntons of State, Unted States, person,
corporaton, sharehoder, and empoyee.
Secton 1201(d) provdes that nothng n ths ct sha be construed as
authorzng any edera offca n carryng out the provsons of ths ct to take
charge, n voaton of the aw of a State, of any chd over the ob|ecton of the
parents.
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626
Secton 1202 provdes for the makng of reguatons by the Secretary of t
Treasury, the Secretary of Labor, and the Soca Securty oard, respectvey,ot
carryng out the functons wth whch each s charged.
S P R ILITY.
Secton 1203 s the usua separabty cause.
R S R TION O POW R.
Secton 1204 reserves to Congress the rght to ater, amend, or repea uy
porton of the ct
S ORT TITL .
Secton 1205 provdes that the ct may be cted as the Soca Securty ct
1939-4 -1010T
SOCI L S CURITY ILL.
ouse of Representatves Report No. 1540, Seventy-fourth Congress, rst Sesskft
uy 16, 1035.
Mr. Doughton, from the commttee of conference, submtted the foowng o
fercnce report to accompany . R. 7260 :

The managers on the part of the ouse at the conference on the dsagrefts
otes of the two ouses on the amendments of the Senate to the b ( . R. t
to provde for the genera wefare by estabshng a system of edera od-aa
benefts, and by enabng the severa States to make more adequate provson fa
aged persons, dependent and crpped chdren, materna and chd wefare. pabW
heath, and the admnstraton of ther unempoyment compensaton aws: w
estabsh a Soca Securty oard to rase revenue and for other purpw
submt the foowng statement n e panaton of the effect of the acton agreed
upon by the conferees and recommended n the accompanyng conference report:

mendment No. 15: The ouse b In defnng the term empoyment. u
used n Tte II reatng to the payment of edera od-age benefts, e cepted serf-
Ice performed n the empoy of a corporaton, communty chest, fund, or found
ton, organzed and operated e cusvey for regous, chartabe, scentfc
terary, or educatona purposes, no part of the net earnngs of whch nnra
to the beneft of any prvate sharehoder or ndvdua. The Senate amendment
adds to the st of purposes or hospta as a carfyng amendment Te
Senate recedes, the conferees omttng ths anguage as surpusage, based on tte
fnct tbat the Interna Revenue ureau has unformy construed anguage
the ncome-ta aws, dentca wth that found n the ouse b, as e empts
hosptas not operated for proft, and aso on the fear that the nserton of tbf
words added by the Senate amendment mght nterfere wth the contnuaton of
the ong-contnued constructon of the ncome-ta aw.

mendments Nos. 75 and 77: The ouse b e cepted from the term empoy-
ment, as used n Tte III mposng certan e cse ta es, servce performed as a
offcer or member of the crew of a vesse documented under the aws of tte
Unted States or of any foregn country. The Senate amendments strke out ths
e cepton and e pressy Incude wthn the defnton of empoyment sertW
performed as an offcer or member of the crew of a vesse documented under te
aws of the Unted States. The Senate recedes.
mendment No. 76: The ouse b e cepted from the term empoyment, -
used n Tte III reatng to certan e cse ta es, servce performed by an to
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627
Msc.
vdna who has attaned the age of 65. The Senate amendment strkes out ths
e cepton. The Senate recedes.
mendments Nos. 7 , 79, and 0: These are amendments to paragraph numbers.
The Senate recedes.
mendment No. 1: The ouse b n defnng the term empoyment, as used
n Tte III mposng certan e cse ta es, e cepted servce performed n the
empoy of a corporaton, communty chest, fund, or foundaton, organzed and
operated e cusvey for regous, chartabe, scentfc, terary, or educatona
purposes, no part of the net earnngs of whch nures to the beneft of any prvate
sharehoder or ndvdua. The Senate amendment adds to the st of purposes
or hospta as a carfyng amendment. The Senate recedes n conformty
wth the acton on amendment No. 15.
mendment No. 2: Ths amendment e cepts from the defnton of empoy-
ment, as used n Tte III reatng to certan e cse ta es, servce performed n
the empoy of a corporaton, communty chest, fund, or foundaton, organzed and
operated e cusvey for the preventon of cruety to chdren or anmas. The
ouse recedes.
mendment No. 5: Ths s a change n a tte headng. The ouse recedes
wth an amendment to conform to the acton on amendment No. 91.
mendments Nos. 6 and 7: The ouse b provded as one of the condtons
for the approva of a State aw for unempoyment compensaton that the aw
must provde that a compensaton s to be pad through pubc empoyment offces
n the State. The Senate amendment changes ths requrement so that com-
pensaton must be pad through pubc empoyment offces n the State to the
e tent that such offces e st and are desgnated by the State for the purpose. The
Senate recedes on amendment No. 6 and the ouse recedes on amendment No. 7
wth an amendment changng the anguage of the amendment. The effect of the
acton of the conferees s to provde that the oard sha not approve any State
aw uness the aw provdes that a compensaton s to be pad through pubc
empoyment offces n the State or such other agences as the oard may approve.
mendment No. : The ouse b provded that the Soca Securty oard
sha certfy each State whose unempoyment compensaton aw s approved,
e cept that t sha not certfy any State whch, after notce and opportunty for
hearng to the State agency, the oard fnds has changed ts aw so that t no
onger contans the provsons specfed n the b or has faed substantay to
compy wth such provsons. The Senate amendment provdes that the notce
and opportunty for hearng must be reasonabe. The ouse recedes.
mendment No. 9: Ths amendment provdes that f the e cse ta mposed
by Tte I s not pad when due there sha be added as part of the ta nterest
at the rate of one-haf of 1 per cent per month from the date the ta became due
unt pad. Under the ouse b the rate of nterest was 1 per cent per month.
The ouse recedes.
mendments Nos. 90 and 91: The ouse b provded that the term empoy-
ment, as used n Tte I , shoud not ncude any person uness on each of some
20 days durng the ta abe your, each day beng n a dfferent caendar week,
the tota number of ndvduas who were n hs empoy for some porton of te
day (whether or not at the same moment of tme) was 10 or more. The Senate
amendments reduce the number of days from 20 to 13, and the number of nd-
vduas from 10 to 4. The Senate recedes on amendment numbered 90, and the
ouse recedes on amendment numbered 91 wth an amendment f ng the number
of ndvduas at eght.
mendment No. 92: The ouse b n defnng the term empoyment, as used
n Tte I reatng to certan e cse ta es, e cepted servce performed n the
empoy of a corporaton, communty chest, fund, or foundaton, organzed and
operated e cusvey for regous, chartabe, scentfc, terary, or cducatonn
purposes, no part of the net earnngs of whch nures to the beneft of any prvate
sharehoder or ndvdua. The Senate amendment adds to the st of purposes
or hospta as a carfyng amendment. The Senate recedes n conformty wth
the acton on amendment No. 15.
mendment No. 93: Ths amendment e cepts from the defnton of empoy-
ment as used n Tte I , mposng certan e cse ta es, servce performed n
the empoy of a corporaton, communty chest, fund, or foundaton, organzed and
operated e cusvey for the preventon of cruety to chdren or anmas. The
ouse recedes.
mendment No. 94: Under the ouse b n Tte I provdng for a ta on
empoyers wth a credt aganst the ta of contrbutons pad nto an empoyment
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62
fund under a State aw, the term unempoyment fund was defned as a fmd,
a the assets of whch are mnged and undvded and In whch no separate
account s mantaned wth respect to any person n other words, requrng a
pooed fund. The Senate amendment strkes out ths requrement eavng t to
the State to defne the character of ts speca fund. The ouse recedes.
mendment No. 95: Ths Is a cerca amendment The ouse recedes.
mendments Nos. 96 and 97: mendment No. 96 provdes that a ta payer under
secton 901 (unempoyment e cse ta ) may, for 193 , or any ta abe year there-
after, obtan an addtona credt aganst hs ta , under certan condtons.
ta payer carryng on busness n a State w credt aganst the ta the amount
of hs contrbutons under the aw of that State and, under ths new secton, he
w aso credt the amount by whch hs contrbutons are ess than they woud
have been f he had been contrbutng at the ma mum rate n the State. The
addtona credt, however, Is mted by not aowng t to e ceed the dfference
between the actua amount pad and the amount he woud have pad at a 2.7
per cent rate and the amendment aso provdes for mtng the addtona credt
to the proper dfference aowed by the State aw, dmnshng t f the empoyer
has faed to make any of the contrbutons requred of hm. In fgurng what
contrbutons the empoyer woud have pad at the ma mum rate, the hghest rate
appcabe to any empoyer each tme when contrbutons are payabe s the rate
consdered. The amendment aso provdes that even f an empoyer s gettng
credt under secton 002 and addtona credt under ths secton, he sha never
credt aganst ta more than 90 per cent of the ta .
mendment No. 97 paces restrctons on the aowance of the addtona credt
(1) ta payer who has been contrbutng to a pooed fund and s aowed a
ower rate than that mposed on other empoyers n the State w get the add-
tona credt ony f he has had three years compensaton e perence under the
State aw, and ony f the ower rate s f ed as a resut of hs comparatvey
favorabe e perence.
(2) The ta payer may have guaranteed the empoyment of hs empoyees, and
be contrbutng to a guaranteed empoyment account mantaned by the State
agency. In ths case, f he camed the addtona credt under secton 909, he
woud get t ony f hs guaranty had been fufed, and ony f hs guaranteed
empoyment account amounted to at east 7 per cent of hs guaranteed pay roL
(3) The ta payer may be contrbutng to a separate reserve account from
whch benefts are payabe ony to hs empoyees. If he cams the addtona
credt under secton 909, t woud be aowed ony f, n the precedng year, those
of hs empoyees who became unempoyed and were egbe for compensaton
receved compensaton from the reserve account. urthermore, the addtona
credt woud be aowed ony f the reserve account amounted to 7 per cent of
hs pay ro, and was at east fve tmes arger than the amount pad out from
t, n compensaton, n that year (among the three precedng years) when the
greatest amount was thus pad out from t
The amendment aso defnes terms used n ths secton:
(1) Reserve account s defned as a separate account n a State unempoy-
ment fund, from whch compensaton s payabe ony to the former empoyees
of the empoyers contrbutng to the account The account may be mantaned
wth respect to one empoyer or a group of empoyers.
(2) Pooed fund s an unempoyment fund (or part of such a fund, f some
empoyers are mantanng separate accounts n the fund) n whch a contrbu-
tons are mnged and undvded. Compensaton s payabe from t regardess of
whether the camant was formery n the empoy of an empoyer contrbutng
to the pooed fund but where some empoyers n the State have reserve accounts,
ther former empoyees get compensaton from the pooed fund ony f the reserve
accounts are e hausted.
(3) Guaranteed empoyment account s, ke a reserve account, a separate
account n an unempoyment fund, but t can be mantaned ony wth respect to
certan empoyers. Compensaton s payabe from t to those of such empoyer s
empoyees who, havng been guaranteed empoyment, nevertheess become on-
empoyed due to a faure to fuf the guaranty, or become unempoyed at tbe
end of the year for whch the guaranty was made, due to the nonrenewa of tbe
guaranty. To be a guaranteed empoyment account, such separate account
woud have to be mantaned wth respect to an empoyer who had guaranteed
the wages of a of hs empoyees (or, f he mantans more than one dstnct
busness estabshment, of a the empoyees n at east one such estabshment .
for at east 40 weeks n a 12-month perod. The wages guaranteed shoud be
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629
Msc.
for at east 30 hours a week but If 41 weeks, for nstance, were guaranteed n-
stead of 40, the weeky hours guaranteed coud be cut from 30 to 29 and f 42
weeks were guaranteed, ony 2 hours wages per week woud need to be guar-
anteed. Whe ordnary a the empoyees woud have to be covered, the
empoyer woud not have to e tend the guaranty to any new empoyee unt the
atter had served a probatonary perod of not more than 12 consecutve weeks.
(4) Year of compensaton e perence, used ony n reaton to an empoyer,
Is defned as any caendar year durng whch, at a tmes n the year, a former
empoyee of such empoyer, f there was one who was egbe for compensa-
ton, coud receve compensaton under the State aw.

The ouse recedes from ts dsagreement to the amendment of the Senate
to the tte of the b.
On amendments Nos. 17, 67, 6 , 3, and 4 (deang wth the e empton of
prvate penson pans n Ttes II and III) the conferees are unabe to agree.
. L. Doughton,
Sam . ,
Thos. . Cuen,
en T. Tread way,
Isaac achabach,
Manager on the part of the ouse.
1939-45-100 6
C RRI RS T ING CT OP 1937.
Senate Report No. 1 , Seventy-ffth Congress, rst Sesson.
une 15 (caendar day, une 2 ), 1937.
Mr. Cark, from the Commttee on nance, submtted the foowng report
to accompany . R. 75 9 :
The Commttee on nance, to whom was referred the b ( . R. 75 9) to evy
an e cse ta upon carrers and certan other empoyers and an ncome ta
upon ther empoyees, and for other purposes, havng consdered the same,
report favoraby thereon wthout amendment and recommend that the b
do pass.
The provsons of the b are fuy e paned n ouse Report No. 1071, whch
s ncorporated heren and made a part of ths report
ouse of Representatve Report No. 1071, Seventy-fCth Congress, rst Sesson.
une 21, 1937.
ng report to accompany . R. 70 9 :

Contents of the .
The b provdes for a system of e cse ta es to be eved on carrers and
certan other empoyers, and an ncome ta on the empoyees of those empoyers,
as we as an ncome ta on certan persons who are the representatves of
certan of the empoyees who are affected by ths ct The b Is defned nto
13 sectons, as foows:
1. Defntons.
2. Income ta on empoyees.
3. cse ta on empoyers.
4. Refunds and defcences.
5. Income ta on empoyee representatves.
6. Deductbty from ncome ta .
7. Coecton and payment of ta es.
. Court ursdcton.
9. Soca Securty ct
10. Separabty.
11. Repea of pror ta ct
12. Rues and reguatons.
13. Short tte.
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630
IIstoky of Legsaton.
There s now n effect an ct havng a smar purpose, whch became aw a
ugust 29, 1935. The ta es under the ct sgned on that day e pred a
ebruary 2 , 1937 eary n ths sesson of Congress a b was passed e tendr,
the mtng date on the ta es to une 30, 193 .
In anuary, 1936, substantay a ma|or raroads of the country fed a b
of compant n what s now the Unted States Dstrct Court of the Dstrct
Coumba prayng for an n|uncton aganst the coector of nterna revenue
to prevent hs coectng or takng any steps to coect the ta es under the ct
On une 30, 1936, the petton of the raroads was granted and the coector of
nterna revenue was en|oned aganst makng any ta coectons from those
who were pantffs n the tgaton. Whe some reatvey sma payments of
ta es have been made, most of the empoyers who were sub|ect to ta , a
addton to those who were pantffs, have not made any payments of taes
and thus far the ureau of Interna Revenue has made no effort to enforce
coecton aganst anyone. Whe most empoyers have made deductons ot
ta es under the ct from the compensaton of ther empoyees, these amounts
have not been pad nto the Treasury, but have been pad nto speca accounts,
sub|ect to the order of the dstrct court.
The pendng b has receved the ndorsement of both the abor organzatons
and the carrers, e pressed n hearngs before the commttee. efore proceed
to a detaed dscusson of the egsaton we wsh to commend both the carrers
and the empoyees upon the great abty they have shown to ad|ust natters
of ths sort through norma process of coectve barganng. The agreement ss
to ths measure consttutes a andmark n the hstory of ndustra reatons
In ths country.
Ma|or Changes Whch the Woud ffect n stng Legsato .
The pendng measure woud brng about three ma|or changes, as compared
wth the present Carrer s Ta ct. rst of a, there s set up a permane
schedue of ta aton. Ths has been possbe because of the avaabty
studes of the raroad ndustry, whch were not n a form of use when the
egsaton was orgnay enacted. Second, the rates for the eary years naff
been owered, as compared to the e stng rate. The tota ta rate, one-haf of
whch s an e cse ta on empoyers, the other an ncome ta on empoyees, Ls
been f ed n present egsaton at 7 per cent. In the pendng b the rate
f ed at 5 per cent for the 3-year perod begnnng anuary 1, 1937, and r
by one-haf of 1 per cent steps at three ntervas, remanng at a eve of h
per cent on and after anuary 1, 1949. In terms of yeds, however, the rate
yed n perpetuty of the pendng b s equvaent of a fat 7.11 I 1 M
pay ro, as compared wth the 7 per cent rate n effect under e stng egsaton
There s precedent for the adopton of the graduated ta rate to be found a
the ta sectons of the Soca Securty ct, partcuary Tte III, where step
of one-haf of 1 per cent at ntervas of three years are to be found |ust as
the pendng b. Thrd, the effectve date of the measure has been chanp
from March 1, 1936, to anuary 1, 1937. ecause of ths change n date, the ta
yed of the two w be substantay dentca n perpetuty.
nay, the scope of the e stng ta egsaton has been changed n snc
way as to brng nto the coverage substantay a those who are ntmate
assocated wth the operaton of Unted States raroads. Ths has been do
frst by e tendng coverage to a empoyees of Unted States raroads, rrespec-
tve of the ocaton of ther empoyment, whether n ths or n other countres-
Second, the standard raroad organzatons are now to be ncuded as empoyer
and a the empoyees of these organzatons w, of course, be brought wthn
the scope of the statute. Whe t seems cear that t s the tater-t
of the present ct to embrace wthn ts scope the varous raroad assocaton
the matter s now to be made cear beyond queston by a specfc ncuson o.
such organzatons.
Revenue rom Ta es Imposed.
The yed of revenue under ths b w vary wth the rsng ta rates rf
wth the amount of the pay ro not e ceedng 300 a month to any ndvdua
pad by the empoyers sub|ect to the ct. s aready stated, the ta e Iff
on anuary 1, 1937, at an aggregate rate of 5 per cent of ta abe pay ro aw
rse by one-haf per cent at 3-year ntervas to a eve of 7 per cent for 5
and thereafter. Countng 15 as the utmate eve of ta es, the reatve T f14
other thngs beng equa, w be 11 for the years 1937, 193 , and 1939, 12 4
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631
Msc.
the years 1940, 1941, and 1942, 13 for the years 1943, 1944, and 1945, 14 for the
years 1946, 1947, and 194 , and 15 for the years 1949 and thereafter.
The amount of pay ros for more than 90 per cent of the empoyers covered
by the ct (measurng the proporton n terms of empoyees affected) have ong
been reported to the Interstate Commerce Commsson. In recent years the
tota pay ros of the steam raroads, seepng-car, and e press companes have
been as foows:
1927
102
1929
3,126,66 , 000
3,122,04 ,000
3,191,913, 000
2, 20,394,000
2, 322,061,000
1, 67 , 796,000
1933
1934..
1935
1936 (partay
mated)
1,554,203,000
1, 6 2, 290,000
1, 23,6 4,000
est-
2,050, 000,000
1930
1931
1932
In addton to the pay ros Incuded n ths tabuaton, the scope of the ct
embraces raroad abor organzatons, raroad traffc and smar assocatons,
the empoyees of mercan nes n Canada, eectrc nes, prvate-car Companes,
and certan ferres, gran eevators, transfer companes, and other companes
owned or controed by carrers and performng certan servces n the trans-
portaton of passengers or property by raroad. cept for eectrc nes, whch
report appro matey 25,000,000 a year pay ro to the Interstate Commerce
Commsson, the data on empoyment of these other empoyers are rather frag-
mentary. It seems probabe, however, that these other empoyers consttute, n
terms of empoyment, from 7 to 10 per cent of the ndustry.
The tota pay ros of empoyers under the scope of the ct have been rsng
snce 1933. or the frst quarter of 1937, the pay ros of raroad, seepng-car,
and e press companes were about 535,000,000, whch woud ndcate a tota
ta abe pay ro for the caendar year of about 2,240,000,000 and a tota ta abe
pay ro for a empoyers sub|ect to the ct of more than 2,350,000,000.
The compensaton, for a snge ndvdua, n e cess of 300 a month s not
ta abe. study of empoyers not covered by ths ct, havng pay ros of
appro matey 1,700,000,000 n the 12 months endng une 30, 1935, showed
that compensaton of 300 per ndvdua per month or ess consttuted 9 .27
per cent of the tota pay ro. It woud seem cear, therefore, that the ta abe
pay ro durng the present year w run cose to 2,300,000,000.
The present perod s one of rsng wages. Negotatons are currenty In
progress between the raroad abor organzatons and managements concern-
ng a request by the former for a substanta ncrease n compensaton. Durng
the ne t few years certany there s every ndcaton that pay ros w be
substantay arger than at the present tme. Takng nto account a perod of
years and consderng the possbtes of ups and downs, t s a reasonabe
estmate that the pay ro sub|ect to ta under ths b w average
2,200,000,000. On the bass of that estmate, the ta es w be as foows:
I Caendar year
1944
Caendar year
1937
193
1939
1940
1941
1942
1943
121,000,000
121,000,000
121,000,000
132,000,000
132, 000,000
132,000,000
143,000,000
1945
1946
1947
194 -
1949 and thereafter..
143,000. 000
143, 000,000
154, 000, 000
154,000, 000
154, 000, 000
1G5, 000, 000
It s assumed that the ta es w be coected quartery and that they w
be pad nto the Trensury durng the month foowng the end of the quarter.
Snce the quarters are caendar quarters, there woud be, under ths assumpton,
ony one ta payment In the fsca year 1937. In the fsca years 1940, 1943,
1946, and 1949 there woud be three payments at od rates and one at the new
rate n effect on anuary 1 of each of those years. stmated ta es on a fsca
year bass woud, therefore, be:
sca year
1937
193
1939.
30,250,000
121,000,000
121,000,000
1940 123,750,000
1941 132,000,000
1942 132,000,000
1943 134,750,000
sca year
1944
1945
1946
1947
194
1949
1950 and thereafter.
143,000,000
143,000,000
145, 750,000
154,000,000
154,000,000
156, 750, 000
165, 000,000
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632
These estmates, of. course, assume a unform pay ro. The possbtes are
that at east durng the ne t few years the pay ro w be arger than est-
mated and ta coectons, of course, woud be correspondngy hgher. The
estmates make aowance for the possbty that the nta average may be
brought down by fuctuatons n the future.
Pabt II. panaton of the .
The foowng e panaton s n arge part a comparson of the provsons of
ths b wth the correspondng provsons of the present Carrers Ta ng ct
whch w be repeaed upon the enactment of ths b.
Secton 1(a), as amended, w substtute for the defnton of carrer a
defnton of empoyer. The term empoyer w ncude companes whch
are embraced In the term carrer n the present ct and n addton ra-
way abor organzatons, natona In scope, whch have been or may be organ-
zed n accordance wth the provsons of the Raway Labor ct, as amended,
and ther State and Natona egsatve commttees and ther genera com-
mttees and ther nsurance departments and ther oca odges and dvsons,
estabshed pursuant to the consttuton and by-aws of such organzatons.
The present ct embraces wthn ts scope any company whch may be
drecty or ndrecty owned (by a carrer) or controed thereby or under
common contro therewth, and whch operates any equpment or factes or
performs any servce (other than truckng servce) n connecton wth the
transportaton of passengers or property by raroad, or the recept, devery,
eevaton, transfer n transt, refrgeraton or cng, storage, or handng of
property transported by raroad, and any recever, trustee or other ndvdua
or body, |udca or otherwse, when n the possesson of and operatng the
busness of any such carrer. Under ths anguage coverage e tends to a
company whch s owned or controed n common by severa companes. -
cusons have been e tended to casua servce and the casua operaton of equp-
ment or factes. In addton to truckng servce, t s ntended to e cude
empoyees of a contractor who may, for e ampe, be occasonay empoyed by
a carrer to repar a depot or a brdge. Contractors, other than those whch
perform casua servce, woud not be e cuded, rrespectve of whether contro
be ega or de facto. De facto contro may be e ercsed not ony by drect
ownershp of stock, but by means of agreements, censes and other devces
whch nsure that the operaton of the company s conducted n the nterests
of the carrer.
y these changes there are brought wthn the scope of the ct substantay
a those organzatons whch are Intmatey reated to the transportaton of
passengers or property by raroad n the Unted States.
Secton 1(b) of the b defnes the term empoyee so as to make t cear
that any person n the servce of an empoyer as defned n secton 1(a) s to
be consdered an empoyee regardess of where he performs hs servces. It s
aso made cear that empoyees of oca odges or dvsons of natona abor
organzatons are not to be ncuded as empoyees, uness they were In the
servce of or In the empoyment reaton to such carrer on or after ugust 29.
1935.
Secton 1(c) defnes the term empoyee representatve. In the present ct,
the subsecton defnng the term empoyee defnes aso the term empoyee
representatve. Ths ncuson of representatve and empoyee s art-
fca and causes confuson. Ths unnecessary repetton of the term em-
poyee s dspensed wth by the provson of a separate defnton of empoyee
representatve.
Secton 1(d) defnes the term servce, pacng the emphass on the rend-
ton of servce, for compensaton rather than upon the actua recept of com-
pensaton. person s In servce and s an empoyee Irrespectve of where
the servce s rendered, e cept that n the case of an empoyer not conductng
the prncpa part of Its busness n the Unted States a person s n servce
ony when he s renderng servce to such an empoyer wthn the Unted States.
Secton 1(e) defnes the term compensaton. The changes from the defn-
ton n the ct of 1935 accompshes the foowng purposes:
1. The phraseoogy makes t cear that what s sgnfcant s that compen-
saton has been earned by the empoyee, not that t has been actuay receved
by hm.
2. It s made cear that compensaton receved by an empoyee n respect of
months durng whch he was or on vacaton s to be ncuded n the compu-
taton of the empoyee s ta abty.
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3. The provson specfcay e cudes tps or the amount of ta es on the
empoyees remuneraton pad by the empoyer wthout deducton from the
empoyees pay.
Secton 1(f) defnes the term Unted Statea
Secton 1(g) defnes the term company.
Secton 1(h) makes t cear that the term empoyee Incudes an offcer
of an empoyer.
Secton 1(1) defnes the term carrer.
Secton (|) defnes the term person.
The proposed ta b woud omt defntons of effectve date and enact-
ment date such as are contaned n the present ta ct. as they are not needed.
Secton 2(a) specfes the Income ta on empoyees. These ta es are to be
eved at the foowng rates on compensaton not n e cess of 300 n any
caendar month earned by the empoyee after December 31, 1936. The rates
are as foows wth respect to the compensaton earned durng the ndcated
caendar years:
Secton 2(b) requres that the empoyer of the ta payer sha deduct the
amount of the ta from the compensaton as and when pad. The ct con-
tempates that the ta sha appy ony to 300 n any one month, even though
the ndvdua ta payer may be n the servce of more than one empoyer. The
Commssoner of Interna Revenue s to make reguatons whch w accompsh
ths ntent
Secton 2(c) provdes for the ad|ustment of ta payments made or faed
to be made n error.
Secton 3 provdes for an e cse ta on empoyers.
Secton 3(a) sets ta rates on the tota ta abe pay ro at the same rate as
the ta es on the compensaton of ndvduas.
Secton 3(b) provdes for the ad|ustment of erroneous ta payments.
Secton 4 provdes for the refund of ta es f more than the correct amount
has been pad, or the coecton of underpayments, n the manner prescrbed by
reguaton made by the Commssoner of Interna Revenue wth the approva
of the Secretary of the Treasury.
Secton 5 provdes for an ncome ta on empoyee representatves. Ths ta
s e acty twce the rate of the ncome ta on empoyees. It s provded that
the compensaton of an empoyee representatve sha be determned n the same
manner and wth the same effect as If the empoyee organzaton by whch such
empoyee representatve s empoyed were an empoyer as defned n secton 1(a).
Secton 6 has no correspondng provson In the present ta ct. In secton
03 of the Soca Securty ct, the pocy s ad down that the ncome ta es
on empoyees theren sha not be aowed as a deducton to the ta payer n
computng hs net ncome for the purposes of the Income ta mposed by Tte
I of the Revenue ct of 1934 or by any ct of Congress In substtuton therefor.
The pocy contaned n the Soca Securty ct s adopted for purposes of ths
ct, snce the ta es heren are n pace of the ta es under Tte III of the
Soca Securty ct.
Secton 7 sets up the procedure for the coecton and payment of ta es, gvng
the Commssoner of Interna Revenue a powers necessary to enforce coectons
and makng appcabe other provsons of aw contaned n other statutes whch
may be usefu n connecton wth the admnstraton of ths ta measure. y
reason of the e panson n the coverage of ths b as compared wth the
present ct, some ta payers have begun to pay ta es under Tte III of the
Soca Securty ct who w now fnd those ta es not to have been due.
Secton 7(e) provdes for the ad|ustment of such payments made under Tte
III of the Soca Securty ct and the ta es due under ths measure, and
w cover both the e stng stuaton and any whch may arse n the future.
Secton provdes that the severa dstrct courts of the Unted States and
the Dstrct Court of the Unted States for the Dstrct of Coumba sha have
|ursdcton n connecton wth the enforcement of obgatons under ths measure,
209106 40 21
Ta rate as per cent of ta abe compensaton.
1937, 193 , and 1939
1940, 1941, and 1942___
1943, 1944, and 1945
1946, 1947, and 194
2
_ 3
1949 and subsequenty.
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Secton 9(a prescrbes that the term empoyment as defned a settte
11(b) of the Soca Securty ct s not to ncude servce pertonned by u
Indvdua as an empoyee or as an empoyee representatve. It s possbte to
nterpret the present ct In such a way (hat empoyee representatves be fe-
c uded, both under that ct and Tte III of the Soca Securty ct Wb3e
ths nterpretaton has not been gven the anguage, t s now made ceat ths:
empoyee representatves can be covered ony by the Carrers Ta ng rt.
Secton 9(b) prescrbes that the Secretary of the Treasury sha, at ntern
not onger than three years, estmate the reducton n the amouat of taw
coected under Tte III of the Soca Securty ct by reason of the fact ttu
persons and empoyees payng ta es under ths ct do not pay ta es under tb
sad Tte III.
Secton 10 contans the usua separabty provson.
Secton 11 provdes for the repea of the ct of ugust 29, 1935. as amendd,
entted n ct to evy an e cse ta upon carrers and an ncome ta up
ther empoyees, and for other purposes. It s made cear, however, that M
ths ct Is repeaed, the present b, when t becomes an ct, w be a a -
sttuton therefor and that there w, therefore, be no Invad retroactve app-
caton of any ta ng provson.
Snce the effectve date of the new ct w be anuary 1, 19 7, rather ttu
March 1, 1936, and snce the ta rates for the perod snce anuary 1 are ows
than under the e stng statute, there w be certan refunds due of amounts
heretofore coected as ta es. It s further provded that proceedngs peodf
for the recovery of moneys pad as ta es sha be termnated. Moreover, spec
provson s made aso for the payment Into the Treasury and to empoyees
the proper proporton, of a moneys hed by empoyers as ta es but never pas
nto the Treasury.
Secton 12 drects the Commssoner of Interna Revenue, wth the appn |
of the Secretary of the Treasury, to make and pubsh such rues and reguaton
as may be requred to enforce the ct.
Secton 13 provdes that the ct may be cted as the Carrers Tarng s
of 1937.
Chanoes n btno Law.
In compance wth paragraph 2a of Rue III of the Rues of the ouse
Representatves, the ct of ugust 29, 1935, as amended, whch s repeaed f
the b, s set forth beow encosed n back brackets:
( N CT To ev an e cse ta upon carrers and an ncome ta upon ther empoye u
for other purposes.
e t evaded by the Senate and Rouse of Representatves of the Unted S s
of merca n Congress assembed.
Secton 1. That as used n ths ct
(a) The term carrer means any e press company, seepng-car comran|
or carrer by raroad, sub|ect to the Interstate Commerce ct, and any compsf
whch may be drecty or ndrecty owned or controed thereby or under comnw
contro therewth, and whch operates any equpment or factes or performs aa|
servce (other than truckng servce) n connecton wth the transportatuD
passengers or property by raroad, or the recept, devery, eevaton, transfer
n transt, refrgeraton or cng, storage, or handng of property transported tf
raroad, and any recever, trustee, or other ndvdua or body, |udca or other-
wse, when n the possesson of and operatng the busness of any such car-
rer : Provded, however, That the term carrer sha not ncude any strf
nterurban, or suburbnn eectrc raway, uness such raway s operatng as
part of a genera steam-raroad system of transportaton, but sha not e d
any part of the genera steam-raroad system of transportaton now or here-
after operated by any other motve power. The Interstate Commerce Conuw|
son s hereby authorzed and drected upon request of the Commssoner
Interna Revenue or upon compant of any party nterested to determne aft
hearng whether any ne operated by eectrc power fas wthn the terms
ths provso.
(b) The term empoyee means (1) each person who at or after the 1
ment hereof s n the servce of a carrer, and (2) each offcer or other oar
1 Incuded n ouse report but not Incorporated n Senate report.
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representatve of an empoyee organzaton, heren caed representatve,
who before or after the effectve date has performed servce for a carrer, who
Is duy desgnated and authorzed to represent empoyees under and In accord-
ance wth the Raway Labor ct, and who, durng, or Immedatey foowng
empoyment by a carrer, was or s engaged In such representatve servce n
behaf of such empoyees.
(c) person sha be deemed to be In the servce of a carrer whenever he
may be sub|ect to Its contnung authorty to supervse and drect the manner
of rendton of hs servce, for whch servce he receves compensaton.
(d) The term compensaton means any form of money remuneraton for
actve servce, receved by an empoyee from a carrer, ncudng saares and
commssons, but sha not ncude free transportaton nor any payment re-
ceved on account of sckness, dsabty, or other form of persona reef.
(e) The term effectve date means March 1, 1936.
(f) The term enactment means the date on whch ths ct may be approved
by the Presdent or be fnay passed.
INCOM T ON MPLOY S.
Sec 2. Tn addton to other ta es, there sha be eved, coected, and pad
upon the ncome of every empoyee, 3 4 per centum of the compensaton of such
empoyee (e cept a representatve) not n e cess of 300 per month, receved by
hm after the effectve date.
D DUCTION O T ROM W G S.
Sec. 3. (a) The ta mposed by secton 2 of ths ct sha be coected by the
empoyer of the ta payer, by deductng the amount of the ta from the com-
pensaton of the empoyee as and when pad. very empoyer requred so to
deduct the ta s hereby made abe for the payment of such ta and s hereby
ndemnfed aganst the cams and demands of any person for the amount of
any such payment made by such empoyer.
(b) If more or ess than the correct amount of ta mposed by secton 2 s
pad wth respect to any compensaton payment, then, under reguatons made
under ths ct by the Commssoner of Interna Revenue, proper ad|ustments,
wth respect both to the ta and the amount to be deducted, sha be made,
wthout nterest, n connecton wth subsequent wage payments to the same
empoyee by the same empoyer.
CIS T ON C RRI RS.
Sec. 4. In addton to other ta es, every carrer sha pay an e cse ta of
3 per centum of the compensaton not n e cess of 300 per month pad by t to
ts empoyees after the effectve date.
D USTM NT O T .
Sec. 5. If more or ess than the correct amount of the ta Imposed by secton
4 s pad, wth respect to any compensaton payment, then, under reguatons
made by the Commssoner of Interna Revenue, proper ad|ustments wth respect
to the ta sha be made, wthout Interest, n connecton wth subsequent e cse-
ta payments made by the same empoyer.
R UNDS ND D ICI NCI S.
Sec. 6. If more or ess than the correct amount of the ta Imposed by sectons
2 or 4 of ths ct s pad or deducted wth respect to any compensaton payment
and the overpayment or underpayment of the ta can not be ad|usted under
sectons 3 or 5, the amount of the overpayment sha be refunded, or the amount
of the underpayment sha be coected In such manner and at such tmes (sub|ect
to the statute of mtatons propery appcabe thereto) as may be prescrbed by
reguatons under ths ct as made by the Commssoner of Interna Revenue.
INCOM T ON MPLOY S R PR S NT TI .
Sec. 7. In addton to other ta es, there sha be eved, coected, and pad
upon the compensaton of each empoyees representatve receved by such
representatve an ncome ta of 7 per centum annuay upon that porton of the
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636
compensaton of such empoyees representatve not n e cess of 300 per month.
The compensaton of a representatve for the purpose of ascertanng the tu
thereon sha be determned accordng to such rues and reguatons as the Com-
mssoner of Interna Revenue sha deem ust and reasonabe and as near as m|
be sha be the same compensaton as f the representatve were st n the
empoy of the ast former carrer.
COLL CTION ND P YM NT O T S.
Sec. . (a) The ta es mposed by ths ct sha be coected by the Comms-
soner of Interna Revenue and sha be pad nto the Treasury of the Unted
States as nterna-revenue recepts. If the ta es are not pad when due, u re
sha be added as part of the ta (e cept n the case of ad|ustments made
accord wth the provsons of ths ct) nterest at the rate of 6 per centum p:
annum, or for any part of a month, from the date the ta became due unt pn
(b) Such ta es sha be coected and pad quartery n such manner andnto
such condtons not nconsstent wth ths ct as may be prescrbed by the Con-
mssoner of Interna Revenue.
(c) provsons of aw, ncudng penates, appcabe wth respect to an|
ta mposed by secton 600 or secton 00 of the Revenue ct of 1326, aM
provsons of secton 607 of the Revenue ct of 1934, nsofar as appcabe and M
nconsstent wth the provsons of ths ct, sha be appcabe wth respect ts
the ta es mposed by ths ct.
(d) In the payment of any ta under ths ct a fractona part of a cents
be dsregarded uness t amounts to one-haf cent or more, n whch case t sU.
be ncreased to 1 cent
COURT URISDICTION.
Seo. 9. The severa dstrct courts of the Unted States and the Dstrk
Court of the Unted States for the Dstrct of Coumba, respectvey, sha to
|ursdcton to entertan an appcaton and to grant approprate reef n t
foowng cases whch may arse under the provsons of ths ct:
(a) n appcaton by the Commssoner of Interna Revenue to compe13
empoyee or other person resdng wthn the |ursdcton of sad court or a as-
rer sub|ect to servce of process wthn sad |ursdcton, to compy wth T
obgatons mposed on sad empoyee, other person, or carrer under the pr -
sons of ths ct.
( ) The |ursdcton heren specfcay conferred upon the sad Pedff
courts sha not be hed e cusve of any |ursdcton otherwse possessed h| w
courts to entertan actons at aw or suts n equty n ad of the enforces
of rghts or obgatons arsng under the provsons of ths ct
P N LTI S.
Sec. 10. ny person or nny carrer whch sha wfuy fa or refuse to ant
any report n accordance wth ths ct requred by the Commssoner of Inter:.
Revenue n the admnstraton of ths ct, or whch sha knowngy make
fase or frauduent statement, or report n response to any report or statem-
requred by ths ct sha be punshed on convcton by a fne of not ess thu
100 nor more than 10,000.
SOCI L S CURITY CT.
Sec. 11. The term empoyment, as defned n subsecton (b) of secton -
of Tte III of the Soca Securty ct, sha not ncude servce performed
the empoy of a carrer as defned n subdvson (a) of secton 1 of ths ct
T RMIN TION O T S.
Sec. 12. The ta es mposed by ths ct sha not appy to any compensa
receved or pad after une 30, 193 .
S P R ILITY.
Sec. 13. If any provson of ths ct, or the appcaton thereof to any p
or crcumstance, s hed nvad, the remander of the ct, and the appcar
such provson to other persons or crcumstances sha not be affected theree|
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IND .
dmssons ta . (See Msceaneous ta es.)
grcutura d|ustment ct, cam for refund of processng
ta es. (See Processng ta es.)
rcraft, fue suppes, etc., recproca prveges, ermuda
coho, rum and acoho, denatured, sae of, reguatons
amended
mendments:
Reguatons 3, artce 146-
Reguatons 6, sectons 45-62 (added)
Reguatons 7 (1937), artce II, paragraph 143
Reguatons 1 (1934), artce II, paragraph 30
Reguatons 42 (1932), artces 1, , 25, and 39
Reguatons 43 (1932), artce 57 -
Reguatons 44 (1934), artce 2 _
Reguatons 46 (1932)
rtce 1
Chapter III
Reguatons 64 (193 )
rtces 21 (m) and 44
rtce 45 (added) . -
Reguatons 71 (1932)
rtce 2
rtce 35 --
Reguatons 79 (1936), artce 1 ..
Reguatons 0 (1937)
rtce 9
rtce 50
rtce 2
Reguatons 6, artce 112 (f)---
Reguatons 90-
rtce 1
rtce 2 (added)
rtce 201
rtce 202_
rtce 203
rtce 204..
rtce 206
rtce 206( ) (added)..
rtce 206(9) (added)..
rtce 206(10) (added).
rtce 207
rtce 20 --
rtce 209(a)
rtce 210
rtce 211.
rtce 211(1) (added).
rtce 212.
rtce 213
Rung No.
9911
362
oo on
444
9990
444
9967
439
99 9
437
9964
436
9977
363
997
372
9976
355
99
356
10047
357
9941
347
9941
347
9965
374
9995
379
10059
379
10109
33
9996
325
10110
32
9996
325
10061
110
10100
297
10100
297
10100
297
10100
297
10004
312
10100
297
10004
312
10004
312
10100
297
10004
312
10015
30
10032
311
10100
297
10004
312
10100
297
10100
297
10100
297
10004
312
10023
320
1 M00
297
10100
297
ooo
297
(637)
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63
-1.
mendments Contnued.
Reguatons 90 Contnued.
rtce 300
rtce 302 ...
rtco 304
rtce 307(a)
rtce 400
rtce 503
rtce 503 4 (added) .
rtce 503 (added)-.
rtce 503 (added)
Reguatons 91
rtce 9
rtce 13 (added)
rtce 13 (added)
rtce 204 (added)...
rtce 304y, (added) ..
rtce 402 (added) .
rtce 410
rtce 504 (added)
rtce 504 (added) ...
Reguatons 94, artce 112(0
Reguatons 95, artce 13
Reguatons 96, artce 203
Reguatons 101
rtce 22(a) 14 - -
rtce 22(a) 1
rtce 22(b) (9)- (added)
rtce 22(b) (9)-2 (added)
rtce 27(a)-3.
rtce 112(f)-
rtce 113(b)-3
rtce 113(b)(3)- (added)
rtce 113(b) (3)-2 (added)
Treasury decsons
441
4672
4 50
4 9 .
mercan Samoa:
Ta -free e portaton
Dsted sprts
ermented mat quors, reguatons amended
Wne, reguatons amended
mortzaton, mprovements or cost of ease over term of orgna
ease and renewas
nnutes, payments under refund provsons of contract, ta -
abty
rmy:
Contracts for arcraft under nson ct. (See nson
ct.)
Retred noncommssoned offcer, tgaton e pense n re-
covery of back pay
ssocaton, pots, ta abe as corporaton ...
ttorneys and agents, reguatons governng recognton by
Treasury Department (1939 amendment)
ustraa, ta es, smar credt requrement
Rung No.
.
anks, ta on bank shares, Pennsyvana, when deductbe
aseba payer, professona, traveng e penses, deducton
ermuda, arcraft fue suppes, etc., recproca prveges
tumnous coa, bunker coa for use on certan vesses
10004
312
10100
2 7
10100
m
10100
2 7
10004
311
10023
a
10015
M
10032
311
10100
a
10016
217
10014
27D
10031
272
10016
2
10016
a:
10016
10016
10014
2 3
10031
10061
9915
9942

10103
10103
74
10103
75
10103
10052
S
10061
I
10103
R
10103
76
10103
75
9905
443
10033
401
10034
m
1004

10035
9964
43
99 9
10120
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639
Rung No.
(See Interest.)
by I
onds Unted States savngs, nterest.
randy and frut sprts, aowances for I
razan ncome ta , credt-
rtsh natona defense contrbuton ta , accrua date
ureau of Interna Revenue, conference and practce requre-
ments, revsed ugust, 1939
usness e penses:
Payments by corporaton to wdow of deceased offcer-
stockhoder
Retred noncommssoned rmy offcer, tgaton e pense
n recovery of back pay
C.
Caforna, agreements between husband and wfe wth respect
to communty ncome
Caforna Debrs Commsson ct, reguatons
Canada, nspecton of returns, reguatons.--
Canceaton of ndebtedness, reguatons amended
Capta gans and osses:
Dsposton of property acqured by nsurance company
through forecosure
Income from detached coupons n e cess of cost
Patents, sae of, determnaton of perod hed
Resae of property acqured by banks, etc., through fore-
cosure, capta assets
Transfer of securtes beongng to trust n satsfacton of
annuty payments
Wash saes, 2-year perod
Capta stock ta :
d|usted decared vaue, dstrbuton from pad-n surpus
where no stock canceed or redeemed
Decared vaue, reguatons amended
ectve decared vaue, denquent returns, ad|usted de-
cared vaue mnus amount
Returns, e tenson of tme for fng
Carrers Ta ng ct of 1937. (See mpoyment ta es.)
Cvan Conservaton Corps, dances by members, admssons
ta es
Commttee reports:
Pubc Saary Ta ct of 1939
ouse of Representatves (Report No. 26)
Senate (Report No. 112) ---
Conference (Report No. 390)
Revenue ct of 1939
Senate (Report No. 64 ). -
(No conference report.)
Consodate and Codfy the Interna Revenue Laws of the
Unted States
Senate (Report No. 20)-1 ---
Soca Securty ct mendments of 1939
ouse of Representatves (Report No. 72 )
Senate (Report No. 734) -
Soca Securty ct
Senate (Report No. 62 ) -
Carrers Ta ng ct of 1937
Senate (Report No. 1 )
1005
9993
996
1010
10054
10039
100
10067
10017
10103
10104
9992
9969
9970
99 1
10007
1000
10105
9941
10101
9927
9949
10044
10045
10046
9926
9920
10126
10126
99 6
10010
10111
1009
10106
10107
100 6
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640
Commodty credt oans, reguatons
Communty property and ncome, agreements between husband
and wfe, Caforna, Te as
Compensaton:
oregn consus and consuate empoyees statoned n
Unted States, e empton
udges, Unted States Court of Customs and Patent p-
peas, ta abty
State offcers and empoyees, nformaton returns
Compensaton for n|ures, payments by corporaton to wdow
of deceased offcer-stockhoder
Conference and practce requrements, ureau of Interna Reve-
nue, revsed ugust, 1939
Consodate and Codfy the Interna Revenue aws of the
Unted States..
Consus, foregn, consuate empoyees, ncome e empton
Contracts, rmy and Navy. (See nson ct.)
Conveyances. (See Msceaneous ta es: Stamp ta es.)
Corporatons:
Credts, dvdends pad
oregn, nformaton returns, reguatons re formaton, etc.
Rcturns, e amnaton for determnaton of mproper
muaton of surpus
Court decsons:
eate Investment Co. v. Unted States
and v. Commssoner
Commssoner and v
Commssoner Consodated reght Lnes, Inc., v
Commssoner v. Dana
Commssoner Dearng e a. v
Commssoner . . Laboratores, Inc., v
Commssoner Lfson v
Commssoner Lofqust Reaty Co. v
Commssoner v. Meyer
Commssoner Mobe ar Pots ssocaton v
Commssoner eson v
Commssoner Od Coony Trust Co. e rf. v
Commssoner v. Patrck Cudahy amy Co
Commssoner v. Pescheeff
Commssoner Sanford v
Commssoner Shepard v
Commssoner v. Whtcomb Coca-Coa Syndcate
Consodated reght Lnes, Inc., v. Commssoner
Dana Commssoner v
Dearng e a. v. Commssoner
mpre Trust Co. v. Ioey
. . Laboraores1 Inc., v. Commssoner
. . . O Co. v. Ieverng
. R. Lazarus Co. Ieverng v .
Genera Petroeum Corporaton of Cafornay. Unted Staes
Ieverng . . . O Co. v
Ieverng v. . R. Lazarus c Co
Ieverng v. Wshre O Co., Inc
Ioey mpre Trust Co. v
umphreys Rasqun v
Lfson v. Commssoner
Lofqust Reaty Co. v. Commssoner
Meyer Commssoner v
Mobe Par Pots ssocaton v. Commssoner
eson v. Commssoner
ng No.
9959
100SS
10075
10113
1O077
10054
1010
/10126
U0126
10075
9921
163
10052

9960
131
9943
10
10105
sa
10113
194
10113
194
100S9
206
99O0
22
9994
210
10042
396
9935
196
99 3

9971
196
10009
244
9956
329
1011
332
9937
202
9936
2
10096
349
9946
239
9923
245
100 9
206
9900
22
9994
210
10079
3 4
10042
396
10093
212
10122
20
9914
365
10093
212
10122
20
10094
213
10079
3 4
10095
339
9935
1
99S3
220
9971
196
10009
244
.) . -
329
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641
Court decsons Contnued.
Northwestern Muncpa ssocaton, Inc., v. Unted States..
Od Coony Trust Co. e a. v. Commssoner
Patrck Cudahy amy Co. Commssoner v
Pestcheeff Commssoner v
Rasqun v. umphreys
Sanford v. Commssoner
Scofed Standard Rce Co., Inc., v
Shepard v. Commssoner
Standard Rce Co., Inc., v. Scofed
Unted Staes eate Investment Co. v
Unted States Genera Petroeum Corporaton of Caforna v.
Unted States Northwestern Muncpa ssocaton, Inc., v.
Whtcomb Coca-Coa Syndcate Commssoner v
Wshre O Co., Inc. everng v
Credt or refund:
Cams, mtaton perod, reguatons amended
Credts:
Corporatons, dvdends pad
oregn ta es
razan ncome ta
Me can proportona rate ta on partcpatons
receved from o producton
Phppne ncome ta on capta gans, mtaton of
credt
Smar credt requrement
ustraa
ueensand
Unon of South frca
Credts aganst net ncome:
Persona e empton
Ctzen servng n rmy n Unted States possesson...
Porton aowabe to wfe fng denquent return
D.
Damages, accdent dsabty benefts under empoyees beneft
pan
Depeton, o and gas wes:
Computaton of net ncome from property, deveopment
e pendtures, deducton
Drng contracts, costs
Deprecaton:
Corporaton essee under 99-year ease, transacton a mort-
gage oan
Improvements or cost of ease over term of orgna ease
and renewas
Dscount, edera ousng dmnstraton oans, treatment
Dsted sprts:
otted n bond for e port, reguatons amended
Destructon of stamps -upon openng bottes
Shpment free of ta , Guam, mercan Samoa
Dstrct supervsor, actng, desgnaton of, reguatons
Dvdends:
Pad, credt for. (See Credts: Corporatons.)
Stock-
Dstrbuton to trust benefcares, bass, gan or oss on
sae of
Stock rghts, bass, reguatons
Rung No.
10055
1011
9937
9936
10095
10096
10090
9946
10090
10105
9914
10055
9923
10094
9942
10033
10034
9921
10052
9993
10020
9997
10069
10069
10112
10041
10070
9945
10093
10094
9994
10122
10120
9917
9967
9905
10035
9904
10012
10013
10025
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2

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642
.
ectrca energy. (See Manufacturers e cse ta es.)
mpoyment ta es:
Carrers Ta ng ct of 1937
ppcabty of rungs under, to Interna Revenue
Code -
Commttee reports
Compensaton, what consttutes
Dues or nsurance premums, raway abor organ-
zaton members freed from payment of
aue of quarters furnshed secton forem
mpoyees, who are, physcans engaged by
company
Interna Revenue Code
mendments to, commttee reports
ouse of Representatves
Unted States Senate
ppcabty of rungs and mmeographs under Soca
Securty ct to Interna Revenue Code
ppcabty of rungs under Carrers Ta ng ct to
Interna Revenue Code
mpoyees
usness anayst and consutant
Crcus performers
onorary offcers
Orchestra eader and muscans
Research assocate at Natona ureau of Stand-
ards
Saes agents, questonnare
Saes cerks
mpoyers
Changes n status
Who are, estate, domcary and ancary e ecu-
tors
cepted servces
grcutura abor, e cepted and none cepted
servces
Government servces
Unted States, ndvduas performng servces
for estate of an Indan ward
Wages, what consttutes, advances to empoyees
Reguatons 90 amended.
Reguatons 91 amended
Soca Securty ct
mendments of 1939
Commttee report, ouse of Representatves
Commttee report, Unted States Senate
Conference commttee report
panaton of changes effected n Subchapters
and C, Interna Revenue Code
Commttee reports
Conference commttee report
ouse of Representatves
Unted States Senate
Wages, computaton of saesman, e penses e ceedng
commssons durng caendar year
Rung No
9961
266
100 6
629
10000
296
9910
31
994
295
99 6
53
10010
565
9961
266
9962
294
9973
275
10057
2 6
9963
315
10022
2 0
993
274
999
276
10066
2
10126
2 9
10126
2 9
9999
290
10071
292
100 5
470
1007
293
10004
312
10015
30
10023
320
10032
311
10100
297
10014
270
10016
267
10031
272
99 6
53
10010
665
10011
593
10056
251
10107
626
1009
600
10106
611
9902
323
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2

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#
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643
states and trusts, Unted States savngs bonds, ncrement n
vaue, dstrbutons to benefcares
state ta :
equests payabe from trust corpus usabe for beneft of
testator s wdow
Condtona bequest of remander nterest, deducton
Gross estate
mount pad to benefcares under snge premum
annuty contract
Insurance proceeds, premums pad by pedgee
Reguatons 0 (1937), amended
Stus of property, reguatons amended
cess proft on rmy and Navy contracts. (See nson ct.)
cess-profts ta , reguatons
empt corporatons:
Determnaton of purpose of organzaton
Organzaton conductng study courses for ndvduas n
bankng nsttutons
Soca cubs
State busness corporaton, deaer n State and muncpa
securtes
empt ncome:
ccdent dsabty benefts
nnutes, payments under refund provsons of contract.
Compensaton, resdent foregn consus and consuate
empoyees
arnngs of shps documented under foregn aws, Trndad-
Government endowment nsurance contracts, proceeds
Interest
Obgatons of potca subdvsons of State
Unted States savngs bonds, husband and wfe co-
owners
tenson of tme for fng returns, capta stock ta
.
edera rearms ct, reguatons amended
edera ousng dmnstraton oans:
dvances of property ta es under, year deductbe
Dscount or nterest, treatment
ermented mat quors, ta -free e portaton, Guam, mer-
can Samoa, reguatons amended
oregn consus, consuate empoyees, ncome e empton
oregn corporatons, nformaton returns, reguatons re for-
maton, etc
Gan or oss:
changes
Recognton where e change nvoves assumpton of
abtes, reguatons
Stock for stock on reorganzaton, party to reorgan-
zaton
Saes
ass
Dvdend stock dstrbuted to trust benefcares.
Property acqured by bequest, etc., optona vau-
aton estate ta purposes ...
Transfer of securtes beongng to trust n satsfacton
of annuty payments
Stock, sae contract December 31, devery n anuary,
when reported
Rung No.
1003
9951
10001
1011
9956
9996
10110
99 7
10053
10063
9931
10117
10055
9945
10026
10075
9922
9 9
9971
9929
9927
1004
10040
9917
9964
10075
9960
10029
9900
10012
10013
10125
10007
10037
G
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-
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#
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644
Rung No.
Gasone, ubrcatng o, matches. (See Manufacturers e cse
ta es.)
Gfts:
Payments by corporaton to wdow of deceased offcer-
stockhoder..
Transfer of property, part sae, ta abty
Gft ta :
Stus of property, reguatons amended
Transfer n trust, reservaton of power to desgnate or
change benefcares
Great rtan, natona defense contrbuton ta , accrua date
Guam:
Ta -free e portaton
Dsted sprts
ermented mat quors, reguatons amended
Wne, reguatons amended
.
usband and wfe:
Communty property and ncome, agreements wth re-
spect to communty ncome, Caforna, Te as
Persona e empton aowabe to wfe fng denquent
return
Tenants by entrety, hurrcane oss, deducton
ydrauc mnng reguatons
Income from sources wthn Unted States possessons:
rmy pay whe on duty n Unted States possesson
Rea and persona property ncome, ctzen resdng n
Phppnes
Indebtedness, canceaton, reguatons amended
Informaton at source, returns. (See Returns: Informaton.)
Inspecton of returns, reguatons governng
Canada, Department of Natona Revenue
Instament saes, faure to report assgnment of nstament
contract, estoppe
Insurance, proceeds, Government endowment contracts, e emp-
ton.
Insurance companes, other than fe or mutua:
Dsposton of property aoqured through forecosure, gan
or oss
Resdent foregn, deducton aocabe to ta -e empt nterest.
Interest:
ccrued, not pad wthn statutory perod, deducton
edera ousng dmnstraton oans, treatment
Obgatons of potca subdvsons of State, e empton
Unted States savngs bonds
Dstrbutons to trust benefcares
usband and wfe coowners
Interna Revenue Code, commttee reports
Invountary converson, renvestment of proceeds, reguatons
amended
Iowa, o and gas eases
10054
10099
10109
10095
10096
996S
10035
9964
99 9
100
10070
9933
100C7
100U
10021
10103
10003
10031
10017
99 3
10104
9909
10019
9917
9971
1003
9929
/10126
10126
10061
995
.
udges, Unted States Court of Customs and Patent ppeas,
compensaton, ta abty
10113
194
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645
L.
Leases, deprecaton or amortzaton for mprovements or cost
spread over term or renewas
Legsaton:
Merchant Marne and Shppng cts
Loans:
Commodty credt, gross ncome, reguatons
edera ousng dmnstraton, dscount or nterest,
treatment
Losses:
eged oss n vaue of motor carrer certfcates by change
n statute, deducton
Gan from nstament sae of stock pror year, deducton.
urrcane, estate hed by entrety, deducton on ndvdua
returns
Partner s ndvdua wagerng oss, reducton of share of
partnershp gans
Property parta y demoshed for reconstructon, deduc-
ton
Sae and purchase of securtes of same corporaton, wash
saes
Stock, sae contract December 31, devery n anuary, year
deductbe
Transfer of stocks n qudaton of debts to famy corpora-
ton
M.
Manufacturers e cse ta es:
rcraft, fue suppes, etc., countres whch aow re-
cproca prveges, ermuda
ffectve perod, reguatons amended
Gasone, ubrcatng o, matches
Tres, nner tubes, automobes, etc
ectrca energy, commerca or ndustra consumpton,
ta abty
Toet preparatons
Reguatons amended
Returns, une, uy, 1939
Merchant Marne and Shppng cts, amendment
Me can proportona rate ta on partcpatons receved
from o producton
Mnnesota:
Property ta es, accrua date
Stock transfers from guardan to ward
Msceaneous ta es:
dmssons ta
Cvan Conservaton Corps, dances by members
ffectve date of change n e empton, reguatons
amended
ffectve perod, reguatons amended
ectrca energy
Teegraph, etc., factes
Transportaton of o by ppe ne
Stamp ta es
Certfcates of membershp and capta stock, rura
eectrc assocaton, ansas, Coorado
Conveyances, o and gas eases
Iowa
Mssour
Okahoma
Rung No.
10120
1002
100 5
9959
9917
L00 9
10123
9933
99 0
99 2
100 3
9972
10034
9911
9976
99
10072
10047
9952
1002
10020
9930
9935
9957
9949
997
9977
9977
9977
99 4
995
995
9975
10115
G
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0
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2

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o
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646
Rung So.
Msceaneous ta es Contnued.
Stamp ta es Contnued.
ffectve perod e tended, reguatons amended
Investment trust certfcates, nstament payments..
Stock transfers
Deceased fe tenant to remanderman
Guardan to ward
Mnnesota
South Carona
Integraton pans adopted pursuant to Pubc
Utty ct of 1935
Reguatons amended
Teegraph, etc., factes, eased wre speca servce,
ta abty
Transportaton of o by ppe ne, casng-head gasone
Mssour:
O and gas eases
Sae of o and gas royaty nterest
Mortuary beneft, payabe under terms of empoyment con-
tract, ta abty
N.
Nava contracts under nson ct. (See nson ct.)
New York, rea property ta es, accrua date
Nonresdent aens, artsts, przes awarded, wthhodng.
Occupaton ta , Utah, accrua date
O and gas wes:
Contracts, vaue of contngent rght to future o payments,
depeton -.
Depeton aowance, deducton of deveopment e pend-
tures
Okahoma, o and gas ease
Oeomargarne:
Schedue of producton and materas used
May, 1939 and 193 ..
une, 1939 and 193 ...
uy, 1939 and 193
ugust, 1939 and 193
September, 1939 and 193 .
October, 1939 and 193 .
Partnershps:
Member s ndvdua gambng oss, reducton of share of
partnershp gans
Syndcate formed to buy and se stock, assocaton dstn-
gushed
Patents, sae of, capta gan, determnaton of perod hed
Pennsyvana, ta on bank shares, when deductbe
Persona e empton:
Ctzens servng n rmy n Unted States possesson
Porton aowabe to wfe fng denquent return
Persona hodng companes, ad|usted net ncome, reported by
sharehoders, ater reduced, dstrbuton, ta abty
9965
374
10079
3S4
9974
376
9957
37
9912
3S6
10091
376
9995
379
10059
379
10073
364
9914
365
99 5 S
3 0
9975
3S1
10006
164
10051
4
10O62
172
9954
156
9994
210
10093
212
10094
213
10115
3 3
9903
451
9940
452
10002
10049
100 1
10119
99 0
9923
9969
9970
991
10041
10070
9901
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#
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o
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647
Phppne. Isands:
Income ta on capta gans, mtatons on credt
Resdent mercan ctzens, ncome from rea and persona
property
Pots assocaton, ta abty as corporaton
Powers of attorney, transfer to approprate fed dvsons
Procedure, requests from ta payers for rungs, prospectve and
consummated transactons
Processng ta es:
Refunds
Company not frst domestc processor
ng of cams, mtaton.perod, reguatons amended
Payments made to processor as part of contract prce-
Procedure, cams fed under Ttes I and II,
amended 193G ct
Sut for ta pad by surrender of ta -payment warrant,
coector s abty
endee of processor, |ursdcton of Processng Ta
oard of Revew
Property ta es. (See Ta es.)
Pubcty of returns. (See Returns: Inspecton of.)
Pubc Saary Ta ct of 1939, commttee reports
-
ueensand, ta es, smar credt requrement
R.
Rung No.
9997
10021
10009
9924
.1 100G5
(See Processng ta es.) (See Credt or
Reguatons.)
Caforna
Refunds:
Processng ta es,
refund.)
Reguatons:
mendments. (See mendments:
Caforna Debrs Commsson ct,
Commodty credt oans
Departmenta, desgnaton of actng dstrct supervsor
cess-profts ta
ydrauc mnng
Informaton returns, n re formaton, etc., of foregn corpora-
tons
Inspecton of returns. (See Returns: Inspecton of.)
Recognton of attorneys, agents, and others by Treasury
Department (1939 amendment)
Recognton of gan or oss n e changes nvovng assump-
ton of abtes
Stock dvdends and sock rghts, bass
nson ct
Reorganzaton, gan or oss, e changes, stock for stock on re-
organzaton, party to reorganzaton -.
Returns:
Capta stock ta , e tenson of tme for fng
Corporatons, e amnaton for determnaton of mproper
accumuaton of surpus
Informaton
ormaton, etc., of foregn corporatons, reguatons
Reportng of wages earned and not pad
States, offcers, and empoyees, compensaton
Inspecton of, reguatons governng
Canada
100G4
9942
10027
10097
10090
10042
10044
10045
10046
100C9
100G7
9959
9901
99 7
10067
9960
9925
10029
10025
9 99
9906
9900
9927
9943
9960
10076
10077
10003
10030
10017
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#
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64
Revenue ct of 1939, commttee reports
Royates, Phppne copyrght, te tbooks prnted n Unted
States, sod n Phppnes, wthhodng
Rum, denatured, sae of, reguatons amended.
Rura eectrc cooperatve assocatons, ansas, Coorado, mem-
bershp certfcates and stock
Saes:
Gan or oss
ass of dvdend stock dstrbuted to trust bene-
fcares
Property acqured by bequest, etc., bass, optona
vauaton estate ta purposes
Instament bass, faure to report assgnment of nsta-
ment contract, estoppe
Stock, oss aowed to e tent of gan from nstament sae
pror year
Wash saes, purchase and sae of securtes of same corpora-
ton, osses
Shps, Trndad, earnngs of, e empton
Soca cubs:
Incdenta ncome from nterest, e empton
Lease of property to another cub, ncome, e empton
Soca Securty ct. (See mpoyment ta es.)
South frca, Unon of, ta es, smar credt requrement
South Carona, stock transfers from guardan to ward
Stamp ta es. (See Msceaneous ta es: Stamp ta es.)
States:
Interest on obgatons of potca subdvsons of, e -
empton
Offcers and empoyees, compensaton, nformaton returns.
Ta es. (See Ta es: States.)
Stock:
Dvdends
Dstrbuton to trust benefcares, bass, gan or oss
on sae of
Stock rghts, bass, reguatons
Sae-
Contract of December 31, devery n anuary, gan,
oss, when reported
Loss aowed to e tent of gan from nstament sae
pror year
Surta es, corporaton mpropery accumuatng surpus, e -
amnaton of returns
Syndcate formed to buy and se stock, |ont venture
T.
Ta es:
dvances of property ta es under edera ousng dmn-
straton nsured oans, year deductbe
oregn
rtsh natona defense contrbuton ta , accrua date-
Credt for. (See Credts.)
State-
ank shares, Pennsyvana, when deductbe
Occupaton ta , Utah, accrua date
Property ta es, accrua date
Mnnesota
New York
Rung No.
G
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#
p
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o
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649
Ta es Contnued.
State Contnued.
Property ta es, accrua date Contnued.
Washngton
Wsconsn .
Wyomng
Un|ust enrchment. (See Un|ust enrchment ta es.)
Teegraph, etc., factes. (See Msceaneous ta es.)
Tenants by entrety, hurrcane oss, deducton
Te as, agreements between husband and wfe wth respect to
communty ncome
Tres, nner tubes, automobes. (See Manufacturers e cse
ta es.)
Tobacco:
Statement of manufactured, produced, by casses
pr, 1939 and 193
May, 1939 and 193 ...
une, 1939 and 193 .
uy, 1939 and 193
ugust, 1939 and 193
September, 1939 and 193
Toet preparatons. (See Manufacturers e cse ta es.)
Transferred assets, sae of corporate assets, consderaton pad
to stockhoders, purchaser s abty
Transportaton of o by ppe ne. (See Msceaneous ta es.)
Traveng e penses, professona baseba payer
Trndad, shps earnngs, e empton
Trusts:
Unted States savngs bonds, ncrement n vaue, dstr-
butons to benefcares
U.
Unted States oard of Ta ppeas:
Decsons of, st of acqucscences and nonacquescenccs
Unted States savngs bonds, nterest
Un|ust enrchment ( wndfa ) ta :
Deducton of saares of partners n determnng partnershp
net ncome
tent to whch edera ta burden shfted, computaton,
reguatons amended
Utah, occupaton ta , accrua date
esses, bunker coa for use as fue suppes, etc
eterans, Word War, nsurance proceeds, Government endow-
ment contracts, e empton
nson ct:
cess proft on contracts
rmy contracts for arcraft
Obsoescence of speca factes
Reguatons
Navy contracts for vesses or arcraft, reguatons
Subcontractor form of agreement
Rung No.
9930
9936
9930
9934
9937
9932
9933
100
9913
9939
99 5
10043
100 0
10116
9946
10005
9922
1003
10124
9929
1003
9947
9915
9954
9950
9 9
9955
9906
9 99
10114
rage.
2
200
2
205
202
154
15
175
457
457
457
45
45
45
239
152
173
135
1-73
75
135
249
24
156
3 7
151
404
422
404
421
209196 40 22
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w.
Washngton, property ta es, accrua date
Wash saes:
Capta gans and osses, 2-year perod
Sae and purchase of securtes of same corporaton, osses. .
Wndfa ta . (See Un|ust enrchment ta es.)
Wne, ta -free e portaton, Guam, mercan Samoa, reguatons
amended
Wsconsn, property ta es, accrua date
Wthhodng ta at source:
Przes awarded nonresdent aen artsts
Royates pad by mercan pubsher to Phppne author,
books sod e cusvey n Phppnes
Wyomng, property ta es, accrua date
Rung No.
9930
S2
9936
2 I
1000
233
100 3
m
99 9
437
9930
1
9934
203
9937
202
10062
171
990
133
9932
1M
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Bureau of Internal Revenue Cumulative Bulletin 1939-2

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